What exactly is 'average' UK household debt?

Every day there seems to be another news article about rising levels of consumer debt in the 'average' UK household. I’m all for drawing attention to problem debt and encouraging a more sensible approach to borrowing, but I worry that scaremongering headlines do little to help consumers understand the situation. This is especially true when it’s not clear how averages are worked out or who they apply to.

The trouble with averages

Often the averages discussed in news articles are simply calculated by dividing total debt figures by the total number of UK households. This is true of pieces like one published by the Independent, where it’s noted that UK credit card holders hold a combined £72.5bn in debt. That number is then divided by the total number of households to claim that the ‘average household’ has £2,688 of credit card debt.

The problem with this is it implies there’s a ‘normal’ level of credit card debt for the whole population. In fact, credit cards are one of several borrowing options that are often over-used by young people, who are more likely to have this kind of debt. What’s more, two households owing £2,688 can be in very different situations depending on their interest rates and ability to repay the debt. But, because these details are ignored, the underlying issues aren’t addressed.

Why debt types matter

While articles like these address a specific debt type (in this case credit cards), many simply talk about ‘secured’ or ‘unsecured’ debt. A secured loan means the lender holds the rights to take certain property, usually a home, car or other large item, to cover unpaid debt. This isn’t necessarily the case with unsecured loans.

This only really matters to the lender, as a secured loan is easier to recoup if the debtor can’t pay. For people in debt, the distinction is much less important. Scare stories that suggest unsecured loans are more dangerous may even give borrowers the false impression that their ‘secured’ loans are somehow safer, but this security only really applies to lenders.

Identifying priority debts

For those who are at real risk of getting stuck in a debt cycle, the most important thing to spot is a priority debt. Rarely mentioned in personal finance news articles, these are the debts with the highest stakes for thousands of people across the country.

To identify a priority debt, you don’t look at how it’s structured, charged or paid: you look at the consequences of non-payment. This means looking at unpaid debts which put you at immediate risk of receiving a court summons, leading to a court order/judgment, which in turn risks enforcement and sanctions against your earnings or even custodial sentences in some circumstances. Because sometimes the important details are in the small print, not the headlines.

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