At the start of last year, the public was borrowing 66p for every pound saved with new saving levels rising to a high of £36 billion last spring (Q2). However, by the last quarter of 2008, we were repaying £1.76 for every pound saved, and new saving during this period almost halved to £19 billion.
Overall for the year, Brits repaid a staggering £38.6 billion worth of non-mortgage debt, more than cancelling out all they had borrowed in 2007 and 2008. This marks the first year in Unbiased.co.uk’s eight-year study where Brits paid off more debt than they took out in new borrowings.
The research shows that for every pound Brits saved in 2008, they also paid off an impressive 37 pence of debt. Overall, the nation managed to put away over £103 billion in savings during 2008, which however marks an almost 30% decrease compared to savings levels in 2007 (£146 billion).
However, paying off debts was not a clear focus throughout all of 2008. The first half of the year saw Brits continuing to take out over £23 billion in new debt. The second half in contrast saw a dramatic shift in behaviour, with the nation repaying debts of over £61 billion. Savings levels during the same period plummeted by 45%, from £67 billion in the first half of the year, to £37 billion during the second half.
David Elms, Chief Executive of Unbiased.co.uk, comments: "2008 was a year of two halves in terms of people's financial behaviour. The financial turmoil which hit Britain last summer prompted a dramatic retreat from savings in favour of starting to pay down personal debt. This shift itself is no surprise, but its severity confirms the historic impact of the credit crunch on consumer behaviour and evidence suggests this repayment trend is continuing at pace.
"There is an awful lot of consumer fear and confusion out there right now, and it is vital people seek professional advice from an IFA to enable them to strike the best balance between borrowing, saving and other aspects of their finances throughout these difficult times."