It is not the first time we have been warned of Britain’s growing debt problem. Campaigners and debt charities have been talking about it for a long time. They now say levels of debt are the highest since the global financial crisis almost a decade ago.
Recent figures from the Bank of England have shown consumer debt grew by 10% in the year to June to £210bn, the highest figure since December 2008.
The increased debt problem was predicted.
Debt charities have been predicting the increase in borrowing through credit cards, overdrafts, car loans and other unsecured consumer credit. They say that this borrowing and other forms of financing has now topped £200bn.
A spokesperson for one debt charity said. “There is a bunch of people hanging on by their fingernails and a little shock to their finances pushes them over the edge.”
The charity estimates that 2.9 million people are in severe financial difficulty and 9 million are “teetering on the edge.” The growing problem has led the Bank of England to warn lenders that they face action against reckless practices over what was described as a “spiral of complacency” by Alex Brasier, the bank director for financial stability.
“Be aware of how you spend your money.”
“Be aware of how you spend your money,” advice from one debt charity says, “and be reflective of where you are at any one time. Typically, those who are most exposed to debt have limited pay progressions, more insecure work situations and are on low to middle incomes. When people find themselves in persistent debt, it can be very hard to move from that.”
“If you find that you are doing things like using credit to pay for essentials. Constantly in overdraft. Constantly being hit by charges. Then you are descending into financial difficulty.”
“Stick to the golden rule of borrowing. Don’t go into debt for something that will last for less time than the amount borrowed takes to pay back.”
Loans can be good if used for an investmentbut bad if used for holidays.
Another debt analyst said, “cheap personal loans, one of the causes of the current debt bubble, would work for improving a house as a new kitchen or similar work is an investment.”
“If you are borrowing to go on holiday and planning to go on holiday next year as well, you need to be able to repay that debt in a year. If you are just financing current consumption, you should be paying for that out of your current income.”
New caps on payday lenders has helped.
New regulation by the Financial Conduct Authority (FCA) brought a cap on the amount of interest that could be charged on payday loans. This certainly helped. It drastically reduced the number of people who had unmanageable debts from lenders in the payday loan sector.
But the credit problem did not go away.
One personal insolvency practice spokesperson said “It’s like a balloon, if you squeeze it in one place, it pops out somewhere else. You clamp down on payday loans and people take out more store cards. When you have inflation creeping up and wage increases not keeping up with that, it is kind of inevitable in a way.”
Store cards have become a growing problem. They can charge high interest rates. Typically, rates come in between 25% and 30%. Critics dubbed them ‘the devil’s debt’ as they are often sold by untrained staff who do not explain the consequences of unpaid debt.
Credit card debt has been identified as one of the main problems behind the current bubble. Most important when trying to address the issue is to try and repay more than the minimum.
“When you have a credit card, you can set it up to pay the whole amount, which lots of people can’t afford to do, or set it to pay the minimum. It sounds responsible to pay the minimum because you know you can’t miss a payment.”
“But people just don’t believe how long it takes to repay a credit card because that minimum keeps dropping a small amount every month. I always encourage people to round up. If you are paying £86 now, most people will say they could pay £90. Then pay that same amount every month. Don’t fall into the minimum payment trap.”
Car loans have increased fourfold in ten years.
Car loans, and in particular personal contract plans (PCP) have increased fourfold in the last 10 years. Under a PCP buyers commit to a monthly payment, often paying only a small deposit. At the end of the set time of the plan, typically 3 years, the buyer can choose to hand back the car or buy it. Buying the car at the end of the plan is often called a balloon payment.
“This rise in car finance has resulted in people changing their vehicles more often than they should. Therefore, missing out on years of cheaper driving.”
“It looks cheap and it is handed out without a great deal of checks on what you can afford. Sometimes you can walk down a street and you can look at the cars and think ‘how can they afford them,’ The answer is most of them are on finance.”
“The car industry has found a way to keep people changing their cars after three or four years. Getting another new car each time. All the depreciation happens at the start. You are missing all of the cheap years driving by getting these short-term PCP contracts. If you keep each car for six years instead of three, you are going to pay a dramatic amount less for cars over the whole of your life.”
Looking for help.
According to the debt charity, “There is a message there for people in that the earlier you get help, the less pain it will be. If you are struggling and you are going slowly downhill, all that will happen will be that you will get more stressed, your debts will build and when you fall over it will be that much more painful.”
Asking for help is sometimes difficult for people to do. Half of the people who contacted a debt advice charity say they waited a year before getting any help for their problems. During this time things usually got worse. The best advice would be to seek help sooner rather than later.
Finding good debt advice.
There are good debt advice companies out there. Look for ones regulated by the Financial Conduct Authority (FCA). The good ones will listen and help you to find a solution that fits your unique circumstances. They will also never judge and the advice will be free. They should never put pressure on you to do something you don’t feel comfortable with either. The best advice helps you to take control of your finances and get your life back on track.
No one ever wants to get into debt. Sometimes we use our credit cards to buy unnecessary things, this is true. However, latest research shows that most households struggling with problem debt are using their credit cards just to keep afloat. To pay for essential household bills and food.
Sometimes debt is thrust upon us. It can come from a horrible change in circumstances. Like a partner dying, personal illness, divorce, mental health problems or losing your job.
No debt problems are unsolvable. It might not be easy or quick, but there’s always a route. And the earlier you deal with them, the easier they are to deal with.
Getting help with debt problems is ‘vital.’
Finding a good debt advisor is often a relief. At Ramsey Lomax, we have years of experience in helping people. One thing to remember is that your chat with our advisors is completely confidential, free and without obligation. For many of our clients just getting it off their chests and having a sympathetic ear to talk to can make all the difference. At Ramsey Lomax we understand ‘financial fear’. We have helped 1000’s of people to find a lasting solution to their debt.
Ramsey Lomax is fully authorised and regulated by the FCA, the Financial Conduct Authority. We also have a 5 star Trustpilot rating.
Taking that first step is not always easy but is a crucial step towards helping you to find financial freedom.