Nine out of ten Britons comfortable with their debts

Nine out of ten people in the UK are comfortable with their debts and one in five expects to reduce their borrowing over the next twelve months according to research from online credit report service MyCallcredit.

The telephone survey asked people how much they owed, how comfortable they were with their debts and where people think they will be in a year.

It also asked what percentage of regular income Britons thought it was reasonable to spend on unsecured debt repayments - and what they actually spend.

Overall the results were reassuring, the vast majority of people are comfortable with their debts and don't see their position worsening over the next year.

However, young people are the least optimistic about their financial position, part-time workers are the most likely to be out of their depth and there is a significant minority of Britons who are overindebted.

MyCallcredit director Alison Nicholson says:

"Debt only becomes a problem for people when they can't manage their repayments and the vast majority can, indeed, three times as many people expect to reduce their debt burden over the next year than expect it to increase, which is good news.

However, there are some people who expect their situation to get worse, one in four people between 16 and 24, and one in seven people who aren't working expect to be repaying more debt in a year's time.

This is bad news for the housing market as it will put further pressure on first time buyers and delay their entry into the housing market.

It also indicates that people without the means to borrow more anticipate being granted credit they can't afford, that isn't good for lenders or borrowers."

Key Findings
  • More than one in two people (55.8 per cent) know exactly how much they owe on credit. Nine out of ten people (92.7 per cent) say they are comfortable with their levels of debt.
  • One in thirteen people (7.3 per cent) say their debts are a struggle or they are out of their depth.
  • One in fifteen Britons (6.5 per cent) think they will be spending more than they do now on unsecured debt repayments in twelve months time.
  • People who are not working and have credit commitments are the most likely to say they are struggling financially or out of their depth (15.4 per cent) followed by part-time workers (10 per cent).
  • 86 per cent of respondents said it was reasonable to spend up to 20 per cent of their income repaying unsecured debts, like credit and store cards.
  • 87.7 per cent of people are spending 20 per cent or less paying their unsecured debts.
  • 1 per cent of Britons are paying more than 50 per cent of their monthly income to service unsecured debts, this number nearly triples to 2.9 per cent in the 45 to 54 age group.

Alison Nicholson says:

"Anyone who is spending more than 25 per cent of their income servicing unsecured debt repayments is considered overindebted according to the Department of Trade and Industry guidelines.

Thankfully our survey shows more than eight out of ten people are spending 20 per cent or less of their income servicing these debts, but this doesn't mean we should ignore the minority.

The industry needs to adopt more responsible lending practices, like introducing a true affordability check at the time of a credit application, and individuals need to take stock of their overall financial position to make sure they are applying for credit responsibly."

Editors notes
  1. The research was carried out for MyCallcredit by NEMS market research among 1001 adults between 18 May and 25 May 2006.