Some 18 per cent of the £3.4bn released in equity last year was used to clear unsecured debts.
It found 14 per cent of borrowers used equity release to pay off credit cards while 12 per cent repaid loans. A further six per cent used the money to pay off car finance.
Based on the UK average credit card debt of £8,428 and loan debts of £11,762, Key calculated that customers would be paying £292 and £267 each month on repayments respectively.
With the full basic state pension amounting to £9,339 from April, the firm found repaying these debts would respectively account for 34 per cent and 37 per cent of the average retiree’s annual income.
However, borrowing £20,000 to repay debts then making ongoing repayments to service the interest could see a client pay £42 per month for the life of the loan instead at the average market rate of 2.5 per cent.
Will Hale, CEO at Key, said: “Unsecured debt is a major issue for people of all ages and our data shows that it affects those in their 70s and 80s as well much as younger people. Nobody wants to retire in debt but sometimes it is unavoidable.
“The problem is that people on fixed incomes will struggle to clear debts and often end up paying the minimum amount each month which inevitably means it takes longer to pay the debt off as interest mounts up.”