Average household debt has shot up by 25% in the last three years and it w will get worse before it gets better, warns debt management company IVA Advice.
So what is the IVA meaning? A survey of 18,000 people by insurance giant Aviva has found that household debt levels are back where they were 30 months ago, and families are struggling to keep us debt repayments. The Aviva Family Finances report shows household debts are now on average £12,834 up from £9,000 only 12 months ago, and more and more families are resorting to rollover loans and selling possessions to make ends meet. The Aviva report estimates households owe on average £1,959 in loans, £2,006 on credit cards and £2,011 to friends and family, with less than half of those surveyed admitting they are unable to make their debt payments every month. This is almost a 10% drop compared to the same period last year.
Peter Tutton, head of policy at debt charity StepChange, said: “That 5% of families now rely on payday loans highlights how for a substantial proportion of the population simply meeting essential living costs is becoming increasingly unaffordable. While the increase in average incomes should provide some respite for families’ finances, the reality remains that we are seeing increasing numbers of people falling behind on essential bills like rent, gas and electricity and council tax.”
However, while the report shows the extent to which people are suffering under the burden of debt, it also shows that there has been an increase in monthly savings to an average of £96 and a 5% increase in families taking out ISAs. Some 41% of households surveyed are putting away money every month despite the very low savings rates, and this is believed to be due to household incomes increasing by around 5% or 2,108 a year over the last 12 months.
Louise Colley, protection distribution director at Aviva, believes that some households may be prioritising savings before keeping debt payments under control: “Building a savings pot is a fantastic step, but if debts are growing, families need to consider which is the more pressing need.”
An analysis of the incomes of family households show that the number with two incomes has increased, while those households receiving income in rents has doubled. This would suggest that many families are taking advantage of the Rent-a-Room scheme and letting spare bedrooms as well as investing in buy-to-let properties as the savings and bond rates bring in negligible returns.
A spokesperson for debt management company IVA-Advice.co said: “The Aviva report is full of contrasts. On the one hand it paints a bleak view of household debt burden, of families struggling to get by and taking out loans and using pawnbrokers to sell their possessions. On the other hand the evidence that families are making savings and finding ways to increase their incomes by renting out rooms, investing in buy-to-let properties and bringing in two salaries is encouraging.
“However, despite this there are some concerns that people are prioritising savings above paying off debts. While having a cash cushion is valuable in case of an emergency, the high interest rates of loans and c credit cards as the balances roll over from month to month can spiral out of control all too easily.”