How Do Debt Problems Affect Family Finances?

Financial Difficulties, Bad Credit and Credit Card Debt

Feb 22, 2009

Family finances are seriously affected by debt problems. Loan and credit card debt can make it difficult to cover other household bills. Many struggle with bad credit.

The UK has officially entered recession for the first time since 1991. This couldn't have happened at a worse time for the millions of people struggling with debt problems. Unsecured loans, secured loans and credit card debt are at record highs. Many of the people struggling with personal debt are now facing redundancy. During Q4 of 2008, a staggering 2466 people were made redundant every day.

Family Finances and Household Bills

High personal debts have a lasting effect on family finances. Whilst personal debt is easy to accumulate, it can take years to clear. Making substantial debt repayments compromises a person's quality of life. It leaves less money available for essential household bills, let alone social spending.

Unpaid Personal Debts and Creditor Harassment

Failing to make repayments on credit card debt and secured loans often leads to creditor harassment. Whilst creditor harassment is a legislated area, creditors will still send letters, telephone and even show up at the door. Personal debts can even lead to deteriorating health and depression.

Personal Debt and Bad Credit

The higher someone's personal debt is in relation to their income, the more likely that person is to default on a credit agreement. As soon as that person fails to pay on time, a financial institution will inform all credit reference agencies. This will make future monthly repayments on new financial agreements, such as the mortgage, more expensive.

Mortgage Arrears and House Repossession

The Financial Services Authority (FSA) estimates that the total number of secured loans on people’s homes in arrears at the end of Q3 2008 was 340,000. This represents an increase of 30,000 or 10% since Q2 2008 or a rise of 24% on the previous year. By the end of 2009 the Council of Mortgage Lenders (CML) expects 500,000 households will have more than three months of mortgage arrears.

Growing Personal Bankruptcy and Insolvency Levels

Debt problems soon spiral out of control if not tackled with an action-plan or debt solution. Leading accountancy firm, KPMG, estimates that the number of people becoming insolvent may be as high as 411 people a day in 2009. That is the equivalent of 1 person becoming bankrupt or entering an Individual Voluntary Arrangement every 3.5 minutes. This means that family finances come under close scrutiny.

The scale of debt problems in the UK is unprecedented. The Citizens Advice Bureau (CAB) dealt with 4760 cases involving money problems every day during 2008. Those struggling with financial difficulties may wish to tackle debt problems with a debt solution, such as a debt management plan or Individual Voluntary Arrangement.

The copyright of the article How Do Debt Problems Affect Family Finances? in Personal Debt Management is owned by Asa Ghaffar. Permission to republish How Do Debt Problems Affect Family Finances? in print or online must be granted by the author in writing.