The number of households who say they are struggling has gone down nearly 10% to 1.9m compared to 2.1m last January.
The research also highlighted nearly 8.8m households say they are ‘surviving' every month, which means households are managing to cover bills and debt repayments with their monthly earnings. This is up 7% from a year ago.
Mark Gregory, L&G Chief Executive of Savings, said: "Perhaps we are seeing the first green shoots of recovery in our household finances despite the continued pressure of inflation, which remained stubbornly high in December and the costs of utilities, such as gas and electricity bills continuing to rise last month.
"We have seen two key indicators of a recovery in our latest MoneyMood results. Firstly the number of homes that are struggling to make ends meet has fallen year on year.
"This is the second year in a row that we have seen a drop in this figure, which in 2013 is 18% lower than January 2011 (more than 400,00 fewer homes struggling to avoid sinking further into debt)."
The monthly shortfall for households has also lowered. The average monthly shortfall is £42 across the UK, down £54 per month and less than half the figure recorded in January 2012 (£96).
However, not all regions of the UK are enjoying the ease on their household finances. Families in the North East, Scotland and East Anglia are still struggling.
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