Credit Action Advise Increase in Personal Debt

Credit Card Interest Contributing to Rising Household Debt

May 3, 2009 Neil Gunn

In a recent report the charity has published a series of startlingly bad personal debt statistics, collated from a number of sources.

Total UK Personal Debt

• Total UK personal debt at the end of the first quarter of 2009 stood at £1,459bn an increase of £28bn on the previous year.

• Average owed by every UK adult is £30,475 (including mortgages)

• Average household debt is £58,350 (including mortgages)

• £189m interest paid daily in the UK

A recent survey by the Resolution Foundation (Need for New Financial Advice Service Could Not be More Urgent... 14/4/09) found that almost three million people on low earnings (household incomes of between £12,000 and £27,000) worried all the time about their personal finances. It is estimated that in the UK people work for the first eighty-three days to service the interest on their debts (Unbiased.co.uk).

While there’s no denying that a worldwide recession has forced financial change on many people, it’s generally accepted that the fear of recession has changed consumer habits more than an actual change in their circumstances.

Debt Repayments

Many people, recognising the possibility of financial problems ahead, reduce their spending on items like food, holidays and entertainment but do so without first looking at their debt repayments. So with the proviso that not all debt is bad, only bad debt is bad, people should first look at ways of reducing their debts with the highest rates of interest.

Credit Card Borrowing

For many, credit cards are the largest forms of borrowing, excluding mortgages. Despite the lowest base rate for years (0.5%) credit card interest is on average around 17%. That means if the total monthly balance on the card is not paid in full, interest accrues at an alarming rate particularly if only the minimum payment is made.

So how can interest rates be reduced? The best way is to transfer the balance of the current card to a new 0% interest credit card; there are still some good deals on the market. Remember it is important not to spend on the new card. There is plenty of free and independent money advice out there to help people through the process.

If credit card companies are reluctant to issue new cards people have to consider other ways of reducing the interest. Find out which card is the most expensive and pay as much as possible towards it even if that means in the short term only minimum payments are made to others.

Other steps to consider are:

• Using any savings to repay the highest interest debts
• If paying Payment Protection Insurance (PPI) make sure it’s appropriate, if sold by the lender it is almost certainly available cheaper elsewhere.

The above examples are only a few of the many options open to those who are looking for ways to reduce their personal debt.

The following agencies can give free and independent debt advice:

Consumer Credit Counselling Service (CCCS)

Credit Action

UK Insolvency Helpline

Citizens Advice Bureau.

The information in this short article is not exhaustive and does not constitute financial advice.

Sources:

Credit Action, Debt Facts and Figures, 1 May 2009

Resolution Foundation, Need For New Financial Advice Service Could Not be More Urgent...

http://www.resolutionfoundation.org 14/4/09