New research finds 3.2 million families spent at least 25% of their gross monthly pay servicing unsecured debt in 2014

The number of households struggling with problem debt grew by a quarter between 2012 and last year, as stagnating wages forced a growing number to borrow to get by, according to the TUC.

By 2014, 3.2 million families were spending at least 25% of their gross monthly pay on servicing unsecured debts, the definition of problem debt. The figure for 2012 was 2.5 million, according to research commissioned by the TUC and Unison.

Young people, the self-employed and low-income families recorded the biggest increases in debt.

The report said 1.6m households were spending 40% of their gross income on repaying non-housing debts. Of those, 1.1 million were earned less than £30,000 a year.

Borrowing on credit cards, loans and overdrafts fell with the onset of the financial crisis and has not returned to pre-crisis levels, but the unions said a fall in real wages meant debt-to-income ratios remained high.

The research, based on analysis of household surveys including an annual report for the Bank of England, showed that problem debt had almost trebled among the self-employed. In 2012, 6% of self-employed workers with credit commitments were in serious debt. By last year the figure had risen to 17%.

The proportion of low-income families spending more than a quarter of their earnings on debt repayments increased from 9% to 16% over the same period. Among 18 to 34-year-olds it rose from 2% to 10%. The report said this was not down to student loans, but because of borrowing on credit cards and via personal loans, overdrafts and payday loans.

The payday loan market boomed in the wake of the credit crunch, and despite moves to force more responsible lending introduced in July 2014, the unions said those who had resorted to this form of short-term borrowing, although a small proportion of the total, were spending much more of their income on repayments.

I The TUC and Unison said the report revealed how economic growth had failed to reduce the burden of debt for many families. The TUC’s general secretary, Frances O’Grady, said the fact that more people were in problem debt was particularly worrying given that interest rates might rise in the coming months.

“Rising household debt is not the sign of a healthy economy. People raiding their piggy banks and borrowing more than they can afford is what helped drive the last financial crash,” she said. “We need a wages-led recovery that works for everyone, not another debt-fuelled bubble.”

Unison’s general secretary, Dave Prentis, said it would take many years for families to get their finances back on an even keel.

“Wages might finally be picking up for those in the private sector, but anyone working in health, education, local government and our other public services still has many more years of pay restraint to survive,” he said. “And soon to be introduced cuts to tax credits will push many low-income families yet deeper into debt.”

The debt advice charity StepChange said it had seen a 56% leap in the number of people seeking help with serious debt problems between 2012 and 2014, and that the average unsecured debt among those approaching it was now £15,000.