Watchdog's Christmas debt alert

FAMILIES have been warned not to take on dangerous levels of debt at Christmas amid evidence of record levels of borrowing. A Government watchdog said consumer debt had hit an all-time high of £168b - an average of £6,800 per household, excluding mortgages.

The Office of Fair Trading added that thousands are sticking their heads in the sand, with as many as one in four unwilling or unable to calculate how much they owe.

Executive director Penny Boys warned that Christmas could be an especially difficult time for families as they come under pressure to spend and borrow.

'There is a lot of temptation,' she said. ' The message is 'don't borrow more than you can afford'. Debt is not a pleasant experience, it is very worrying.'

Coronation Street star Sue Cleaver has been recruited as the face of the OFT's debt campaign. The actress, who plays Eileen Grimshaw, said she had run up a bank overdraft of £15,000 when putting herself through drama school 20 years ago.

'We have all had experience of debt,' she said. 'I started working, which helped me reduce mine. My character has a debt problem and I get an awful lot of letters from people in the same situation. It is really frightening what they are going through.'

The watchdog criticised banks and other financial institutions for reckless lending, such as pushing credit cards and loans without spelling out all the costs involved.

This week, the OFT ordered Barclaycard to remove a credit card offer which was misleading.

It also warned against resorting to doorstep lenders, who charge interest rates of up to 1,700%, or companies which charge fees for consolidation loans.

In one case highlighted by the watchdog, a mother of three told how she ended up owing £8,000 after giving up work to care for a baby and then getting divorced.

'I had problems with bank loans, credit cards and store cards,' said Sara Syme, from Hull, who is now paying off her debts. 'I was offered a consolidation loan of £10,000 which would have cost me £35,000 over ten years. That is absolutely frightening.'

Miss Boys added: 'People can be in debt for a huge variety of reasons. Often it is losing a job or losing a partner, not just over-spending.'

A number of debt management firms advertise heavily on television, promising to solve the money troubles of families. But they often impose fees on those who are already struggling.

'People need to look at the total cost and what happens if they default and then face penalties,' said Miss Boys. 'These can be very expensive.'

The OFT said families should seek help from free services, such as Citizens Advice, and debt advice services, such as Advice UK, National Debtline and the Consumer Credit Counselling Service.