The Effects of Consumer Debt
By Nicola Bullimore
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
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.
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
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.
Warning: include(../xcommentpro/Main.php): failed to open stream: No such file or directory in /freeola/users/2/7/sr0328772/htdocs/Divorce-articles/consumer-debt.php on line 171
Warning: include(): Failed opening '../xcommentpro/Main.php' for inclusion (include_path='.:/usr/share/pear:/usr/share/php') in /freeola/users/2/7/sr0328772/htdocs/Divorce-articles/consumer-debt.php on line 171