Low income families risking Christmas debt disaster

LONDON (Reuters) - Families on low incomes who pay for Christmas by turning to credit could face a debt disaster in the New Year, a charity is warning.

Action for Children said a quarter of people borrowing over the festive period would use credit offered by catalogues, a fifth would use store cards and one in seven would rely on doorstep lenders.

These were three of the four most expensive ways to get credit, the charity said.

Its survey, carried out by Barclays bank, also found that 49 percent of people on the lowest incomes risked borrowing more than they could afford because they did not understand what APR meant and thus how much they would have to pay back.

"This survey underlines what we already knew from our work with some of the most vulnerable families in the country -- that those most likely to be tempted to take out loans at Christmas are unfortunately the least likely to know what it's going to cost them," said Clare Tickell, the charity's chief executive.

While many people were planning to rely on expensive forms of credit, far fewer were seeking to borrow from Credit Unions or taking out loans from the Department for Work and Pensions which provide much cheaper sources of cash.

The charity cited the case of Donna Wakefield, 29, from Northumberland who was still paying off doorstep loans used to fund the Christmas presents she bought last year.

"I just didn't have a clue what APR was, or how important it was," she said.

"It was great buying the kids so many nice things, but we just ended up spending the rest of the year worrying about how to pay it back."

(Reporting by Michael Holden; Editing by Steve Addison)