Personal debt in the UK is a growing problem and many individuals are struggling to stay on top of their personal loan and credit card repayments, particularly when they are faced with high inflation and rapid increases in their monthly food and fuel bills.

The Office for Budget Responsibility (OBR) has predicted that the level of personal unsecured loan and credit card debt is likely to increase significantly over the course of the next couple of years or so, as many people take on additional loans and use their credit cards on a regular basis to pay for everyday items and bills.

Many people who are already finding difficulties in paying their loans and other debts are not able to make it through to their next pay day with just their salary alone and a growing number of people are taking out personal loans and in some cases, expensive doorstep loans or pay day loans in order to simply pay their outstanding bills.

This is clearly the worst thing to do if someone is already unable to manage their existing loan repayments, as the repayments on their new loan will only add to their monthly debt repayment burden.

By taking on additional loans and debt, particularly on high interest loans, borrowers are setting themselves on track for a down hill spiral of debt, which is likely to end in loan arrears, defaults and a damaged credit rating.

A debt consolidation loan can be an extremely useful tool for those with multiple debts, as a good cheap loan deal can often save a small fortune in interest payments over a term, as well as increasing monthly disposable income for the borrower.

However, someone taking on a debt consolidation loan must remember that their debt has only been transferred to a cheaper option and they should not take any additional loans on, or run up their credit card bills again.

Personal loan and credit card debt is a growing problem for many people in the UK and the high rate of inflation at the moment is only pushing this loan and card debt burden up even further.

Although loan and card debt is a problem across all earnings brackets in the UK, it seems that those on lower incomes are in a financially worse position with their loans, than those on higher incomes, according to the debt charity, the Consumer Credit Counselling Service (CCCS).

The latest figures from the CCCS how that the average unsecured loan and credit card debt for its clients who earn up to £13,500 is £12,870. The average debt ratio for this earnings group works out at loan debts of 199 per cent of their annual income.

Although those people who earn higher amounts also have higher levels of personal loan and credit card debt, the ratio of earnings to debt is greatly reduced, making the loan repayments more manageable.

The average loan and card debt in the £13,500 to £25,000 earnings bracket is £18,547, which is a debt to earnings ratio of 124 per cent. Those earning between £25,000 and £50,000 have average personal loan debts of £28,569, a ratio of 114 per cent.

Predictions are that personal loan and card debt will increase significantly in the coming years and it looks like the lower earnings bracket are likely to be hit the worst.

Delroy Corinaldi of the CCCS said “Unmanageable debt is a problem across all income groups but those on low incomes are particularly financially vulnerable, often finding it hard to make ends meet, let alone deal with unexpected demands on their living costs.”

“I worry about the high debt burden that many are carrying and the impact it has on their ability to keep their heads above water.”

For many individuals these days, money is particularly tight and quite sensibly, many people try and cut back on unnecessary expense wherever possible. Unfortunately, one of the areas where people do tend to make cuts, is in the area of suitable protection for their personal loans and income.

There are various types of protection which can be used to cover individuals and families in the event of death, critical illness or loss of income, all of which can lead to financial hardship for the family and difficulties in managing loan repayments and other commitments.

The insurance company LV=, has just published a new book, entitled “The Little Book of Protection”, which highlights the need for loan protection, as well a family protection, by pointing out various statistics and facts relating to loan debt and financial hardship, as well as the cost of bringing up a family.

Shown below are just a few of the statistics which are noted in the book:

Currently, around 1,392 people lose their jobs, or are made redundant in the UK every day and a property is repossessed in the UK on average every 17 minutes, due to loan arrears and defaults from people not being able to manage their loan repayments.

The Office for Budget Responsibility (OBR) has predicted that the typical household debt will be in the region of £2,126 billion by 2015, which equates to loan and credit card debts of £84,365 per household.

A person will be declared bankrupt or insolvent every 4.28 minutes, due to the level of their personal loan and credit card debts.
The average cost of bringing up a child in the UK to the age of 21, works out at £210,000, or £10,040 per year.

All these facts are things which can be protected simply by taking out a relatively cheap insurance policy. Think about it- if you do not have suitable cover in place, make an appointment with a financial adviser today!

The number of capped rate home owner loan products has seen a significant increase over the course of the past couple of years, from just one or two deals to a total of 39 individuals loan products, according to the latest figures from Moneyfacts.

A capped rate home owner loan allows the interest rate on the loan to vary, but never to go above a certain level, in the event of the base rate of interest being increased by the Bank of England, so that borrowers can have the certainty that their loan repayments will not go above a particular amount during the capped rate period.

Whilst this may seem like a good idea in principle, particularly when interest rates could rise at any time, potential borrowers have been warned that the average interest rate of a capped rate loan is around 0.5 per cent higher than a cheap loan with a variable or tracker rate, although they are still cheaper than the equivalent fixed rate loan.

Moneyfacts have suggested that these capped rate loan products are particularly uncompetitive, as it is extremely unlikely that interest rates will rise to the point where they will ever reach the cap level, which means borrowers would be paying a higher rate on their loan for no benefit.

The Bank of England’s latest figures suggest that interest rates are unlikely to increase for the foreseeable future and even if they do increase they are unlikely to reach the level of a current capped rate loan deal.

Michelle Slade of Moneyfacts said “Recent figures show the UK economy is not recovering as well as the Monetary policy Committee would like and the Bank base rate is predicted to stay at its current level until next year, when it is only expected to rise very slowly.”

“Borrowers opting for the variable rate deal from ING Direct at 1.90 per cent would have to see rates rise by more than 2.49 per cent-an increase that is highly unlikely-during the two year period for the capped deal to be a better option.”

Last week, the Business Minister, Edward Davey, published the government’s response to the recent review of the debt advice and insolvency sector, for those individuals who are facing difficulties with their personal loans, credit cards and other debts.

The government has announced that it is fully committed to ensuring that loan debt advice is available to everyone who requires it in the UK and that the standards within the industry are improved, so that those who look for debt advice about their personal loans actually receive the best advice they can.

A growing number of people in the UK are struggling with their personal loan and other debts and as a result of this the number of debt management firms is growing significantly. However the quality of debt advice for loan customers can vary wildly and it has been found that some debt management plans leave borrowers in a worse financial position than if they had just carried on paying their loans themselves.

Based on the responses it has received, the government has proposed that the Money Advice Service should coordinate the debt management sector and provide a standard procedure for those individuals seeking advice on their personal loans and other debts.
There should also be a voluntary code of forbearance from lenders, which would allow borrowers more time to seek the debt advice they require on their loans and also a way for bankrupts to access the facilities of a bank account.

It could also be likely that debt management firms become members of the Debt Management Standards Association (DEMSA), whose code of conduct is approved by the Office of Fair Trading (OFT).

Edward Davey said “I want to see creditors, debtors and particularly providers working together to improve standards in debt management, so that debtors are directed only to those operating the very best service, leaving no place for the rogue providers who are only in it to make money for themselves.”