As soaring prices put household finances under increasing pressure, the nation’s debt burden is growing by the day. But by making the right choices, it is possible to significantly reduce the cost of being in the red.

The Office for National Statistics reported this week that, thanks to inflation, the real value of earnings fell by 0.6 per cent over the past year.

Calum Bennie, savings expert at investment provider Scottish Friendly, said: “The rise of inflation to 2.9 per cent means no end is in sight for hard-pressed consumers who see prices rising but growth in their wages failing to keep pace.

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“It is no surprise then that consumers are reining back on spending or, in many cases, are turning to credit to get by as day-to-day living gets more expensive.”

A survey for Citizens Advice Scotland found 51 per cent of Scots sometimes run out of money before payday and 55 per cent couldn’t settle an unexpected £100 bill without borrowing, using savings or cutting back on essentials. For a £250 bill this rises to 69 per cent and for £1,000 to 81 per cent.

Citizens Advice Scotland policy manager Keith Dryburgh said: “Debt is not just an issue for people who are on low incomes. Many working Scots on reasonable salaries occasionally need to borrow money to get them from one payday to the next.”

Investment provider True Potential Investor reports that in the first three months of this year alone, UK adults took on an average of £560 additional debt each.

According to price comparison site Moneysupermarket.com, the typical borrower owes £309,000 over their lifetime, including £111,000 in interest.

Most people’s biggest single commitment is their mortgage. The Money Charity says the average balance is currently just over £120,000, while the typical household’s credit card debt has reached more than £2,500.

As a result, the amount of interest paid annually per household now stands at £1,859, equivalent to 3.74 per cent of average earnings.

Moneysupermarket says borrowing peaks at the age of 35, when the cost of bringing up children combines with mortgages and loan repayments for cars, holidays and weddings.

But even the traditionally cautious over 50s are changing their attitudes. Financial services provider Saga says more than half this age group accept debt as part of everyday life, with one in five who are still in work admitting they borrow to help fund their chosen lifestyle.

As the use of credit increases, more people are struggling to repay what they owe. Debt is the second most common issue dealt with by Citizens Advice, after benefits and tax credits, and accounts for almost 30 per cent of all requests for help.

L&C Mortgages says 1.4 million UK households have difficulty making their monthly home loan repayments and 2.6 million think they are paying too much. Yet 58 per cent have never remortgaged to get a better deal.

With four million homeowners languishing on their lender’s standard variable rate, rather than a cut-price fixed or discounted deal, the home loan adviser calculates they are collectively overpaying by a staggering £2.78 billion. And if interest rates rise, their suffering will increase.

David Hollingworth of L&C said: “It is really important that people keep on top of their mortgage and take control of their monthly payments by using the current low in mortgage rates to their advantage. Always ask: could I be on a better deal?”

The typical standard variable rate is 4.56 per cent, but fixed rates of under 2 per cent lasting two to three years are widely available, potentially saving someone with a £100,000 loan up to £1,800 a year. For those seeking longer-term certainty on repayments, it is possible to fix for five to ten years at between two and three per cent.

Three-quarters of adults have unsecured debt in the form of bank overdrafts, credit card balances or personal loans, and many are paying far more than is necessary in interest and charges.

It is always unwise to overdraw without permission, as fees for unauthorised borrowing can easily run to several hundred pounds a year.

Even arranged borrowing can be costly. Most banks charge around 19 per cent on authorised overdrafts, and even those offering interest-free borrowing frequently levy a daily fee of between 50p and £1.

Transferring a range of debts with different rates to a single low-cost credit card or personal loan can lead to a significant interest saving, particularly if this makes it possible to clear what is owed faster.

Use price comparison websites to find the best deal for your circumstances, but work out the impact of any early repayment penalties before committing yourself.

Bank of Scotland, Barclaycard, Halifax, Lloyds Bank, Sainsbury’s Bank, Tesco Bank and Virgin Money offer fee-free balance transfer cards that charge no interest for two years or more, provided at least the minimum monthly repayment is always made.

Pay the maximum that is affordable each month and resist the temptation to run up any further credit. If you can’t clear the debt during the free period, transfer what remains to another zero per cent card before any interest becomes due.

Ratesetter, Zopa and the AA will lend £5,000 over three years at under 4 per cent interest with no early redemption fees, meaning you can pay what you owe more quickly without being penalised. These providers charge around 3 per cent to borrow £7,500 for the same period.

Mr Dryburgh of Citizens Advice said: “Given that debt is so pervasive in Scotland, we are keen to make sure that people know their rights in relation to debt, and also know what options they have if they want to manage their finances better.

“We have information and tools on our website, www.cas.org.uk, that will help anyone do this, and free impartial advice is also available at every local Citizens Advice Bureau.”