The Financial Conduct Authority (FCA) has said it is unacceptable that people struggling to make ends meet are being encouraged to sign up to "unsuitable" and expensive debt management plans.
The regulator, which is set to start regulating consumer credit, said debt management firms must provide consumers with information on where they can get free debt advice as part of the new rules which come into force on April 1.
Firms will also have to pass on significant repayments to creditors from day one of a debt management plan.
The FCA is concerned that too many firms are encouraging consumers into costly fee-paying debt management plans that are not tailored to their needs or to what they can afford when the focus should be on agreeing a sustainable plan or the right solution.
Politicians are ignoring a looming crisis in household debt which could see two million families driven to "the edge of their means", a leading think tank has warned.
The Resolution Foundation said the number of British households spending more than half their disposable income on debt repayments could triple by 2018 if interest rates rise faster than predicted.
It urged banks to start checking on debtors now, in case they are caught off-guard when the cost of borrowing goes up.
There are free services available if you are worried about your debt levels.
Millions of people could escape their spiral of debt by accessing free advice.
However, this study presents us with a fundamental challenge: the majority of people with debt difficulties do not seek advice.
This is the first time we've had such a detailed understanding of the complexity of their lives. So now, armed with greater insights, we will work with advice agencies, creditors and public bodies to help as many people as possible access free, high-quality, debt advice.
The report used information from credit checking company Experian to build a profile of those who have sunk badly into debt.
Families dependent on benefits made up around one fifth (20.2%) of those who are over-indebted, while "worried" working families who find being in debt a constant burden accounted for a similar proportion (19.4%).
Nearly one in 10 (9.8%) of those with bad debts were identified as people who are working for the first time and one in eight (11.3%) are struggling students. Some 1.1% of this group are people eking out an uncomfortable retirement.
Almost three-fifths (58%) of those with severe debts were found to be in employment and nearly half (48%) live in a privately-owned home.
The MAS report, titled Indebted Lives, identified the UK's five most over-indebted areas as: Hull, Nottingham, Manchester, Knowsley and Liverpool. Around two-fifths of adults in all these areas are struggling with debt.
At the other end of the scale, Richmond upon Thames in south London has just 1.2% of its population struggling with debt, according to the report.
- Around one fifth (21%) of those the research classed as over-indebted, equating to 1.8 million people across the UK
- A further 11% were not concerned about being in debt
- One in eight (12%) over-indebted people said they were thinking about trying to get help soon
- Three-quarters (75%) of the estimated 8.8 million people with severe debt problems are under 45 years old and nearly two-thirds (64%) are women
- Some 74% of those with severe debt problems said they are unhappy
- Around four million people are thought to have been struggling to pay their bills for more than a year
- Just under half (48%) of those with severe debt had to forego basic necessities
Nearly nine million people are estimated to be trapped in a spiral of severe debt in the UK, the Government-backed body the Money Advice Service (MAS) has found.
Just one in six getting help to break free.
Around 8.8 million people are "over-indebted", meaning they have fallen at least three months behind with their bills in the last six months or they feel their debts are a heavy burden
But just 17% of this group said they are getting advice to help them deal with their debt, while around two-fifths (40%) said they did not feel able to talk to their creditors and 44% did not know where to turn for help, the research from more than 5,000 people found.
Millions of British families don't have enough savings to cover one month's rent or mortgageRead the full story ›
- Personal debt in the UK stands at £1.4 tn with an average household owing £54,000, compared with £29,000 a decade ago
- Unsecured consumer debt has almost tripled since 1993, reaching nearly £160bn
- Poorest 10% of household in the country have average debts more than 4x their annual income
- More than 8 million households now have no savings at all
- 26,000 UK households have been accepted by councils as homeless in the last five years because of rent and mortgage arrears, with 5,036 becoming homeless last year
- Payday lenders have increased business from £900 million in 2008/09 to just over £2 billion in 2011/12.