Debt & Bankruptcy Issues in the UK

The Citizens Advice Bureau (CAB) has reported that their callers will take an average of 77 years to pay off their debt, effectively being saddled with a lifetime of debt.

The CAB said that most of the people seeking debt advice were on half of the national wage, with many on government benefits and unable to pay the fees necessary to declare themselves bankrupt.

The CAB said that the number of people asking for help and advice relating to loan and credit card debt has doubled in the last 8 years. On average, people clients over £13,000, many being caught in a vicious circle of low income and high levels of debt.

David Harker, CAB executive, said "Low income, combined with badly informed and poorly understood financial decisions, are at the root of many of our clients' debt problems." He suggested that the government should introduce Debt Relief Orders (DROs) for people on low incomes. A DRO is similar to bankruptcy, but with lower fees, and would be offered to individuals who could not afford other options such as debt consolidation or an individual voluntary arrangement (IVA).

It seems that it's not only UK residents that are labouring with debt problems. The British Crown dependency of Guernsey has seen its residents' debt levels rise by 150% in 2005.

The figures, released in an annual report by the island’s Citizens Advice Bureau point to mortgages as a major contribution to islanders' financial problems.

In 2005 people saw their debt levels rise from £2 million to nearly £5 million. Most of the debt was due to mortgages, but credit card debt, store cards and other unsecured loans contributed to the overall increase in debt levels.

The Citizens Advice Bureau deals with consumer affairs of the 650,000 islanders, said it had observed a steep increase in the number of people seeking debt help and advice causing the organisation financial problems of its own.

Kate Raleigh, Bureau Manager, suggested that people weren't thinking through the consequences of their borrowing, and were simply not aware of the problems that they could face if they later ran into financial difficulties. "It all sounds good, but the point is that you are going to have to pay it all back, and people have to realise that if you can't pay it back the penalties can be enormous."; she said.

The number of people in the UK taking out an IVA or individual voluntary arrangement has quadrupled since 1993. The increase in popularity of the IVA is causing concern amongst charities and other bodies who offer IVA debt advice.

An individual with debt problems or facing insolvency can apply for an IVA whereby they can come to a deal with their creditors to repay a reduced monthly sum. If the majority of the creditors agree, then interest on the debts is frozen and the debtors are left debt free after the duration of the IVA, which is usually 5 years. The negotiations must be handled by a licensed insolvency practitioner, who will usually charge a fee.

The IVA is an alternative to the stigma of bankruptcy, and avoids the problem where a home or other assets can be solved to pay creditors. The concern amongst debt advisors is that an IVA may not be the best financial option for some individuals, and there are people who would be better off becoming bankrupt.

Clearly, anyone facing debt problems should seek the best professional debt advice.

Britons who are finding themselves in increasingly high amounts of debt are advised to consider acquiring a debt consolidation loan.

With debt solutions firm One Advice revealing that nearly two million people in the UK owe over £10,000 on credit cards, loans and overdrafts, the British Bankers' Association (BBA) has suggested that diverting debts into a single debt consolidation loan may be beneficial.

Debt consolidation loans can help people organise their finances, as they result in having to deal with just one large debt rather than multiple debts.

"It can be a sensible thing to do, to have a consolidation loan," remarked Joanna Elson of the BBA.

"You can put it all in one place and you could get a lower rate. Do this rather than getting further into debt."

However, borrowers in the UK are urged to make sure that they use their loan wisely, rather than simply spending it and remaining in high levels of debt.

Britons at last appear to be sorting out their debt problems, as new figures reveal that the amount of personal borrowing, in the form of unsecured loans and overdrafts, declined in March.

This represents the first time in over ten years that net lending on loans and overdrafts has fallen, with a £0.1 billion drop in March in comparison to a £0.6 billion increase the previous month.

Figures from the British Banker's Association (BBA) also found that mortgage lending rose in March to £17.7 billion, the highest total for the month on record, as the property market continues to show strength.

"Whilst partly reflecting the high number of working days in the month, the approvals numbers show that mortgage activity is running at a higher level than at this time last year, although the market is still somewhat short of the heady times of 2004," commented David Dooks, BBA director of statistics.

Net lending on credit cards dropped by £0.2 billion in March, while the fall in unsecured loans suggests that Britons are turning their backs away from increasing their debts at high levels of interest.