The credit crunch is hitting consumer spending hard, with 21 per cent cutting back on their outgoings, a new report has revealed.

A study by Bradford & Bingley (B&B) has shown more than a fifth of people are worried about their borrowing and reducing their spending accordingly.

However, it revealed some Britons, particularly the under-25s, are continuing to live beyond their means.

Paul Whitlock, head of savings at B&B, said: "There are still a number … who are continuing to bury their heads in the sand and are not being deterred by the prospect of higher borrowing costs and a tougher credit environment."

He warned the credit crunch is likely to continue to "bite" next year, adding that it is vital consumers take control of their finances.

For some borrowers, however, their debt has become unmanageable and the future looks bleak. One possible route out of debt is an individual voluntary arrangement (IVA), which clears a person’s debt within a set period, usually five years.

IVAs were created as an alternative to bankruptcy and allow the debtor to repay an affordable monthly sum, and retain important assets such as their home.