A worrying one in four of us will face problem debt in our lifetimes, according to new research.

There are 85% of households in the UK that currently have debt and bill commitments. A quarter of borrowers have faced problems repaying debts at some point in their lives, according to the report by Arrow Global.

At present, four million households are behind with their repayments and 1.5 million are struggling to pay what they owe.

The most common struggle is credit card debt with 60% of borrowers not managing to always pay off their balance in full. Unsecured loans were the next biggest problem with 22% failing to meet repayments, followed by overdrafts, mail order credit and mortgages.

Interest confusion

The research by Arrow Global also found that a worrying about of people don’t understand the interest they are paying. Of those surveyed 7% didn’t understand what APR means, rising to 26% of 18-24 year-olds.

When asked about specific debts 53% of people with a student loan didn’t know the interest rate on their debt. Almost half of people with an overdraft had no idea what the interest rate was either.

A third of people didn’t know the interest rate on their credit cards and a quarter of people didn’t know the interest being charged on their mortgage.

As a nation we owe £1,451 billion, which works out at £54,000 per household, according to figures from the Bank of England. Rehabilitating borrowers could save the economy £7.1 billion a year, according to Arrow Global.

Rising defaults

The number of people defaulting on their debts is set to steadily rise over the coming years. The research forecasts that the combination of rising consumer borrowing and higher interest rates could lead to a 17% increase in households who have failed to keep up with their repayments by 2020.

"For a variety of reasons a proportion of consumers will always fall behind on their repayments. The circumstances that drive such defaults are most often not of the borrower’s making,” says Tom Drury, group chief executive officer at Arrow Global.

The most common reason giving for falling behind on repayments was a period of ill health, followed by a job loss and poor budgeting.

Reasons for defaulting on debts


Ill health


Job loss


Poor budgeting


Earnings cut back


Borrowed too much


Failure to control spending


Relationship breakdown/divorce


Had to care for a loved one


Death of a loved one


No correspondence from the lender/dispute with lender




Looking to the credit industry

Arrow Global, analysed 20,000 customer accounts to see how much peoples’ credit scores improved when they improved their debt situation by starting repayment plans or settling debts.

When they cleared a debt their credit score improved by an average 3.8% rising to 11% for people with a particularly low starting score.

However, people who had defaulted on debts in the past but then went on to set up a repayment plan to clear the debt see hardly any improvement to their credit score. It increased by an average 1.8%, and only improved significantly once the debt had been cleared.

“We believe that the consumer debt industry could be better at recognising and encouraging debtor rehabilitation,” says Drury.

“Getting a problem debt under control is a significant achievement with major long-term benefits for the individual. All participants in the consumer debt sector should be encouraging consumers and ensuring their progress is recognised in a clear and transparent way that is visible and comprehensible to all.”

[Related story: 'Thousands pushed into more debt' by credit limit increase]

What we should do next

Arrow Global has called for the introduction of a traffic light system to reflect how people are approaching their debts.

“We have ideas on changes which can be made, including a new debt traffic light system that shifts from red to green as consumers progress towards repayment,” says Drury.

A green light would mean people had not defaulted in the past six years, amber is for those who have defaulted but had subsequently cleared the debt or stuck to a repayment plan for at least six months and red would signal borrowers who had defaulted and failed to stick to a repayment plan.

“It is crucial that we do everything we can to help people coming out of financial difficulty to rebuild their credit score and develop financial resilience for the future,” says Joanna Elson, chief executive of the Money Advice Trust charity.

“At National Debtline we know that our assisted self-help approach to debt advice empowers clients to rebuild their finances after the initial debt problem is resolved – however the more support that is available to help them to do this, the better.

“This report from Global Arrow contains some useful ideas and we look forward to discussing these with the industry to see how they might benefit people struggling with problem debt.”

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