Britain: the debt-ridden island

12 March 2012

What do Kerry Katona and Sarah Ferguson have in common? Aside from both being in the public eye, you could be forgiven for thinking ‘not a lot'. One is an ex-member of a pop group, while the other is an ex-member of the royal family. However, both have well-documented money troubles.

Katona was declared bankrupt in 2008, while Ferguson has racked up a reported £5 million in debt. So if two high-profile millionaires can get themselves into trouble, what does this say about debt in our country today?

Owing money is pretty common these days: every four minutes and 21 seconds, someone in the UK is declared insolvent or bankrupt, according to charity Credit Action.

Average debt on credit cards and personal loans in the 12 months to January stood at £7,944, The payday loan industry also looks set to multiply these figures: almost one million people used payday loans to cover their mortgage or rent in 2011, according to charity Shelter.

"Borrowing has become a way of life," says Steve Rees, founder of debt management company Vincent Bond & Co.

Spend now, pay later

Janice and David Lee, from Cannock, Staffordshire, wholeheartedly adopted the ‘spend now, pay later' attitude so common in recent times. The couple racked up £85,000 worth of debt on various credit and store cards. "It was a case of wanting everything now," explains Janice. "If we were sitting at home on a Saturday afternoon feeling bored, we'd go out into town. We never came back empty-handed."

The Lees also enjoyed exotic holidays and would simply extend the limits on their cards to keep up their comfortable lifestyle. But it was only when they had to resort to withdrawing cash on their credit card – a notoriously expensive practice - just to pay for everyday expenses that they realised they were in trouble.

Janice and David, 58 and 65, built up debt despite earning decent salaries; Janice works for the police in administration, on a £38,000 salary, while David, now retired, was earning £35,000 also working for the police – both way above the national average salary of £26,200.

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Debt can affect us all

The Lees' predicament dispels the notion that it's only people on low incomes that find themselves in debt. Loan comparison website recently carried out some research to find out what its typical users were like. It found that a fifth of its clients
were on salaries above £35,000; 60% had been in the same job for more than five years, and half were over 40.

As Stephen Green, spokesperson for Freedom Finance, puts it: "We are seeing more and more people with good jobs and good salaries needing to borrow money." Bev Budsworth, managing director of The Debt Advisor, agrees with Green. "The days when it was the lower social classes who ran up debts are long gone, today people from all walks of life are suffering."

It's easy to assume the only reason people get into debt is because they are living beyond their means, but the current economic climate has seen all sorts of people having money troubles. "A lot of consultants and business owners have been hit hard by the recession and whereas in the past they were able to make their monthly payments, the sudden drop in income has made it harder to do this," says Budsworth.

Case study...

Entrepreneur David Dales is an example of this. He ran a successful IT business in Kent but during the recession work dried up and it wasn't long before David found himself winding up the business and applying for Jobseeker's Allowance. He owed £48,815 but had no way of repaying it. On top of that David had to have a cataract operation and another operation on his stomach.

A week after coming out of hospital, David was forced to sleep in his car because he hadn't kept up his rent and had nowhere to live.

Unable to work because of health reasons, and daunted by the huge amount he owed, David didn't know where to look for help. "The council kept stopping and starting my benefits and I couldn't get an explanation why. I was really depressed. I was so down I tried to commit suicide."

Following treatment for depression, David moved into sheltered housing and was put in touch with Lee, a welfare benefit officer for Russet Sheltered Housing scheme. After advice and help from Lee, David was awarded a higher level of benefits and his blocked payments were also backdated and paid. "Without Lee, I would have been totally lost," says David.

Easing the burden

As well as taking its toll on your health the repercussions of owing money can affect relationships with those closest to you. A 40-year-old father of two, who lost more than £25,000 through stockmarket investments and wishes to remain anonymous, found his money worries taking over his life. "At work, I wasn't concentrating on anything; then I'd come home and sit in front of the TV but I wasn't watching it, I wasn't even talking to my kids."

The pressure became too much and after seeking professional debt advice he took out an individual voluntary arrangement (IVA). An IVA allows the borrower to repay unsecured creditors according to what they can afford.

Being in serious debt has other repercussions. "Missing repayments on your debts has a severely negative impact on your credit rating," warns Matt Hartley, spokesperson for debt charity Consumer Credit Counselling Service. "This can significantly limit your ability to secure credit in the future. It can also make it difficult to open a bank account or secure a mortgage."

And if you are forced into bankruptcy or become insolvent, this could also impact your employment prospects in certain professions such as law, finance and the Armed Forces, says Hartley.

Borrowing is inevitable for many of us - but maybe if we thought more about the potential consequences of being in debt we'd be less willing to go into the red. The problem is most people don't think they're in debt until they can't make repayments. This has got to change.

Useful contacts

  • Advice UK: 020 7469 5700
  • Citizens Advice: Find the phone number of your local bureau from your local library or phone book or online.
  • Consumer Credit Counselling Service: 0800 138 1111
  • National Debtline: 0808 808 4000
  • Payplan: 0800 280 2816

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