Last week The Money Charity released its latest figures on the level of personal debt in the UK. The figures were quite alarming showing the biggest increase in the level of loans and overdrafts (excluding credit cards & mortgages) since February 2008.
What are the current personal debt statistics?
- £6,048 - average household debt (excluding mortgages) up from £6,020 in February
- £54,546 - average household debt (including mortgages) up from £54,434 in February
- £161 million - amount of interest paid every day on personal debt
- £1.6 billion - daily value of all plastic purchases in February
- every 5 minutes 12 seconds someone is declared bankrupt or insolvent
Is the debt situation getting better or worse?
Following the start of the 2008 recession UK personal debt reduced as banks tightened their belts and consumer were concerned about their job prospects.
However this more prudent approach to personal debt was short lived and the level of personal debt has now grown for the last 17 months in a row, the most sustained growth since the recession.
The amount of personal debt in the UK has doubled in the last decade and commentators suggest that this could increase by over 40% in the next 5 years.
Why are we are so in love with debt?
There a few factors that drive this increase in debt such as -
- UK obsession with home ownership
- availability of easy credit through credit cards
- credit available from new sources, such as payday lenders, which fuels expensive debt at the lower income levels
- the culture of instant gratification fuelled by advertising
- the debt spiral effect which encourages people to take on more debt as your outgoings on existing debt increase
What are the problems created by unmanageable debt?
- nearly 2.5 million children are living in families struggling with 'problem debt'
- many families are taking out loans to pay for basic living needs
- stress of dealing with debt can cause arguments and even bullying within families
- it is estimated that one in five families are currently affected by debt problems
Can we live without debt?
To buy some of the big purchases in life, such as a property, most people will have to incur debt but for other purchases debt is not a necessary evil.
Here are some tips to avoid the burden of debt:
- don't incur debt for impulse purchases
- always pay off any credit card balance as soon as possible using savings if necessary
- don't buy things just to make you feel better
- don't buy things just to impress people
- understand how long it will take you to pay off your credit card debt by using this Credit card repayment calculator
- start 'big picture' budgeting to take control of your income and outgoings
- understand if you are living beyond your means by reading this article - 7 signs you are living beyond your means
- if you currently have debt problems then read this article - Where to get free debt advice