Article by Naomi Webb
Here in the UK we love our credit cards and payday loans and many of us think nothing of dipping into our overdraft at the end of the month. But all of this amounts to debt and it could be argued that Britain has too much of it. However, how worried should we be about it?
Media sources and their arguments are conflicting when it comes to the issue of UK household debt. In this country 26.5% of a household’s annual incomes goes towards paying off debt, with the average amount owed by a UK home standing at around £11,800. When asking the question if UK households are in too much debt, these figures might make one respond with a resounding yes.
However, the Financial Times reported earlier this year that there’s no reason to worry; that in fact the ‘appetite for debt has fallen sharply’ and that the rate households are currently increasing their debts is four times less than between 1997 and 2009.
While debt hasn’t risen of late, we must still come back to the stats and they are across the board, very high. Income is not rising as it should be and to combat this many households turn to quick fix loans and credit cards to support their spending. Thankfully, payday lenders are under stricter guidelines when it comes to the interest rates they can apply to loans but this hasn’t yet made much of a dent, when it comes to how much is owed.
The Independent recently reported that the UK’s debt to income ratio is going to ‘race back close to pre-crisis levels over the coming five years’. This is because house prices are expected to rise faster than income, leading to bigger loans and bigger debts for those looking to climb that first rung on the property ladder.
Car loans have also been noted as a contributing factor to the UK’s debt issue, as people think nothing of signing up for finance deals on new cars – and this trend has actually resulted in figures of £2,759 in unsecured debt per household in the UK. The temptation of low servicing costs, no MOTs and the opportunity to swap your vehicle for a new car every three years is drawing people in, but they are then paying out hundreds of pounds per month to keep it on the road and to essentially rent the vehicle until they return it.
In light of all this, and as the interest and charges add up, more and more people are seeking out debt solution services, such as those offered by PayPlan, who can assist households who have found themselves in high amounts of debt. While it’s good news that there is help available, worryingly the numbers for those requiring it are not expected to come down anytime soon.