The UK's national debt mountain

Pop star and West End actress Kym Marsh is currently helping to attempt to teach the British about credit. She's the frontperson for an Office of Fair Trading campaign trying to persuade us all to treat credit just like we would other major purchases. Consumers are urged to check the interest rate, to shop around and to work out exactly how much they will end up repaying before taking the plunge.

Kym will have her work cut out as we grapple with record total household debts of more than £1 trillion. The British have never before been as deeply in debt and we add on more and more each year. For many it's not difficult with credit cards offering 0% for up to a year and personal loans for as little as 5.9%. Interest rates, even after the recent rises, are still historically low so it makes sense to borrow and use cheap credit to expand your finances.

Champions of credit

However easy access to credit and sensible use of it can easily tip over into problem debts. Essentially anyone with more than four credit commitments or spending more than 50% of their pre-tax income on repayments is especially at risk no matter how low the interest rates are. Advice group IFA Promotion points out that for every £1 we save currently we are borrowing 88p. This time last year for every £1 sensibly tucked away we were only borrowing 64p.

It's a not particularly proud boast that we now are the credit card champions of Europe. Datamonitor figures show the UK is only European country with more credit cards than people and that we account for two-thirds of electronic card transactions in Europe. Credit card debts alone are worth more than £56 billion and Christmas has probably added a few more billions to that. In 2003 we spent £108 billion on cards and by 2007 it is expected to rise to around £154 billion. The number of cards in issue has risen by nearly two-thirds in the past four years so has the level of debt. Britons own around 67 million credit cards – double the European average – and once debit and store cards are added on we have 134 million. That beats the Germans on 114 million followed by Spain on 56.8 million

The UK is second only to the US internationally in terms of our reliance on credit cards. Analysts at Datamonitor point out: 'UK consumers are comfortable with the idea of card-based credit, but consumers in Europe are not. 'This is not to say that consumers in the UK borrow more heavily or are more indebted than their European counterparts, but that they prefer to borrow in a different way.' In Germany many people use large overdrafts up to three times the value of their monthly salary making them less likely to borrow on credit cards. In France, credit cards are rare, with consumers tending to borrow on store or bank cards.

£1 trillion debt mountain

That doesn't mean we should ignore our debt problems, because they are not going to go away – if anything they are going to get worse.

Analysis by Skipton Building Society concludes the next 10 years will see the debt mountain grow to £1.6 trillion from the current £1 trillion. That works out at an extra £600 billion or another £60 billion every year which is around £1,000 for every man, woman and child in the UK. The society fondly hopes that it will mean a revival of saving as consumers attempt to plug the gaps in underfunded pensions. It also predicts we will have to work longer so we can afford to service our debts. But Skipton's Jennifer Holloway concludes we've gone from a culture of thrift to a culture of spend and now to a culture of debt. We are a nation hooked on credit and while for some of us it is a healthy obsession for others it is dangerous and literally very costly.

The National Association of Citizens Advice Bureaux counts the human cost of the debt explosion – it handled 706,700 consumer debt problems last year – 74% rise on the 405,800 it dealt with in 1996/7. Consumer debt is by far the biggest type of debt problem which people come for help on and it is increasing more than other types of debt problem - by over 35,000 in the last year, according to NACAB.

The organisation includes credit card debt, store-financed consumer purchases, car loans and personal loans in its consumer debt figures and says they accounted for two-thirds of all debt-related issues last year. Chief executive David Harker points out: 'The credit boom of recent years has brought advantages to many of us. 'But it is clear that others have found it harder to control their borrowing and have ended up in debt.' He points to Government action to tackle irresponsible lending and borrowing and to increase access to affordable credit.

Shop around

Just as many have access to too much credit, around 7.5 million people can only get credit which is ruinously expensive. Companies such as SAV Credit, which is funded by HBOS, reckons there's a huge underserved market which needs help getting credit. It charges rates of between 20 and 30% – which is expensive when there are 0% deals around – but it only offers credit limits of up to £1,000. Those of us who do have easy access to credit are often not that clever about it. Advisers at Moneyextra estimate the average homeowner could potentially save £2,700 a year. It estimates by failing to shop around on mortgages, loans and credit cards we waste more than £35 billion a year in total. It's money that could be saved.

And yet Nationwide Building Society research shows that we're not drowning in a sea of debt – we're keeping afloat quite happily. Around 95% of us usually have enough money to pay the mortgage with just 2% regularly having difficulties. Around three out of four of us usually have enough to cover other debts with just over one in 10 having problems. The reason people are confident about taking on debt is that they are confident about the economy and job prospects. Nationwide executive director Stuart Bernau says: 'It seems clear that most people believe they are not over-extending themselves, that they are comfortable dealing with their finances and that they believe their financial future in the main is steady and secure.' Which perhaps helps sum up the kind of nation we are – a confident, happy nation which is fooling itself.