Millions of households on low to middle incomes are exposed to worryingly high levels of personal debt, according to a report from the Resolution Foundation think tank. These households face financial disaster unless they can pay off debts before interest rates go back to something more like their long-run levels.

Key points

• So far household debt has not produced the debt crisis many envisaged at the start of the economic downturn.
• But that is not a reason to be relaxed about the problem. For a significant minority of households, particularly those on low to middle incomes, debt remains a very real concern.
• For many, debt servicing costs consume a large share of monthly income, despite the historically low level of interest rates. The prospect of interest rates rising, combined with a continuing stagnation in incomes, heightens the risk of future defaults.
• Consideration needs to be given to a range of options for 'deleveraging', aimed at helping debt-loaded – but nonetheless solvent – households.

The think tank says it is starting a project looking at the options available to policy-makers, including drawing on lessons from other countries.

Source: Matthew Whittaker, On Borrowed Time? Dealing with Household Debt in an Era of Stagnant Incomes, Resolution Foundation
Links: Report | Guardian report