In the red – the UK’s debt culture Print E-mail
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The UK's love affair with debt shows no sign of abating. One startling statistic after another confirms that our addiction to "live now, pay later" has us hooked. 

Since 1999, for example, credit card spending in the UK has gone up by two-thirds and now averages almost £7,000 per second.

Store cards too have become big business: the number in circulation has tripled during the last decade. Add in the personal loans, catalogue schemes, mortgages... by the beginning of 2004, we owed £934 billion, the equivalent of £16,000 for each man, woman and child. Ten years ago, however, we owed less than half this amount. So what's behind the UK's borrowing binge?

The current economic climate - three 'lows' and a 'high' - is part of the story. Low unemployment gives people a sense of security: they believe their jobs are safe and they can afford to spend. Low inflation makes consumer goods more accessible, while low interest rates - at their lowest last year since 1955 - reduce the cost of borrowing. The 'high' of ever-rising property values again boosts confidence even though it means bigger mortgages.

Against this economic backcloth, there has also been a seismic change in attitude. Just a generation or two ago people tended to follow the advice of Polonius, "Neither a borrower nor a lender be." They lived within their means, bought only what they could afford, saved up for major items and aimed to pay off their mortgage at the earliest opportunity. Not any more.

Consumerism has taken over. Its hallmarks are an underlying sense of entitlement and an obsession with now. Its mantra is "Why wait?"

Banks cash in

In recent years this must-have attitude has been exploited remorselessly by banks and other lenders. Witness for example the current popularity of plastic. From a staggering range of 1,500 different kinds, UK consumers now own 120 million credit cards - 60 per cent of Europe's total - and use them more than cash or cheque.

Many people manage their money more or less effectively and keep credit spending under control. But an increasing number, far from managing their money, find themselves at its mercy - and in debt. Statistics from the debt advice agencies show how the problem is escalating. Over the past five years, Citizens Advice Bureaux (CAB) saw consumer debt enquiries rise by 47 per cent, while calls to the Consumer Credit Counselling Service (CCCS) went up 100 per cent.

Often debt difficulties result from borrow-and-spend spiralling out of control. Seduced by the easy availability of credit, people spend money they haven't got and can't afford to pay back, and then make the situation worse by borrowing yet more to cover repayments and further spending. Debt becomes part of everyday life.

Many people cope with a certain amount of debt until there is a change in their circumstances. Then, because there is no buffer zone in their budgeting, they find themselves in trouble. Last year the CAB report In too deep identified - in addition to over-borrowing and money mismanagement - three major reasons for debt problems: job loss, illness and relationship breakdown. Cases featured in the report included: 

  • A woman with a credit card debt of £5,500 could no longer afford the minimum monthly payments because her employer, reacting to a fall-off in business, had temporarily reduced her hours;
  • An army wife, moving with her husband to a posting overseas, was not able to work and so could not maintain payments on a £10,000 loan;
  • A lone parent on income support was in control of her debts - just - until she had the unexpected expense of school uniform for two of her three children;
  • A woman, recently separated from her husband, could no longer work full-time as she had no childcare and was therefore unable to continue with repayments.

One of the most worrying facts highlighted in the report was the degree of over-commitment: on average, clients' debts were 110 per cent of their net annual income (as much as 140 per cent in the 45-59 age group). Such levels are in the danger zone. Normally if repayments (excluding mortgages) exceed 20 per cent of net income, there is a problem. A rise in interest rates would aggravate this situation.

Seeking help

Admitting the problem is a first step, seeking help the next. Although there are private firms offering debt counselling and management, why pay for this service when expert advice and support is available free from agencies such as CAB, National Debtline (NDL) and the CCCS.

Last year around one million people with debt difficulties turned to the CAB for help, either by telephone or face-to-face consultation. Typically, the specialist debt adviser begins by assessing the problem and sorting out any emergency situation such as imminent eviction due to rent arrears. The process then includes: 

  • Prioritising debts
  • Identifying the ones that, if ignored, could have serious consequences such as a fine, eviction, imprisonment or utility disconnection. CAB advisers help with paperwork and will alsorepresent or accompany clients to court hearings;
  • Drawing up a personal budget
  • Detailing all income and outgoings (excluding debts) will show how much money is left over for repayments;
  • Maximising income
  • Perhaps the client's tax code is incorrect or she is missing out on certain benefits. If utility bills are very high, there may be a case for switchingsuppliers (see "Further information" for price comparision websites);
  • Dealing with the remaining debts

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