Earlier this year, research by PayPlan discovered that 94% of Britons think the UK has a debt problem but that most people would not seek help until their debts escalated to £25,000 or more.
We understand that debt is an everyday part of life – after all, your mortgage is effectively a significant loan to repay – but it’s important to acknowledge bad debt and how it can impact people’s lives.
It’s easy for things to spiral out of control and many of our clients come to us because a once manageable credit product has suddenly become difficult to repay, whether that’s due to a change in circumstances or an increase in fees on top of repayment costs.
So, what’s the situation for households across the country? Here we take a look at what Britain’s national debt is and what is contributing to it.
What is the UK national debt?
In the UK there is believed to be a staggering £200.8bn of unsecured household debt. This means we are taking on more and more borrowing through products such as car finance, credit cards and overdrafts than ever before – in fact, it’s the highest it’s been since 2008.
Based on this figure, the average household owes £7,413 in unsecured debt alone, a figure that many people would find hard to clear in full and on time.
The Bank of England has recently warned that the rate of borrowing has increased five times faster than earnings, which could put people in tough situations later when they come to repay what they’ve borrowed.
What is contributing to these high levels of debt?
Credit cards could be said to be one of the biggest types of unsecured debt. In June 2017, credit card debt was £68.5bn in the UK – up by £900m since April this year – and we are continuing to defy Government predictions that spending money on the high street will slow down anytime soon. But, to maintain our spending sprees and shopping habits, we’re turning to credit.
Many people are using credit cards because they are enticed by 0% interest repayment periods that allow them to spend, without worry about fees being added on top. But if these debts are not cleared by the time this period is up, what was once manageable credit could become a problem debt.
Ease of purchase
Ease of purchase is another factor that has contributed to rising debt levels. It’s easier than ever to pay for something with contactless cards and one-swipe systems – like the ones in place on our favourite websites and mobile apps, such as Amazon – allowing us to get our hands on a product without any delay or thought about what we’re spending. Using credit cards and other types of borrowing to fund these types of purchases will then contribute to the already massive debt levels in the UK.
Increases in everyday expenses
Increases in everyday expenses – rail travel for example is expected to increase by 3.6% – will tighten purse strings and encourage people to take on credit to allow them to continue spending. The main increases have been seen in things like insurance products and energy bills. Car insurance, for example, has risen and will definitely impact those who drive.
Why are people favouring credit now?
Rise in the cost of living
Figures suggest that people are turning to credit because their wages cannot keep up with the cost of living, reducing the amount of disposable income they have leftover and meaning they have to resort to spending on credit cards or even taking on the payday loan.
No savings for emergencies
According to the Money Charity, about 9.45m people in the UK have no savings. Therefore, should an emergency situation arise, they have no funds to cover the costs and they need to turn to credit. With the increase in availability of credit cards and payday loans, this is another contributing reason for more borrowing.
How is the UK national debt affecting people?
One of the most dramatic figures, when it comes to debt in the UK, is that 248 people are declared insolvent every day. This averages out to one person every 6 minutes and 13 seconds – at the time of writing.
Insolvency means that you are unable to repay your debts or can only offer a very small amount on a monthly basis. You can either declare yourself bankrupt or take on a debt solution, such as an IVA or DRO. While it can help a person remove their debt effectively, it will impact their ability to obtain credit even after the debt has been repaid – as it remains listed on their credit report. Of course, their credit rating is likely to be low already before even taking on this insolvency solution – so in the long run, it will help more than harm.
As well as insolvency, properties are also being repossessed every day at an alarming rate too, with one estimated to be taken back every hour and 13 minutes – that’s 14 a day. This suggests that people are either leaving it too late to take on a debt solution or have not found one that works for them.
The stats above show that increasing numbers of people are in danger of needing help with their debts. At PayPlan, we speak to people every day who are now finding their debts unmanageable and while it might feel like there isn’t much hope after reading these stats, it is possible get a hold on your debts and fix them.
We have lots of helpful guides here on the site on how to increase your credit rating and tackle your debts and our team are available six days a week via phone or live to talk to you about your debt issues and what you can do.