Reasons for UK Consumer Debt Increase

Consumer debt is outstanding, or unpaid, consumer credit. It is also sometimes called personal or household debt. Reuters reported in April 2010 that personal debt, including mortgages, in the U.K. stood at 1.5 trillion, or $2.16 trillion, and that one in ten people has debt problems. Credit Action, a charity, reports that this is a twelve-month growth of 0.9%. It adds that the average household debt in the UK is almost 9,000, excluding mortgages, or about $13,000.

Reasons for the Increase

Falling interest rates fueled borrowing.

Data from the Bank of England, quoted by The Institute for Fiscal Studies, show that unsecured, meaning not collateralized, debt as a fraction of household disposable income has been roughly constant since 2002. This means that the rise in incomes has been followed by a rise in debt. Falling interest rates, which fell from 5% to 0.5% in less than three years, encouraged people to borrow more. Once they entered difficulties, debt just kept getting larger, thanks to high repayment rates by credit card companies and other lenders. Rising unemployment also fuels debt problems. The goingdebtfree.com website says that more than 1,500 people in the U.K. lost their job every day in 2010.

Renters and the Poor are Most at Risk

People renting a house are more at risk than homeowners.

The Institute for Fiscal Studies says that those renting their houses and lower-income households generally face a greater risk of running into problems. This is mainly because of high and rising utility bills combined with slowing growth of real incomes. Also, people with poor credit scores get locked into high interest rates on money they borrow, which makes it more difficult to repay the debt.

Debt Forecast

Rising unemployment makes things more difficult.

Most experts predict high debt levels for some time. Chris Tapp from Credit Action, in a report quoted by the Glitec financial website, stated that personal debt levels in the UK are set to remain high as many people are still struggling with their finances and therefore do not have the resources to tackle their debts and make repayments on the money they owe. The situation is made even more difficult by the fact that many people have lost their jobs or now work reduced hours.