Consumer debt in the UK is on the rise. In fact, the total amount of consumer debt in the UK (£1.345 trillion) has now overcome the total UK GDP (£1.33 trillion). In order to cover this enormous amount of consumer debt, the government is going to have to use some of the proceeds from 2008 to cover the remaining debt.
One reason for the massive amount of debt now plaguing the UK is that for years, borrowing money has been quite cheap. The low cost of financing purchases has led to a very strong "buy now, pay later" mentality among consumers in the UK. Now, as a result, consumers are £1.345 trillion in debt. This debt is comprised of credit card debt, mortgages, and loans.
There has been significant economic growth in the UK in the last ten years, and much of that growth is due to the amount of consumer spending that has taken place. However, now consumers are paying the price. In the past ten years, there has been an average of 24,000 cases of insolvency per year. In 2006 and 2007, that number has increased to an average of around 107,000 personal insolvencies per year. Some people are in so much debt that even a little interest rate increase may be enough to put them over the edge into bankruptcy or into getting an IVA.
The problem isn't only the number people that are in debt. The bigger problem is how much debt some people are in. It's not uncommon for people to be as much as £50,000 in debt, spread over three or four credit cards. On top of that, many people have their mortgages.
New mortgage customers are much more affected by the recent increases in interest rate because many people that already have mortgages were able to lock in lower interest rates. Regardless of the interest rate on a mortgages, the amount people are paying is a very significant amount of their total income. In 1997, the average mortgage was for 12.5 per cent of a person's annual income, but now that percentage has increased to 17.6 per cent. It's even higher for people taking out new mortgages. They can be paying up to 18.1 per cent of their annual income on their mortgage payments.
While all of this information may sound overwhelming, there are ways to deal with your own personal debt. For example, you can take out a debt consolidation loan. With a consolidation loan, you can combine all of your outstanding debts into one so you'll only be making one payment per month at a lower interest rate that you'd probably be paying on your individual high interest debts.
Another solution is to speak with a debt management agency. If you choose this route, you'll speak with a debt counselor who will assess you situation, and they will speak with your creditors to try and reduce your interest rates and lower your monthly payments. As with a consolidation loan, you'll only need to make a single monthly payment, but you'll make it to your debt management agency.