Tourists bathe in the Blue Lagoon geothermal spa as steam rises in Grindavik, Iceland, last week.
Prime Minister Sigmundur Gunnlaugsson plans to release a proposal on providing debt relief to households later this month. A government-appointed committee is working on how to implement a reduction of household debt "due to a spike in inflation in 2007-2010", Mr Gunnlaugsson said.
"The correction shall be across the board but it shall be evaluated whether a cap should be put on the amount each household can get."
Most households have their loans linked to consumer prices, which increases their debt when inflation accelerates. From January 2007 to December 2010 prices rose by 37.3pc.
Mr Gunnlaugsson has said he wants writedowns on 461 billion kronur (€2.8bn) in claims held by the creditors of the three banks. That would help the government deliver on an election promise to cut mortgage debt linked to inflation.