Around half of households in Great Britain have some unsecured consumer debt with almost half of this from loans from banks and other financial institutions (43%), with credit and store card debt (25%) and hire purchase debt (21%) the next most significant, according to new IFS research.

One in ten households has more than £10,000 of unsecured debt. Debt holdings are very concentrated in the hands of that group of households, who hold 70% of all unsecured household debt.

Those with lower incomes are less likely to hold debts, but are more likely to be in “net debt” – with debts of greater value than their financial assets (e.g. savings accounts).

Less than 30% of those in the poorest tenth have debts over £1,000, compared to almost 40% of those in the highest-income tenth. But 35% of the lowest-income tenth are in net debt, compared to only 10% of the highest-income tenth.

The research also showed that 7% of all households are in arrears on bills or repayments, but that rises to 16% of those on the lowest incomes. By contrast, only 1% of those in the highest income tenth are in arrears.

Among those on the lowest incomes 12% are spending more than a quarter of their disposable income on debt servicing. Among the poorest tenth one in four households are either behind on repayments, spending more than a quarter of their income on debt servicing, or both.

Young adults are much more likely to be in households that are in arrears or spending a large fraction of their income on debt than older adults: 16% of 25-29 year olds, compared to just 3% of 75-79 year olds.

Low-educated young adults are particularly likely to be struggling. They are both more likely to be in households that are in arrears and tend to have debts (e.g. hire purchase and mail order) that need to be repaid more quickly.

IFS research economist David Sturrock said: “Most unsecured debt is held by high income households who look able to manage it, and more than half of those with debts have enough financial assets to pay them off.

"But debt looks like a real problem for a significant minority of those on low incomes, who are not keeping up with bills and/or spending high fractions of their disposable income on debt repayment. Headline numbers are no guide to the scale of ‘problem debt’: distinguishing between debts that are entirely appropriate and those that look unmanageable is crucial.”

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