The Effects of Consumer Debt

Consumer BorrowingnConsumer 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?nnThe 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.nnnTackling DebtnAccording to a DTI survey carried out in 2002, a household is likely to be over-indebted if:nn 25% of your annual income is spent on repaying Creditorsn 50% of your annual income is spent on repaying credit and mortgagesn You have 4 or more companies that you owe money to.nnPeople 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. nnEffects of Over-IndebtednessnThe 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. nnRaising Financial Awareness nThe 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.nnPeople 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.nnPeople 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. nnnThe Solution before the ProblemnWill 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?nnIf 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.n nThe freedom creditors have to advertise loans, credit cards and mortgages could be challenged as well as how decisions are made regarding lending.nnIf people, who are currently in financial difficulty, find they cannot borrow more money, they should be made aware of the free financial advice that is available. Free Debt Management Companies such as Payplan www.payplan.com can negotiate repayments with creditors so that monthly payments are reduced and become more manageable.