A report is warning of the impact of a debt trap on the poorest in society, with unsecured debts nearing £160bn in the UK.
The Maxed Out study by the right-leaning think tank the Centre for Social Justice (CSJ) charted a 'perfect storm' of rising living costs, falling real wages, low savings and expensive credit.
It calculated that essential bills had increased by 25% since 2007 and 3.9 million British families did not have enough savings to cover their rent or mortgage for more than a month, while thousands were being made homeless every year because they were unable to meet their payments.
Households in the poorest 10% of the country were found to have average debts more than four times their annual income, with their average debt repayments amounting to nearly half their gross monthly income - pushing more people towards payday lenders and loan sharks because banks were reluctant to lend.
Maxed Out suggests growing numbers are turning to payday lenders It said payday lenders alone had increased business from £900m in 2008/09 to just over £2bn in 2011/12, according to the CSJ, with eight million loans taken out.
Despite signs of a national economic recovery, the CSJ said personal debt in the UK remained close to its all-time high of £1.4trn while average household debt stood at £54,000 - nearly twice the level of a decade ago.
The CSJ report highlighted fears that the number of households being made homeless will increase in the coming years should interest rates rise though that is likely to be at least two years away as the Bank of England has said it will only consider raising the base rate when unemployment falls from its current 7.6% rate to 7%.
The report concludes: "Rising personal debt levels represent a significant problem for people in Britain.
"While most personal debt is healthy and manageable, such as an affordable mortgage, student loan or low-interest credit card used to bridge income gaps, for many people their debt has become unhealthy and unmanageable.
"While people of all income levels can end up seeking debt advice or declaring bankruptcy, the problem of debt seems to be more of an issue for low-income and vulnerable households.
"A perfect storm of rising living costs, decreasing real wages, low savings and expensive credit seems to have pushed many to the edge and over a financial cliff edge."
CSJ director Christian Guy added: "Years of increased borrowing, rising living costs and struggling to save has forced many families into a debt trap that is proving very difficult to escape.
"Problem debt can have a corrosive impact on people and families. Our report shows how it can wreak havoc on mental health, relationships and wellbeing.
"Across the UK people are up until the early hours worrying about their finances and bills."
"Some of the poorest people in Britain are cut off from mainstream banking and have no choice now but to turn to loan sharks and high-cost lenders."
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