The UK’s Unsecured Debt Mountain – And What to Do about It

Posted by Debt Support Service on January 16th, 2020

In recent years the number of consumers in the UK seeking debt management advice has soared – with the percentage of unsecured debt to household income standing at just over 30% by the beginning of 2019, which is the highest level ever. That’s significantly above the £286bn peak seen during 2008 in the lead up to the financial crisis. However, the 2008 statistic also included student loans, with tuition fees costing around £3,000 annually in contrast to the upper level of £9,250 today. In total, UK homes owe an average of nearly £15,400 to credit card firms and banks.

The seemingly unstoppable march of the gig economy and zero-hours contracts – and the rise of payday lenders alongside that - are key driving factors. Additionally, consumers tend to be borrowing more and saving less because the bank rate - which influences the amount of returns on savings and the size of loan repayments - has been hovering at record lows for the last 10 years. Thankfully the Financial Conduct Authority (FCA) moved to limit the cost of payday loans at 0.8% of the sum borrowed per day - and to apply a £15 limit on any default charges.

It concluded that UK consumers should never be forced to repay more than double the original amount they borrowed. That’s a welcome move, but there are still hundreds of thousands of consumers up and down the country who are quietly struggling with debt problems. Presently, around 25,000 insolvencies are recorded in England and Wales every quarter. It’s expected that total household debt will hit £2.3 trillion by the first quarter of 2022. Against this background it’s reassuring to know that a UK debt management plancan help consumers who are falling behind.

A debt management plan (DMP) is an agreement that can be established with your creditors (those you owe money to) if you’re having trouble keeping up with payments. It enables you to pay a smaller sum every month – you must still pay off all your debt, but you can do it at a slower pace. A DMP is not legally binding, meaning that it can be cancelled at any stage by either you or your creditors. There are some drawbacks (you may pay more interest and it can hurt your credit score). But most consumers find that the stress relief and avoidance of legal battles makes it worth it.

If you need debt management adviceor you’re looking to hire an expert to put together a UK debt management plan for you, please get in touch with Debt Support Service today.