Typical family debt rises by 48% in the past year

25 January 2012 16:01:40

Household debts have risen as families struggle with living costs.

The average level of household debt has risen over the past 12 months, despite families seeing an increase in their monthly income, new research shows. The latest Aviva report indicates that Britons are struggling to cope with the rising cost of living and are keen to cut back on spending. As a result, many will be looking for ways to improve their financial management and may benefit from using a prepaid credit card as a budgeting tool.

Families 'building on existing debts'
Consumer surveys have repeatedly indicated widespread desire to pay off debts in recent months, but the latest research from Aviva suggests that families are failing to achieve this goal at present. The insurance group's Family Finances Report shows that the average family now has £7,944 worth of debt, excluding mortgages - an increase of 48% over the past 12 months.

Cost of living cited as key concern
When asked about their main concerns over the next six months, 62% of survey participants said they were most worried about the effect of the rising cost of living on their finances. Other concerns include the threat of redundancy (46%), unexpected expenses (41%) and the prospect of continued unemployment (10%).

Families economise to combat impact of inflation
Inflation has had a significant impact on household finances over the past year, but it seems that families are managing to adjust. Average family expenditure has remained steady over the past 12 months and the percentage of monthly income spent on food has also remained at 10% since January 2011, despite rising costs.

Consumers are clearly doing their best to cut back on spending, with 22% no longer buying personal goods and 30% not spending money on entertainment or holidays. Louise Colley, head of protection sales and marketing at Aviva, observed: "Many appear to have acclimatised to this economic environment by shopping around and seeking to minimise their spending in certain areas. However, at the same time there are still a worrying number of families with insufficient savings or large debts."

Prepaid card could be useful budgeting tool
One way for households to get on top of their spending habits could be to use a prepaid credit card. The cards have to be pre-loaded with funds and, unlike with traditional credit cards, the user cannot go into the red. This makes them a useful budgeting tool, as families can load their spending money on to their prepaid card and ensure they do not spend more than planned in a particular area, such as groceries or entertainment.

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