Family debt hits record £213bn

FAMILIES now owe a record £213.5billion on credit cards, car finance and short-term loans.

Households borrowed another £800million in the year to July suggesting the country is living way beyond its means.

Families spent £900 more than they earned in that time and the debt mountain, which excludes mortgages, is now £5.2billion higher than its previous peak in 2008 – at the start of the financial crisis.

The figures suggest millions of borrowers will struggle to ever repay what they owe.

It means that if we suffer an economic downturn, consumers could lose their jobs, causing a wave of loan defaults which would damage the major banks.

Conservative MP Simon Clarke, a member of the Treasury Select Committee, said: ‘We’re still recovering from the effects of a Government credit binge and it would be very unwise for people to stretch their own finances beyond what they can afford.

‘These debt levels will cause concern that the credit market has been overheating.’ Credit card debt alone rose by £200million from a year earlier, up to a new all-time high £72billion, Bank of England figures show.

Regulators have raised concerns about a flood of zero-interest offers from card companies designed to lure customers into taking on more debt. Lenders such as Virgin Money and MBNA are offering long deals where customers pay 0 per cent interest for 28 months before interest is charged.

James Daley of consumer group Fairer Finance said: ‘We have a problem with credit in this country, and not enough has been done to ensure the debt people are taking on is affordable. If we suffer a serious economic downturn, there’s going to be a lot of pain felt by a lot of people.’