Poor families at risk of high debts

Last Modified: 21 Nov 2008
Source: PA News

Families on low incomes are in danger of racking up huge Christmas debts by relying on expensive forms of credit, new research has warned.

Action for Children said a quarter of people on low incomes who planned to fund the cost of Christmas through borrowing planned to use credit offered by catalogues, while a fifth of people would be relying on store cards.

A further one in seven of those questioned said they planned to get a loan from a doorstep lender. But the charity warned that these were three of the most expensive ways to borrow money.

By contrast, very few low-income families planned to use cheaper sources of credit, such as loans from credit unions or from the Department for Work and Pensions.

The research, which was carried out with Barclays, found that 49% of people did not know what annual percentage rates (APRs) were, despite the fact that these are key to working out the cost of borrowing from different sources.

As a result, the group said it was unsurprising that many people would still be paying off debt from this Christmas in December next year.

Clare Tickell, chief executive of Action for Children, said: "This survey underlines what we already knew from our work with some of the most vulnerable families in the country - that those most likely to be tempted to take out loans at Christmas are unfortunately the least likely to know what it's going to cost them.

"It's vital that those on the lowest incomes have all the facts at their fingertips before committing to what otherwise could be a very costly decision."

Meanwhile, research by pre-paid currency card provider FairFX.com also found that 42% of people planned to cut back on their Christmas spending this year. The average person expects to spend £422 on the festive season, although 11% plan to spend £100 or less.

Stephen Heath, chief executive of FairFX.com, said: "Brits have been forced to slash their Christmas spending as the credit crunch and the hefty rise in the cost of living hits them hard in the pocket, and all Brits will be looking for ways to save this festive season."

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