Is overspending the root cause of trust deeds?

15th June 2011

Short-term lender, Lending Stream, has commissioned research into the sum we spend compared to the amount that we earn.

We’re currently spending £40 billion a year more than we earn. 33% of us spend an average of £2,500 more than we are bringing in. As this figure was only 26% last year, it can be clearly seen that the financial squeeze truly is having a major impact on lifestyle sustainability throughout the UK, and for many, prompting the need for trust deeds.

The research suggests that 13% of those who overspend identify unexpected expenditure, such as car repairs for example, as the root cause of this issue. However, this leaves a very significant 87% of those who overspent doing so in a more planned and expected way.

Irrespective of the current economic malaise, many people seem unwilling or unable to step back from lifestyles that can no longer be sustained on their income alone. For such individuals, the need for a formal debt solution such as trust deeds somewhere down the line is inevitable.

Overspending can only be facilitated through the use of credit. As more of us begin to once again rely on credit it is becoming increasingly expensive. Mainstream credit card and personal loan interest rates are at record high levels. There has been tremendous growth in payday and short-term loans at extortionate rates of interest. The irony is that this very research was commissioned by a lender advertising a representative APR of 3043.8%.

Regular overspending, along with periods of income loss are the most common root causes of trust deeds. Debts of £2500 are manageable for most people, however, if the same lifestyle is maintained year-on-year the debt will accrue disproportionately as the escalating cost of credit will magnify the debt level to a much higher level.

In the case where unsecured debts total £7,000 or £8,000, it can become harder to keep up with essential payments such as mortgage, rent, utility bills and Council Tax. In these circumstances it is regularly the case that essentials like food and petrol need to be purchased on credit. This of course serves only to further increase the debt total, making trust deeds an option which should be carefully considered.

This classic debt spiral will be all too familiar to trust deeds advisers. Many individuals who have gone ahead with trust deeds find it hard to understand where all the money went. They may have £25,000 of credit card debt but there is no new car in the driveway and there haven’t been any holidays in years.

So is the root cause of trust deeds overspending? Well of course overspending can be a catalyst for debt problems and subsequent trust deeds, whether it’s to tide one over in a time of income loss or to maintain an unsustainable lifestyle. However, sooner or later the overspending on unnecessary items will cease as this is the time when the sheer cost of credit has become uncontrollable and beyond and individual’s means. So at this point, overspending is required just to scrape by.

Overspending is risky, especially at a time when credit is so expensive. However, the major root cause of trust deeds actually appears to be a delay in seeking professional debt advice once finances become difficult. Less onerous solutions such as re-budgeting, debt management plans or the debt arrangement scheme may have been viable until the situation reached a level of severity at which trust deeds become the only practicable solution.

If you are experiencing problems with personal debt then you should seek professional advice at the earliest opportunity. Our trust deeds forum and news archive provides an excellent range of information. Alternatively, if you would like to speak to a debt expert direct, call our trust deeds advice line on 0800 043 7201.

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