New data has shown that personal debt levels in the UK are continuing to rise. According to the Money Advice Service, there are over 8.3 million people in the UK with money problems who are in debt. A mountain of debt is being racked up by UK consumers, and that mountain is rising each year.
According to The Money Charity, at the end of October 2017, it was reported that the UK population owed £1.562 trillion. This number is up from £1,504 trillion at the end of October last year, which means that on average, the UK population owers an extra £1,106.13 per adult.
There is serious concern that personal debt in the UK is becoming an epidemic, with more people than ever before borrowing money and ending up in debt.
On average, each household within the UK, which includes the price or mortgages, have a total of £57,432 of debt. That equates to an average of £30,176 in debt, which is around 113% of the average person’s annual earnings. Based on this statistic, the UK’s total cost of interest repayments would have been £49.812 billion. That’s £136 million per day and an average annual interest repayment amount of £1,831 per UK household and £962 per person, which is around 3.63% of most people’s annual earnings.
The Office for Budget Responsibility has said that by 2022, household debt in the UK is predicted to reach a whopping £2.296 trillion. This would mean that each household would have, on average £84,412 worth of debt in five years time. This statistic indicated that within five years, most UK households would have gained over £25,000 in debt. That equates to over £5000 worth of additional debt each year for the next five years.
An increasing number of UK citizens are struggling with debt…
There are serious concerns that many UK consumers who are in debt are unable to get a handle on the money that they owe and are struggling to pay it back. According to debt charity, Step Change, over 40% of its clients fell behind with debt repayments in the first half of 2017. It was also revealed that the average amount of debt of the people who Step Change helps has risen from £14,251 in 2016 to £14,367 in 2017.
Step Change has also highlighted that the people most at risk of falling into debt are young people aged 18 to 26 and renters, with many people struggling to make ends meet and taking out loans to pay everyday bills. It has also been noted that many UK consumers are struggling with ‘frontline debt’ like utility bills and council tax.
Consumer credit, which including credit cards, personal loans and car finance is increasing at around 10% per year, with 86% of cars being purchased via fiances or PCP (personal contract purchase).
According to The Money Charity, outstanding consumer lending was £205.3 billion at the end of October 2017. This has increased from £ 190.13 in October 2016, meaning that there has been an increase of £311.15 for each adult within the UK. That equates to an additional £7,549 per household per year of consumer credit debt and £592.57 spent on debts per household over the year. Credit card debt alone in October 2017 was £69.6 billion, per household this equates to £2,559. For people making one minimum payment each month to clear their credit card debt, it would take over 26 years.
Concerns that consumers cannot afford to meet ends meet…
Step Change has also said that it is concerned about the vast increase in the number of people under 40-years-old and renters who are struggling to make ends meet, noting that there has become a trend for low-income individuals and families to rely on credit to afford everyday essentials. Figures have revealed that many low-income households fall behind on a monthly basis with council tax payments, water rates, and other household bills.
The FCA’s research has revealed that one in six people with overdrafts, credit cards, personal loans, and car loans – which equates to 2.2 million people – are in financial distress. These people are, according to statistics, more likely to be unemployed, less educated than other people, have children, or be young.
Charities like Step Change and The Money Charity are doing all that they can to help people in financial distress by educating them on the best methods to pay back debts. A popular option for many people with debts who struggle to keep on top of each debt that they have is to take out a debt consolidation loan from a company like Evolution Money. These companies purchase the total amount of debt that a person owers, add a small amount of interest to it, and then charge one set fee per month, which goes towards paying off all debts in one go.
Step Change has said that in some circumstances, where a person struggles to keep up with various payments to different debt companies, a debt consolidation loan can be beneficial. However, whether this is the right option depends on the individual circumstance and the amount of debt the person has.
It is clear from the statistics above that personal debt in the UK is becoming somewhat of a problem. There is a particular concern for more vulnerable people – young people, renters, and families on low-incomes – and their levels of debt and inability to clear that debt.
Each year, debt levels in the UK are rising, which signifies that there is a serious problem when it comes to debt management. Thanks to payday loans, vulnerable people who would otherwise not be able to ascertain credit, are able to do so, leading to them ending up in detrimental financial situations, unable to pay back what they owe to their debtors.
UK debt is a serious problem, and according to research by Step Change, and other debt charities, it is only going to get worse.