About 1.6m UK households are living in extreme debt, according to a report by the TUC, which says official figures underestimate the intense burden of repayment on many families and individuals.
Contrary to official data, which suggests that households have been repaying debt accumulated before the financial crisis, the Britain in the Red report says households are finding it harder than ever to cope as wages have fallen.
“More than 1m families with a household income below £30,000 are in extreme debt and ongoing wage stagnation is making the problem worse,” the report says.
Total unsecured debt, including car loans and credit cards, but excluding mortgages, for UK households rose by £48bn between 2012 and 2015 to £353bn.
As wages declined, the real burden of repaying debt became tougher. The TUC said 3.2m households are in problem debt, defined as spending more than 25% of total household income on unsecured debt repayments.
About 1.6m households are in extreme debt, paying out 40% or more of household income to creditors.
The problem is growing fastest among the working poor, people with jobs but insufficient pay to stay financially afloat. OECD figures show that UK real wages fell by 10.4% between 2007 and 2015, making the task of keeping up debt repayments harder.
In 2015, 9% of low-income households with an adult in employment were in extreme problem debt, almost double the figure of 5% in 2014, the report found.
The TUC general secretary, Frances O’Grady, said: “Families can’t continue relying on credit cards and loans to get by. But with the average wage still worth £40 [a week] less than before the 2008 crash, lots of families have little choice.
“Higher wages must be at the heart of the government’s economic plan. We need a return to proper year-on-year pay rises and a higher national minimum wage.”
The Unison general secretary, Dave Prentis, said: “Many of those affected by debt will be public service workers who have suffered eight years of zero pay rises, followed by a government-imposed cap on earnings.
“This report rightly draws a link between increased debt and stagnant wage growth, at a time when rent and transport costs continue to rise. Many families are having to make choices between paying the rent and feeding their kids.”
Debt charities say the figures in the report chime with their experience of increasing demands.
Peter Tutton from the StepChange debt charity said: “Every week we see thousands of households struggling to keep up with their essential bills and credit repayments. When budgets are stretched to the limit, even a small income shock can push people into serious financial difficulty.”
Martin Lewis of Moneysavingexpert.com has partnered with StepChange to call for breathing space for people with serious debt problems.
The scheme would see people who seek advice for debt problems given a period of six months to a year in which interest and charges are frozen, and enforcement action halted, to give them time to get advice and sort their finances.
Tutton said: “Too many households are relying on credit to get by and this massively increases their chances of falling into severe problem debt.
“The government could act quickly to give better options to hard-pressed households by completing its overdue review for a ‘breathing space’ scheme.
“Such a scheme would help people regain control of their finances and stop temporary setbacks turning into long-term, devastating debt problems.”