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It seems that Britons’ appetite for debt is showing no
signs of abating, and this love of borrowing is catching up with
more and more people, with lenders reporting the highest levels
of bad debt since the recession of 1990.
This somewhat concerning report was compiled by the CBI (Confederation
of British Industry), which warns that it is a signal of a furthering
of the UK’s ‘spend not save’ culture. While
rising levels of consumer debt are not necessarily a bad thing,
provided the persons taking on the debt can afford the repayments,
the latest reports show that an increasing number of people cannot
afford the loans they have, hence the rising bad debt reported
by the lenders.
Taking on any debt without a clear plan of how you are going
to repay it is a bad idea, before applying for a loan or mortgage
you need to be sure that the repayments will be manageable, and
that you budget effectively in order to have the repayment money
available to you each month.
One of the easiest ways for consumers to get themselves into
debt without realising the consequences is through the use of
credit cards. These are a very simple way in which to get credit,
and many people who use them do not think of them as a form of
lending, and therefore debt, instead they see them as a convenience,
and something that they can reach for when the want something
that they cannot afford at the time.
Such an approach can easily lead to problems, as by taking on
debt without being prepared for the repayment is ill advised,
something that is made worse by the high rates of interest charged
on credit card debts. Once debts start piling up it can be a never-ending
spiral, the more debt you have the more the repayments will be,
making them harder to meet, and the more interest you will be
charged, which again adds to the amount of debt.
Many people in the UK have found themselves in this situation,
and have been forced to take out an IVA (Individual Voluntary
Agreement), which is in simple terms a contract between the borrower
and the lenders stating that the borrower doesn’t have the
means to repay as agreed, and sets out a new repayment that can
be made. These IVAs are bad for both parties, for the lender they
do not get their full amount back (adding to their bad debt),
and for the borrower they are very limited to what credit if any
they can get in the future.
Borrowing money in itself isn’t necessarily a bad thing,
and if planned for properly can in fact be beneficial to the borrower,
a good example is a mortgage – buying a property without
one would be impossible for most people, and the vast majority
of people with a mortgage have planned for it financially, and
are comfortable with the debt, and have the benefits that come
with home-ownership.
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