Banks write off 25% more debt

The amount of consumer debt banks wrote off soared by nearly 25% during the final quarter of 2010, figures showed today.

Banks and building societies wrote off £2.27 billion of debt that people had defaulted on during the three months to the end of December, up from £1.83 billion during the previous quarter, according to the Bank of England.

The increase was driven by a surge in people unable to keep up with their credit card debt, with defaults in this area soaring to £1.18 billion, compared with £740 million in the third quarter.

There was also a 22% increase in cancelled mortgage debts, with £163 million written off during the three months, although the figure was dwarfed by credit card write-offs.

However, there was an improvement in the level of loan and overdraft debt that consumers defaulted on, dropping slightly to £925 million from £959 million.

The increase in the level of total debt write-offs comes after the figure unexpectedly fell in the third quarter after hitting a record high during the previous three months.

Overall, banks wrote off a total of £9.71 billion of secured and unsecured debt during the whole of last year.

Frances Walker, spokeswoman for the Consumer Credit Counselling Service, said: "We are still seeing a high level of consumers coming in struggling with their debts, but most people have lower levels of debt.

"The problem is that, at best, we have households with stagnating incomes and rising costs, and at worse, households that have suffered from job losses and higher costs."

She said the group expected low and middle income households to come under pressure in the coming months due to changes to income tax bands and tax credits, which will be introduced in April.

Figures from the Insolvency Service have shown that a record 135,089 people went bankrupt or took out an individual voluntary arrangement or debt relief order during 2010.

The number of people unable to keep up with their debts is expected to remain high this year, as household budgets come under pressure from hikes to the cost of living, low wage growth and possible interest rate rises.