- 31
- Dec
Five consecutive interest rate rises over the past 12 months meant that households are now facing a record debt burden. Even now that the base rate has dropped by a quarter point, it will be a while before financial relief is felt by most UK households.
Recent research suggests that 19p out of every £1 earned by households goes towards repaying accumulated debt and the interest on that debt. Although this sounds grim, much of that debt is secured against property, rather than in unsecured loans and high interest credit.
The previous debt record was back in 1990 when debt accounted for 18p in every £1. The burden of debt has been on the rise since 1997 when the figure was just 12p in a £1.
Even with the recent drop in base rate, the debt strain could get even worse by the end of the year. More and more of us could start to find it increasingly difficult to pay off our debt and more and more of our income goes towards servicing our debt. This is always true around Christmas and New Year when people spend beyond their income.
The reason we are feeling a real squeeze on our finances is not only because of increased borrowing but also because of modest earnings rises since 1997, rising utility bills, higher petrol prices and the increase in interest rates. All these things leave us with less real disposable income, but a sense of entitlement towards the ‘good things’ in life means that many families take out loans to finance holidays, cars and luxuries.
Despite the rising burden of debt (or maybe because of!) our spending has been rising also at an average rate of 5.5% per year since 1995. However growth in income has not been rising by as much and has only increased by 4.9%. The difference is made up be households borrowing more money.
If you are having trouble paying back your debt then there is always the option of discussing this with your creditors and coming to some sort of agreement. Early detection of financial difficulties is the best way of dealing with the situation. Debt consolidation loans offer a good way of re-financing at a lower rate over a different term and one monthly payment is easier to manage than several.
