Consumer Debt On The Rise Again
4th July 2012
The Bank of England has announced that consumer debt in the UK increased by £732m in the month of May. This consumer debt figure comprises bank loans, bank overdrafts and credit cards. These are the primary types of debts that are included in mainstream debt solutions such as Scottish trust deeds or Debt Arrangement Schemes.
This report indicates that the public appetite for debt is increasing rapidly, with the increase of £732m significantly exceeding the average increase of just £403m over the past six months. More than 90% of the figure is made up by overdrafts and bank loans, with credit cards seemingly becoming a less popular (or perhaps less available) source of credit.
Other recent data paints a bleak picture of UK personal finances at the current point in time:
- CCCS recently reported that it saw a 27% increase in the number of people it spoke to during 2011 in connection to Council Tax arrears.
- The latest figures on rent arrears reported in The Guardian (relating to England and Wales) show that more than 100,000 tenants are currently in arrears to the tune of two months’ rent or more.
- Use of last-resort lenders (payday and doorstep loans) continues to grow at a rapid pace.
Putting this information together it seems unlikely that the increase in consumer debt widely relates to the funding of luxury or discretionary purchases. An increase in council tax and rent debts suggests that there is growing public difficulty in managing basic household expenditure. It’s therefore likely that much of the increase in bank loans and bank overdrafts relates to managing basic household expenditure.
From the perspective of debt advisers working in the fields of Scottish trust deeds or debt arrangement schemes it appears unlikely that much of this type of borrowing will end positively. While some people may have short-term financial needs that they can manageably repay later, sustained borrowing to cover an imbalance between income and expenditure tends to create massive problems further into the future.
If you are finding things financially tough should you extend your overdraft or take out a bank loan? In our view it’s vital to conduct a household budget exercise first.
On one side, write down all the cash that comes into the house each month. On the other side, list everything that you have to spend money on. Don’t just write down the bills, it’s important to include things like the cost of clothing, petrol, vehicle servicing and repairs, and hairdressing for example. Does it all add up?
If it doesn’t add up, and you cannot take obvious steps to make it add up, further borrowing is very likely to make things worse. It may be better to seek advice on your options (such as a trust deed Scotland or DAS) if your credit commitments are already such that you cannot balance your household budget. Borrowing more will likely make things worse in the future, no matter how easy it seems now.
For further guidance you may wish to visit our homepage.
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