Personal debt in Britain has reached £1.4tn – almost the same amount as Britain’s national economic output – according to a report that warns debt is wreaking havoc on people’s mental health and wellbeing.

Poorer people are “bearing the brunt of a storm” during which average household debt has risen to £54,000 – nearly double what it was a decade ago, the report by the Centre for Social Justice thinktank warns.

The report, entitled Maxed Out, found that almost half of households in the lowest income decile spent more than a quarter of their income on debt repayments in 2011. More than 5,000 people are being made homeless every year as a result of mortgage or rent debts.

Christian Guy, director of the thinktank established in opposition by the work and pensions secretary, Iain Duncan Smith, said: “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.”

The report, written by the former Labour work and pensions minister Chris Pond, found that:

• Personal debt in the UK, including mortgage lending, stands at £1.4tn – an average of £54,000 per household compared with £29,000 a decade ago.

• Consumer debt had trebled since 1993 and now stands at £158bn;

• More than 8m households have no savings, including half of low-income households;

• Outstanding debt on credit cards has almost trebled since 1998 to reach £55.6bn;

• There were 300,000 arrears on mortgage in 2012 – with 34,000 homes repossessed. This is a reduction of 30% from the peak of the recession but a 60% overall increase since 2006.

Pond said: “With falling real incomes and increasing costs of basic essentials, many – especially the most vulnerable – are sliding further into problem debt. The costs to those affected, in stress and mental disorders, relationship breakdown and hardship is immense. But so too is the cost to the nation, measured in lost employment and productivity and in an increased burden on public services.”

The report found that the decision of mainstream banks to refuse credit to the less well off has led to a dramatic increase in the demand for short-term credit – from payday lenders, pawnbrokers and doorstop lenders – which is now worth £4.8bn a year. More than 1.4 million people have no access to a bank account and “are effectively excluded from the entire financial sector”. This contributes to the “poverty premium”, a £1,280 annual surcharge on everyday goods and services faced by low-income households.

Payday lenders have increased their business from £900m in 2008-09 to more than £2bn – accounting for around 8m loans – in 2011-12. The number of people resorting to loan sharks has increased to 310,000 people.

The report says: “For the most financially excluded, there is often no option but to turn to illegal moneylenders. It is estimated that over 310,000 people borrow money from these criminals each year. Illegal moneylenders extort money from their victims, often arbitrarily raising interest rates, demanding payments or charging penalties. Their use of violence and intimidation terrorises people and communities, enforcing a ‘veil of silence’ that allows them to escape detection. This is an inexcusable crime in modern Britain.

Many of the side effects of problem debt can also work to drive people further into debt, creating a vicious cycle. While it is often hard to prove causation, there is a clear relationship between the following and problem debt: unemployment, family breakdown, addiction, and poor mental health. Similarly, many of these factors are interrelated, meaning problem debt can have diverse causes, requiring multidimensional support in order to fully resolve the underlying problems.”