UK Household Unsecured Debt Reaches £13,000

Posted byDaniel Tannenbaum | Category Blog | Date 09 January 2017

Research by the TUC yesterday announced that UK households now have an average unsecured debt of £12,887, the highest it has been since December 2008. Being ‘unsecured,’ this refers to loans and types of credit where no security or collateral is required, making reference to credit cards, personal loans, finance for new cars and excludes account mortgages (as this is secured on your property).


The BBC explained that unsecured debt hit a high of £349 billion but a large part of this number is consumed by student loans which gives the average graduate around £40,000 worth of debt when they leave University. Excluding student finance from the figures gives a national consumer debt of £192 billion based on figures from September to December 2016. Overall, unsecured debt as a percentage of household income sits at around 25% and this is presumably the most it has been in the last 8 years.

What is responsible for this increase in unsecured debt?

In addition to student loans, Government authorities highlight ‘weak pay growth and low public investment’ as the factors contributing to this high level of debt. General Secretary Frances O’Grady explains that working people are unable to keep up with cost of living so will be borrowing more to keep up. She mentions the need for a higher minimum wage for public sector works and also and “a major programme of public investment in rail, roads, new homes and clean energy could be targeted at communities where decent jobs are in short supply.”


Source: ITV News

Government are ‘not worried’ by rise in debt

Andy Haldane, the Bank’s chief economist explained last week that the rise in debt is not a huge cause for concern. He stated that interest rates remain low which is a sign of a strong economy and ultimately, households can cope with this level of debt. However, he explains, should the economy slip in 2017, it might be harder for some households to keep up with repayments.

How Households Can Reduce Their Unsecured Debt

Create a budget

Sometimes reducing your debt can be as simple as setting yourself a monthly budget. Taking all your expenses into account such as travel, food and entertainment, simply consuming less can help you lower your debts. Try saving a small amount each month, even £20 to £50 and month-on-month, this will really add up and help you get your bank balance in place.

Debt Consolidation

If you have debt coming from different places such as credit cards, loans, utilities and more, you can apply for a debt consolidation loan . This involves getting one single loan which will pay off all your debts in one place. There is no need to pay each individual debtor, you are simply getting a loan to pay off everything so it is easier to manage knowing that you are only paying into one account. Debt consolidation loans are designed to help you clear all your outstanding payments once it has been fully repaid, but there will naturally be a cost for this.

Debt Management

Similar to debt consolidation, this is where a company ‘manages all your debts’ and helps you pay them off. There are several companies in the UK that offer debt management.  They begin by taking all your monthly expenses and outstanding debts.

They will put you into a plan that will force you to budget and give you monthly allowances for food, entertainment (TV,  gym, smoking) and travel and this is an amount you will have to stick with. The company will also have a list of all your debtors such as loan and credit card companies and calculate how much you need to pay them each month to clear your account. The management companies will speak to your debtors and come up with an arrangement to help you repay, even if this means pay £1 a month for the next 8 years.

As the individual, your income from work is sent straight to the debt manager who will pay off your loans and bills for you – making sure that this is where the money really goes. You will receive your monthly allowance as agreed for your daily necessities. This is a very structured and disciplined way to sort out your debt. There are some charities like StepChange that offer these services for free and others that will charge a fee for managing your account.

Find Savings Elsewhere

Reducing your debt does not necessarily require drastic lifestyle changes. Our blog regular includes money saving tips and there are several easy ways to save money in the UK. Whether it is switching your utilities of gas, water and electricity and finding a cheaper deal can save you a few hundred pounds per year.

Elsewhere, it is said that UK households waste around 33% of food so perhaps checking your daily consumption and fridge more often could help you shave 33% off your food bill.  Another big expense is travel and there are great savings to be made. Whether it is cycling or walking to work, doing lift-shares with your friends and colleagues and even making the most of travel cards, you could save a few hundred pounds a year.

Make Early Repayments

If you have an issue with unsecured debt, one of the most important things to do is avoid borrowing more loans. Taking out more credit cards and payday loans can potentially cause a spiral of debt and also negatively impact your credit score.

With credit cards, the rates can sometimes be very high indeed, especially if you have a less than perfect credit score. You should always try to clear your credit card balance each month or at the very least, make the minimum payments. Whilst loans can be expensive, consider borrowing from a credit union or from family and friends as this will usually be free of charge.

Sometimes one of the smartest things to do with loans is to make early repayments. Since the loan will be open for less time, you will always save money when you repay early, even if there is a small fee for closing the account. Whether its your mortgage, a guarantor loan or personal loans that last for 5 years or more, if you find that you can pay it off earlier, you will be able to make a good saving in the process.