The National Consumer Council reports that 6 million families in the UK are already struggling with debt. The UK level of debt recently crossed the £1 trillion threshold, of which approximately 80% is due to credit cards, loans and mortgages. In the past 6 years, the number of people seeking debt advice has risen by 44%, and is expected to rise even further.
People find it difficult to make debt repayments for a number of reasons. Most often, the main cause of non-payment is usually down to some form of change in personal circumstances such as unemployment, divorce, illness or a new arrival in the family. In these circumstances, many people look towards borrowing more in order to pay off creditors or household bills. Unfortunately, taking on more debt to pay off existing commitments is often a recipe for disaster.
However, debt can have an effect on more than just a person’s financial affairs. In fact, debt is a major contributor towards stress, depression, anxiety, mental health problems, relationship breakdown and even suicide in some severe instances. A lack of financial awareness is often cited as a reason for people falling into debt. Although debt is a nationwide problem, and affects people of all ages and backgrounds, the financial cost of debt is not limited to an individual and in fact can impact greatly on society.
Many people believe the Government should do more to highlight the issue of financial awareness, targeting the loan companies and credit card issuers whose advertisements run constantly on televisions across the country. In many cases, consumers become seduced by the promise of lower payments and relief from their debt burden without realising that they could well end up spending more money in the long term as many loans advertised can have repayments run for periods up to 25 years.
If you pay creditors on time, regardless of what it takes to pay them, you are classed as a good payer and therefore, not a risk when it comes to additional borrowing. In fact, your finances might be in chaos and you could be using money from one credit card to pay debts on another credit card, but many lenders will still provide further finance. As a result, outstanding debts are merely maintained, with payments primarily being made towards interest with little or no monies going towards the actual balance of the debt.
Many debtors find themselves in the hands of specialist debt collection agencies. There are many such companies in the UK, such as Capquest Debt Recovery who buy delinquent debts from creditors and then pursue the debtor themselves for the balance owed. However, for many people, arranging an IVA (Individual Voluntary Arrangement) is a viable solution, allowing a lower payment to be made to creditors over a period of time. There are several companies who can provide advice on this course of action.
If people find themselves in financial difficulty, there is a wealth of free financial advice available to help. The Citizens Advice Bureau can help to negotiate repayment plans with creditors and debt collection agencies, so that monthly payments are reduced and become manageable. By seeking out such advice, tackling the problem of debt needn’t be as daunting as it might appear and could in fact have a positive effect on both the financial and social aspects of being in debt and lead to financial problems being a thing of the past.
The Capquest Group are members of the Credit Services Association.
Martin McAllister is an online, freelance journalist.