Personal debt hits £1.4 trillion mark
Personal debt in the UK has hit the £1.4 trillion mark with consumers expected to borrow an additional £327 million today alone.
The latest figures from debt charity Credit Action show personal debt increased by £120 billion last year. Of the £1.4 trillion owed, over £1.1 trillion is secured on property while £224 billion is consumer credit such as loans and credit cards.
The average British adult owes £4,713 not including mortgages. And with that amount of debt, it’s no wonder that interest repayments have soared to a record £94.6 billion.
Credit Action calculates that debt in the UK is increasing by £1 million every five minutes.
Need help dealing with debt?
If you are worried about being in debt then the first step is to face up to your situation and start taking action to deal with it.
Credit Action recommends that you get in touch with every company you owe money to as soon as possible to explain your situation. If a creditor has written to you or sent a court summons then reply within the time period specified giving them all the facts about your situation.
Make sure you keep copies of all correspondence and keep up communications with creditors – they want to get their money back so it’s in their interests to help you repay the debt.
Once you have listed all your debts, it’s time to prioritise them. For example, a mortgage or secured loan is a major priority because if you fail to repay the money then you could lose your house. Utility bills are also important because if you fail to pay these you could lose access to electricity, water or gas.
For more ways to get out of debt read our article Reduce your Debts.
As the name suggests, secured loans require security, or “collateral”, usually in the form of property, a motor vehicle, or another valuable item, as a guarantee for the loan. This effectively reduces the level of risk to which a lender is exposed, as the lender has a claim against your home, or other effects, if you default. Secured loans are often available at competitive interest rates. Types of secured loans include mortgages, logbook loans and some types of hire purchase where the loan is secured on the goods you’re buying and these are repossessed if you default.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.