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New Year – Same Old Debt Problems?

9th January 2015

The post-Christmas period traditionally leads to many debt-related stories appearing in the media. Most of us spend far more than usual in December, which can all too easily lead to a financial hangover in the New Year.

Despite this, since the credit crunch most of us had become much less reliant upon credit. Consequently the Scottish personal insolvency statistics have fallen significantly in recent times. Fewer people have reached the point at which serious debt solutions like protected trust deeds or sequestration (bankruptcy) became a necessary step to take.

This year’s New Year media reports suggest that downward trend might be about to change. We borrowed a net £1.25 billion in November; the highest figure since the recession began.

The Bank of England has in fact reported the biggest quarterly increase in demand for unsecured credit since the middle of 2007. Unsecured credit includes credit cards, store cards, catalogues and bank overdrafts. Lenders are reporting an increase in business as a result of increased marketing efforts, lower interest costs and application approval rates now being higher due to more relaxed credit scoring procedures.

We’ve generally become more willing to use credit, and lenders have become more willing to give it to us. This may be helping to fuel a recovery in the UK economy, but eventually there is likely to be a price to pay. 

To add to these UK borrowing trends, Scotland has particular issues with council tax and payday loan debt. The debt charity Stepchange reported in December that their Scottish clients had council tax arrears running at levels double those found elsewhere in the UK. Of the home nations, Scotland had the highest average payday loan debts.

Another recent news report states that, around the UK, one person in six is hiding debts from their partner. One person in nine is hiding debts of £5,000 or more. One person in twelve is hiding debts of £10,000 or more. Many of us aren’t just getting further and further into debt; we’re isolating ourselves and risking a breakdown of trust at home at the same time.

What’s fuelling this resumption in the use of credit? On the one hand some people may feel emboldened to take on debts to fuel purchases given the improving general economic news. On the other hand, many people are finding it near impossible to manage financially and are borrowing simply to make ends meet.

Whatever the root cause of our return to building up personal debts, the outcome is likely to be damaging where it goes wrong. Most people will be fine of course; they’ll limit the amount they borrow and budget carefully to pay it all back. That can fall apart quickly however when circumstances change in unexpected ways. Redundancy, ill-health or separation can blow apart the best-made financial plans. Others will not budget before they borrow. They risk inadvertently falling into an affordability trap with a repeated circular use of credit to get from month to month.

What should you do if you’re struggling to make your debt repayments or your debts are uncontrollably increasing over time?

The key decision to make is to get professional debt advice quickly. It shouldn’t cost you anything. You should be able to schedule it at a time that will not intrude on your professional or family life. It will not take up an excessive amount of time. At the end of the process you should be equipped with ideas and options to make things better.

What will those options be? It depends upon your unique financial circumstances. Some people can be shown how to manage their budget more effectively to get back in control. Some might need some help to restructure their repayment arrangements into an affordable schedule, perhaps under the protection of a debt arrangement scheme. More serious situations might be dealt with using a Scottish trust deed or by entering into sequestration. Many people will find that they have a choice between more than one of the above options.

Where can you get help? You may wish to ask questions in our forum to help point you in the right direction. Our professionally qualified debt advisers are ready to help you directly, as are those at our partner insolvency practitioner firms. You might also contact your local Citizens Advice or local authority money advice team for face-to-face support.

Taking the first step to tackle a debt problem is often the hardest step. If you’re struggling under the weight of debt, why not make 2015 the year that you take control back over your finances?

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