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Consumer Debt

Consumer borrowing in the UK has now crashed through the 1 trillion barrier. 80% of this is because of the credit card borrowing, loans and mortgages. How are people managing to handle their debt and what effect is debt having on families at the moment

According to the National consumer Council reports nearly 6 million families in the UK are already struggling to make repayments towards their debt, and Citizens Advice reports that over the last 6 years, they have seen a 44% increase in the number of people seeking debt advice. In theory, this may be just the tip of the iceberg. There must be large number of families in the UK who have debt problems, but are not aware of the free help and advice available.

Tackling Debt

According to a DTI survey carried out recently, a household is likely to be over-indebted if:

First and foremost 25% of your annual income is spent on repaying Creditors

Secondly 50% of your annual income is spent on repaying credit and mortgages

In addition you have 4 or more companies that you owe money to.

People find it pretty hard to make repayments for a number of reasons. Normally, the main reason is some kind of change in personal circumstances such as job loss, divorce, illness or a new baby. In these cases few people may resort to more borrowing in order to pay creditors or household bills. This is not always the best choice.

Effects of Over-Indebtedness:

The personal effect of struggling to repay debt can have a far-reaching impact. More often than not a lack of financial awareness can lead to stress, depression, anxiety, mental health problems, relationship breakdown and even suicide.

Raising Financial Awareness:

The Government recognizes the requirement to raise financial awareness amongst the general public. The financial nature of debt is not only on an individual level, but there is also a cost to society in general.

Individuals who experience stress due to their situation, will probably seek advice from their GP and may take time off work, therefore, this has an effect on already hard-pressed NHS and productivity due to absenteeism.

On the other hand people who have had homes repossessed need to be re-housed, generally by the local Council. Those who look for legal help due to debt issues also incur a cost to the taxpayer.

The alternative before the Problem:

Will increasing financial awareness alone be enough to tackle the issues of debt problems It definitely helps for people who are already struggling with debt, but are there other areas the Government should be looking at

In case if you pay your creditors on time, regardless of what it takes to pay them, you are classed as a good payer and thats why, not a risk when it comes to additional borrowing. In fact, your finances could be in shaky condition and you could be taking money from one card to pay another but you may still obtain even more credit.

Fact remained that the freedom creditors have to advertise loans, credit cards and mortgages could be challenged as well as how decisions are made regarding lending.

If people, who are presently in financial crunch, find they cannot borrow more money, they should be made aware of the free financial advice that is available. Free Debt Management Companies like Payplan can negotiate repayments with creditors so that monthly payments are minimized and become more manageable.

Financial stress can lead to sleepless nights and unhealthy living patterns. When and individual begins to feel the heat of their finances pulling at them they begin to work longer hours with little rest. In that time they find that this extra work does not eliminate the financial pressures that they are under so they begin to consider other methods of increasing their cash flow. This is implemented by either applying for more credit cards or taking out another loan. They soon become aware of the fact that the peace they felt with the extra cash is short lived because now their debt is higher and they are struggling more than before to make the minimum payments to their creditors.

There are many advantages to consumer debt counseling, which includes but is not limited to assisting you in lowering your monthly payments to your creditors. Another advantage is providing you with teaching tools on how to budget your money. Making a budget and sticking to it is a vital part of getting and staying out of debt. Below are five steps on how to budget your money that will move you from living with debt to living without debt (or keep you from sliding into debt).

Step 1: It is of utmost importance that you know your income. In case is you do not know exactly how much money is coming into your household, it is a good bet you have no idea how much is going out. It is advisable that you sit down a figure out what your monthly income is. Analyze not only your paycheck, but also all other sources of income and add them together to arrive at your monthly total.

Step 2: This may take a bit more time and effort. You required listing all your expenses, both fixed and variable. It includes items such as your mortgage or rent, utilities, food, clothing, gas. In addition remember to include expenses such as childcare, personal expenses, etc. You want to also judge how much you are spending on insurance and taxes and when they are due so that you can set aside the money to pay them at the appropriate time. It is important to add them together to arrive at your monthly expenses.

Step 3: Minimize your expenses from your income and write down the total.

Step 4: Now the moment has arrived to list your unsecured debts such as credit cards. Note down the monthly payment and balance owed on each.

Step 5: From the total you wrote down in Step 3, now comes the next step of subtracting the amount of your unsecured debt. In case if the amount is a negative number, it is time to work aggressively towards becoming debt free. You can implement this by contacting a consumer debt counseling representative today. On the other hand if the amount is a positive number - you are doing great - continue on your path to living debt free.

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