Debt interest burden demolishing UK household incomes
23 January, 2013
Interest payments on debt are eating away at the disposable income of UK households according to a new report commissioned by StepChange Debt Charity.
Research commissioned from the Centre for economic and business research (Cebr) found that the monthly interest payment for the average UK household is £189 before any capital is repaid. Debt interest takes up, on average, about 22 percent of available funds after subtracting spending on essentials, such as food and transport, from the average after tax income.
StepChange Debt Charity is very concerned that this significant debt interest burden is leaving UK families in a vulnerable financial position, eroding what they have left for unexpected expenses and leaving little to build savings.
The research found that the level of interest burden varies dramatically across the UK.
- Those in the South East appear to be under the most pressure, spending 30 percent (£315) of their disposable income on interest payments.
- On average, individuals in Yorkshire (£190), the South West (£204) and East Midlands (£209) spend over 25 percent of disposable income on interest payments.
- Interest payments are lowest, both in cash terms and as a proportion of disposable income, in Wales (£150) and Scotland (£168).
Commenting on the findings, Delroy Corinaldi, external affairs director at StepChange Debt Charity, said: “With few UK households immune to the effects of the economic downturn, it is crucial that families have the means to buffer themselves from unforeseen expenses such as a boiler breaking down.
“If they don’t have the finances to deal with unexpected bills, they are going to have to rely on credit to cover the cost of them. Therefore, the burden of debt interest can often lead to a vicious cycle where people are using credit because so much of their income is being eaten up by debt interest payments each month.”