The Effects of Consumer Debt

By Nicola Bullimore

Consumer Borrowing

Consumer borrowing in the UK has now crashed through the £1 trillion barrier. 80% of this is due to credit card borrowing, loans and mortgages. How are people managing to handle their debt and what effect is debt having on families today?

The National Consumer Council reports that 6 million families in the UK are already struggling to make repayments towards their debt, and Citizens Advice reports that over the last 6 years, they have seen a 44% increase in the number of people seeking debt advice. This may be just the tip of the iceberg. There must be many families in the UK who have debt problems, but are not aware of the free help and advice available.

Tackling Debt

According to a DTI survey carried out in 2002, a household is likely to be over-indebted if:

25% of your annual income is spent on repaying Creditors

50% of your annual income is spent on repaying credit and mortgages

You have 4 or more companies that you owe money to.

People find it difficult to make repayments for a number of reasons. Generally, the underlying cause is some kind of change in personal circumstances such as job loss, divorce, illness or a new baby. In these instances some people may resort to more borrowing in order to pay creditors or household bills. This is not always the best option.

Effects of Over-Indebtedness

The personal effect of struggling to repay debt can be far reaching. Sometimes a lack of financial awareness can lead to stress, depression, anxiety, mental health problems, relationship breakdown and even suicide.

Raising Financial Awareness

The Government recognise the need to raise financial awareness amongst the general public. The financial cost of debt is not only on an individual level, but there is also a cost to society in general.

People who experience stress due to their situation, will probably seek advice from their GP and may take time off work, therefore, this has an effect on already hard-pressed NHS and productivity due to absenteeism.

People who have had homes repossessed need to be re-housed, generally by the local Council. Those who seek legal aid due to debt issues also incur a cost to the taxpayer.

The Solution before the Problem

Will raising financial awareness alone tackle the issues of debt problems? It helps for people who are already struggling with debt, but are there other areas the Government should be looking at?

If you pay your creditors on time, regardless of what it takes to pay them, you are classed as a good payer and therefore, not a risk when it comes to additional borrowing. In fact, your finances could be in turmoil and you could be taking money from one card to pay another but you may still obtain even more credit.

The freedom creditors have to advertise loans, credit cards and mortgages could be challenged as well as how decisions are made regarding lending.

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Mariafe

Mariafe from BaLXdzaKMuR

I believe that it is more that 6 out of 10.The only way they can be helepd is to help themselves by throwing out their credit cards and using only what cash they have in their pockets to make purchases and repay their outstanding debts.Why should the government or the credit card companies help these people? Credit card companies are a business after all. If the government tried to step in to help those in financial trouble, it could only be done by raising taxes which would mostly affect the working class. There would be a revolt !! It happens mostly to the irresponsible and ignorant young who have been pampered at home for most of their life expecting to get everything for free. So you might say that their parents should take some of the blame.The only way I can think of to get out of credit card or any other type of debt is to PAY IT OFF or declare bankruptcy which in turn will stay with them the rest of their life.People in financial trouble need to get a second job and allocate all that income to paying off the debt work with and stay in touch with the creditors perhaps try to consolidate some of the smaller debts.

Posted at 10:43:pm 05/17/12

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