Household debt is increasing, and it's rising at its fastest rate since 2004, research from The Money Charity has revealed. The figures show that households in the UK took on an average of £395 of additional consumer debt last year, the biggest increase in a decade.
According to the research, average consumer credit debt stood at £6,322 in December 2014, up from £5,938 at the end of 2013 – an increase of £395. In 2013, the average increase was just £50, so this latest rise is clearly significant. However, it's not necessarily a bad thing. Households may be taking on more debt than they have done in a decade, but this doesn't automatically indicate financial difficulties – if anything, it could be a sign of improving economic conditions.
Essential spending pressures are easing for many households, which means consumers are feeling more confident about being able to take on credit, be it cards, overdrafts, personal loans, and even mortgages. The average first-time buyer mortgage, for example, stands at £146,718, with the deposit being 119% of the typical first-time buyer's salary. This shows that many wannabe homeowners have worked hard to build up that deposit, and they're now able to reap the benefits by buying their home.
Happily, the figures suggest that consumers are becoming savvier when it comes to their credit commitments, too. Despite the average household owing £2,287 in credit card debt, just 57% of credit card balances bear any interest – the lowest proportion ever recorded – suggesting that people are increasingly taking advantage of 0% interest deals. This is always a wise decision, as it allows people to spend on their cards, and ideally clear the debt, without accruing any additional interest.
Of course, this isn't to say that some people won't be finding it a struggle. While some consumers can comfortably take on additional debt, others could find it leads to increasing financial difficulty, which is why it's so important to take control.
Only apply for more credit if you can comfortably keep up with the repayments – if you can't, make adjustments to your budget and save for that important purchase by putting those extra funds into a savings account – and if you're finding it difficult to keep up with multiple payment dates, consider consolidating your debt with a single personal loan to make things more manageable and have a clear route out of debt. Make sure to speak to the experts if you're really struggling, because there are ways to cope.
Michelle Highman, chief executive of The Money Charity, comments: "As we get stuck in to a new year, the news that the average household increased its consumer credit debt by nearly £400 last year will prompt many to think about their finances.
"There's no better time to start taking control of your money and making a plan – and the best way to start is to make a budget. If you can do that, you can start making your money work for you and achieve your goals! But, if things are already too much, pick up the phone to StepChange or one of the other free debt advice charities who will be able to help you properly assess your options."
Compare credit cards with our credit card search
Try our loan calculator
Compare mortgages with our easy to use mortgage calculator
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.