Consumer debt is once again on the rise
The UK is riding the wave of yet another credit boom. The current levels have climbed dramatically over the last few years, and are now reaching heights not seen since the 2008 financial crash that triggered a global recession.
In February of last year 2016, the Bank of England revealed that the growth rate in consumer credit had hit 9.3%, which was the highest it had been since December 2005. Its latest figures indicate that unsecured consumer credit grew by 10.8% in the year to November to a total of £192.2bn.
This is the fastest rate of growth in almost 11 years and comes at a time when households are taking on more and more debt (credit cards, higher-purchase loans and second mortgages) and competition between the banks and the credit card companies is at its fiercest.
The intense competition to attract customers has seen many high street banks and credit card companies offering 0% interest rates to new customers – a rate which will remain fixed for several years, in some cases. The effect of this is that loan rates have plummeted and balance transfer deals are becoming ever more generous.
The Trade Union Congress (TUC) has put unsecured debt as a percentage of household income at its highest level for eight years – with the figure currently standing at 27.4%.
Households are better able to absorb higher debt levels, thanks mainly to the current record-high level of employment and low interest rates, which keeps the servicing of debt affordable for the majority of borrowers. However, the Bank of England’s recent figures show a worrying trend in consumer spending habits, habits that appear overly reliant on credit and overconfidence in the economy.
If interest rates start to rise or the economy suffers a downturn leaving high numbers out of work (something that is quite feasible given all the turmoil and uncertainty surrounding Brexit), then the current debt levels could soon start to become a bigger concern.
So if you’re one of the hundreds of thousands of Britons with credit cards, mortgages and higher purchase orders, how should you be managing and monitoring your debt? Well, even if you don’t have a debt problem, it’s always worth reviewing your current circumstances. Below are the top three tips you should consider when dealing with your debts.
1. Consolidation
There will be many people reading this that owe money, whether on credit cards or overdrafts, that have high interest rates. If this is the case, it may be worth looking into taking out a “Best Rate” personal loan. These types of loans will often have a lower APR, a structured monthly repayment rate and will provide you with some certainty as to how long it will take to clear your debt.
2. Pay-off debts prior to saving
It’s a good feeling to be able to put money away and give yourself a financial cushion. However, there’s no logic to having savings while you’re drowning in debt. If you owe money, using your savings to pay off that debt could save you hundreds in yearly interest charges.
3. Seek independent advice
If you are struggling to manage or restructure your current debts, it’s best to seek the appropriate advice. If you can’t afford your repayments, it’s better to be proactive and get free independent advice before falling into further financial trouble. There are a number of debt management charities that can offer sound financial advice.
If you require advice on the issues raised in this article, or on any aspect of debt recovery, please contact Richard Gwynne at rgwynne@se-solicitors.co.uk.
*Disclaimer: While everything has been done to ensure the accuracy of the contents of this article, it is a general guide only. It is not comprehensive and does not constitute legal advice. Specific legal advice should be sought in relation to the particular facts of a given situation.
This article was originally published by Martin Hughes in March 2017
