Borrowers pile up debt to pay off bills

Nearly one in four people are turning to loans and credit cards just to pay their household bills or meet day-to-day living costs, research said today.

According to accountancy firm KPMG, just over half of the 2,000 people questioned owed up to ?10,000, excluding their mortgage, while 16% had accumulated debts of between ?10,00 and ?40,000.

Fifteen per cent of people said their debts were spiralling out of control or keeping them awake at night, while 45% admitted they regularly failed to check their bank statements and credit card bills.

"These figures do not surprise me. Net pay is falling in relative terms partly due to the increase in national insurance contributions and people are opting for credit and loans to top up their incomes," said KPMG adviser Carolyn Steppler.

"In this low interest rate climate that is a worrying trend, but it could become a huge burden if the economy takes a turn for the worse. Many people may struggle to pay back these loans."

One in seven people said they had taken advantage of credit because they enjoyed spending, while 16% had done so to buy a car and 8% had used a credit card or loan to pay for a holiday.

Around 84% of those questioned said they hoped to pay off their debts within five years, with 22% saying they would work overtime, or try to get a new job or a promotion to pay them off.

Just under one in 10 said they would consolidate their debt into one loan, while 7% planned to sell their home or remortgage it to clear their other borrowings.

More than a third of people said they either had no idea or only a rough idea how much interest they were paying on their debt, while 94% said they thought there should be some form of financial education on the national curriculum.