Gloomy outlook for debtor figures

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It is thought around one million people are currently struggling with unsecured debt, collectively owing £25 billion, or an average of £25,000 each, according to debt management firm TDX Group. Around 60% of this money is owed on credit cards, with the remaining 40% borrowed through other means, mainly personal loans.

The group warns that with so many people already struggling to manage their debt, the current economic conditions, such as falling house prices and rising living costs, will lead to an increasing number of people finding themselves in financial difficulties.

But the impact of the credit crunch is likely to have a "substantial impact" on the solutions available to those who are struggling, it said.

In 2007 58% of people who were unable to keep up with their debts refinanced them or remortgaged in order to make their repayments more manageable.

But as banks and building societies tighten their lending criteria, many people will find themselves unable to refinance their debts, instead forcing them to consider taking out debt management plans or Individual Voluntary Arrangements (IVAs).

The group estimates that the number of people taking out debt management plans and IVAs, under which interest on debt is frozen in exchange for a set amount being repaid each month, could double during the year from 400,000 in 2007 to 800,000 in 2008.

TDX Group urged people who find themselves in this situation to shop around to find the best solution for them. It said 90% of people who took out a debt solution did so with the first organisation they contacted, despite fees from IVA companies varying from £5,000 to £9,000.

At the same time 45% of people fail to complete their IVA, which typically runs for five years, with 15% dropping out during the first 12 months.

The number of people declared insolvent is expected to hit a new high in 2008, despite Government figures showing the first fall for nine years during 2007. The TDX Group report is based on the company's own data.