UK households owe approximately £2.3 trillion in personal debt — mortgages, credit cards, car loans, personal loans and student debt combined. That is almost as much as the entire national debt. While the Bank of England has cut its base rate to 3.75%, the average credit card charges 24.4%. Student debt has reached £295 billion and grows by £21 billion every year. This page breaks down every category, explains the default rates, and answers the question everyone asks: what would it actually cost to write off student debt?
The Big Picture — What Britain Owes
UK household debt consists of two broad categories: secured debt (mortgages, backed by property) and unsecured debt (everything else — credit cards, personal loans, car finance, student loans). The secured/unsecured distinction matters because secured lenders can repossess the underlying asset if you default, making the risk profile very different.
Credit Cards — The Interest Rate That Didn't Fall
The most scandalous number in UK household debt is the gap between the Bank of England base rate (3.75%) and the average credit card APR (24.4%). Despite the Bank having cut rates four times since August 2024, credit card rates have barely moved. In 2015 the average credit card rate was 17.58% — it has since risen to 24.65%, increasing the average annual interest cost per adult from £215 to £342.
Around 6% of credit card holders make only the minimum payment each month. At the minimum payment on a £2,601 balance at 24.4% APR, it takes over 27 years to clear the debt and costs more than twice the original balance in total. The FCA has raised concerns about persistent debt and introduced rules requiring lenders to contact customers who have been in arrears for 18 months or more.
Default rates: UK credit card arrears (accounts more than 90 days past due) ran at approximately 2.3% of balances in Q1 2026, up from 1.9% a year earlier. The total value of credit card write-offs by lenders reached approximately £2.8 billion in 2025.
The Interest Rate Comparison
The gap between the base rate and consumer borrowing rates is one of the widest in recent memory:
Mortgages — The £1.75 Trillion Mountain
UK mortgage debt has grown steadily to £1,746 billion — driven primarily by rising house prices requiring larger loans rather than increased borrowing volumes. The number of mortgages taken out has actually decreased 8% year-on-year to Q1 2026, reflecting affordability constraints from higher rates.
The UK's mortgage market structure is unusual internationally. Most UK mortgages have short fixed periods — typically 2 or 5 years — before reverting to the lender's Standard Variable Rate (currently 6.60%). In Germany, 15-20 year fixed rates are standard. This means UK households face regular "rate reset" risk that continental European borrowers largely avoid. When the Bank of England raised rates from 0.1% to 5.25% in 2022-23, millions of UK households saw their monthly payments rise sharply when their fixed periods expired.
Arrears: Mortgage arrears surged dramatically in recent years. StepChange data showed average mortgage arrears among clients who sought debt advice rose from £6,054 to £10,239 — a 69% jump in a single year. Repossessions remain low by historical standards (the courts moved slowly post-pandemic) but the underlying arrears position is deteriorating.
First-time buyers: The average first-time buyer mortgage is now £229,214 on a 31-year term. At 4.81%, monthly payments are approximately £1,265. With average UK earnings of around £37,000 gross (£29,000 net), this represents over 52% of take-home pay — well above the traditionally recommended 30-35% maximum.
Car Loans and Personal Loans — The £174bn Unsecured Mountain
Car finance has become one of the most significant areas of UK consumer lending. The majority of new cars in the UK are bought on some form of finance — Personal Contract Purchase (PCP), Hire Purchase (HP) or personal loans. Total car finance outstanding is estimated at approximately £80-90 billion, making it the largest single category within consumer credit.
Personal loans cover a wide range of purposes — home improvements, debt consolidation, holidays and major purchases. The average new personal loan rate is 9.03% (Bank of England, January 2026) — significantly above the base rate of 3.75% but substantially lower than credit card rates.
Default and delinquency rates: Consumer credit default rates (including car loans and personal loans) ran at approximately 3.1% in Q1 2026 — higher than mortgage arrears, reflecting the unsecured nature of these loans. The Bank of England Credit Conditions Survey Q1 2025 noted that lenders reported default rates for total unsecured lending had decreased slightly, though losses given default on personal loans were expected to increase. The 3.1% delinquency rate compares to 1.2% for mortgages and approximately 2.3% for credit cards — meaning personal loans carry the highest default risk of the three main categories.
Individual insolvencies — the endpoint of debt problems — reached 126,240 in 2025, the highest since 2010. In Q1 2026 alone, 35,143 people entered insolvency — one person every four minutes in England and Wales.
Student Loans — £295 Billion and Growing at £21 Billion a Year
The UK student loan system is unlike consumer debt in almost every meaningful sense. Repayments are collected through PAYE at 9% of earnings above the threshold (£25,000 for Plan 5 students from 2023, £29,385 for Plan 2). Loans are written off after 30 years (Plan 2) or 40 years (Plan 5) regardless of balance remaining. Interest accrues from the day of borrowing at RPI plus an additional element based on income.
The result of this design is that for the majority of graduates, the student loan functions as a graduate tax rather than a conventional debt. The IFS estimates that approximately 75% of current undergraduates will never repay their loans in full — the balance will be written off at the end of the repayment period at taxpayers' expense. The government already accounts for this in its long-run fiscal projections, but the growing total raises important questions about value for money.
The collapse in full repayments is dramatic: 50,165 graduates repaid their loans in full in 2016. By 2024, that had fallen to just 2,943 — a 94% decline. The shift from smaller loans at lower interest rates (pre-2012 system) to larger loans at higher rates (post-2012) has made full repayment effectively impossible for most graduates at average earnings.
⚠️ The nuance that matters: The government already expects to write off approximately 75% of student loans under the current system — that cost is already baked into the fiscal forecasts. Writing off all loans immediately would cost £295bn upfront but would only bring forward around £221bn in costs already expected to occur eventually. The net additional cost to the taxpayer of immediate write-off vs the current system is approximately £74bn (the 25% that would otherwise have been repaid) — or roughly £2,242 per taxpayer. This is still a large number, but it is very different from the headline £295bn or £8,939 per taxpayer figure that would apply to immediate total write-off.
How the Repayment System Works
Graduates repay 9% of everything they earn above their threshold — so a graduate earning £35,000 on Plan 2 (threshold £29,385) repays 9% of £5,615 = £505 per year, or £42 per month. At a starting balance of £47,730 with ongoing interest, this barely covers the interest accruing — meaning for average earners the balance never falls.
A graduate would need to earn around £60,000+ consistently for most of their career to repay in full under the current system. Given median UK graduate earnings of approximately £32,000 five years after graduation, the majority will never get close.
Problem Debt — Who Is Struggling Most
Behind the aggregate statistics is a significant minority of households in genuine financial distress. The picture in 2026 is sobering.
The insolvency figures are the starkest indicator of financial stress. Personal insolvencies in England and Wales reached 126,240 in 2025 — the highest level since 2010. One person entered insolvency every four minutes during Q3 2025. Q1 2026 saw 35,143 insolvencies, up 20.4% on a year ago.
Citizens Advice forecasts that the average shortfall between income and essential spending for households with a "negative budget" will reach £396 per month in 2026. These are households where even basic bills and food cannot be covered by income — a situation that leads directly to debt accumulation, missed payments and ultimately insolvency.
StepChange, the debt charity, reported that the average total debt among clients seeking advice reached £17,936 in 2025 — up 7% year-on-year. Credit card debt was the most common type held, present in 67% of new clients. Mortgage arrears surged 69% to an average of £10,239 among clients with mortgage debt.