Problem debt' hits £25bn

About £25bn of consumer debt in Britain is "problem debt" that people are struggling to repay, according to a new study.

The debt belongs to about 1m people who each owe about £25,000 in addition to any mortgage loans, according to the report from TDX Group, a provider of debt management data.

It estimates that of the problem debt, about 60 per cent relates to credit cards and 40 per cent is other debt, such as personal loans.

The report suggests that the credit squeeze means there will be fewer options open to struggling borrowers, who will find it more difficult to take equity out of their homes to repay credit cards and other debts.

There could be a doubling in the number of people taking out repayment plans, such as Individual Voluntary Agreements, under which a lender writes off part of an individual's debts in return for repayments over a set period, and Debt Management Plans, where a consumer offers to pay a set amount to the bank each month.

Companies offering IVAs recently agreed a new voluntary code of practice with the banking industry, which had become increasingly unhappy about approving IVAs.

But TDX estimates that 45 per cent of individuals entering into an IVA do not complete them, with 15 per cent failing in the first year.

Mark Onyett, chief executive of TDX said: "This can leave the customer worse off because the fees paid to an IVA company vary from between £5,000 and £9,000 - and these come from the debtor's repayments."