Is Britain slipping into personal debt crisis?

November 21, 2006 By Matthew Paulson

That Britain is slipping into a personal debt crisis has been well documented for a number of years now. The UK’s burgeoning levels of personal debt have, for a long time, far outweighed that of our European neighbours.  Indeed, figures released last year revealed that the average consumer in this county is £3,008 in debt compared to an average figure of £1,558 across the rest of Western Europe. Alarmingly the UK is now responsible for a third of all unsecured debt in Western Europe.

It’s a precarious state of affairs borne out by the current figures for personal debt in the UK: In June 2007 the total figure for UK personal debt stood at £1,355bn and appears to be spiralling- the growth rate has increased to 10.1% for the previous 12 months. The average household debt excluding mortgages is now £8,856; this goes up to an alarming £20,600 if the amount is based on households that have some form of unsecured loan. If mortgages are included the average figure is £56,000. Perhaps the situation is most starkly illustrated by the following statistic: The UK’s personal debt is apparently growing by £1million every 4 minutes!

Don’t despair though, on a personal level bad debt is not inevitable and with a slightly more money savvy, disciplined approach to managing your money you should be able to keep things under control. Here are some easy suggestions to help you avoid debts getting out of hand. 

Don’t spend money you haven’t got 

Maybe this is a fairly obvious sounding suggestion but stick to it and can’t really go wrong. Most peoples debt problems are a product of relying too much on a buy now pay later attitude.  Be disciplined with debt repayments The quickest way of accumulating debt is by paying it off too slowly. This is particularly the case with credit cards - in an ideal world you would pay off your cards in full every month, keep in mind that the quicker you deal with debts the less likely they are to spiral out of control.  It may seem like an easy option but just setting up a minimum monthly payment on your credit cards is a far from effective means of clearing your debts. You should keep in mind that minimum payments are calculated by banks to keep customers in debt for as long as possible. By simply deciding on a fixed payment just above the initial minimum payment and sticking to it you’ll quickly make a far bigger dent in your debts. 

Transfer your balance

An easy method of stopping your credit card debt spiralling out of control is by transferring your balance to a 0% card. There are loads out there, just look for the longest 0% balance transfer period. Currently the market leading 0% credit cards are probably offered by RBS and Natwest credit cards who both offer 0% for 13 months although you can keep up to date with these things by consulting a comparison site. The one thing to remember if you’re doing this is not to use this card to buy anything. The likelihood is that it won’t have a purchase rate that is anything like as competitive as the balance transfer rate.

Never, ever, take out a store card. 

These are generally sold by tempting shoppers with short term store discounts, don’t fall for it!  Whatever the discount the store offers you on the day, remember, it won’t be as a gesture of goodwill. Nearly all store cards carry a vastly inflated rate of interest and they rely on you paying off the balance in full straight away.  

Make sure you can afford your loan 

Don’t take out a loan without carefully considering if you can comfortably afford the repayments. Just because a bank is willing to give you the money don’t assume it’ll be a breeze paying it back; budget for it and assess how easily the repayments will fit into your monthly income and outgoings.

As long as you budget carefully and don’t borrow more than you can comfortably afford to pay back then there’s no reason not to consider an unsecured loan. In fact with rates historically low at the moment now could be a good time to borrow. Currently there are a few lenders offering loans at 7.5% or cheaper, two of the best on the market at the moment are the personal loans from Alliance & Leicester at 7.1% and the Moneyback Bank loan at 6.7%.  You would be well advised however to first check a loans calculator (most lenders have one on their website - there’s one on the A&L loans site for instance) this should give you a good idea of what you’d be paying every month.    

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