Amongst concerns of stagnating wages and ever-higher costs of living, the state of debt in the UK has become a major concern for many. Whilst public sector debt is often widely talked about, household debt is continuing to climb to new peaks all the time. More people are falling into debt and into more unmanageable kinds of debt than ever.
Is there anything that can be done to turn the tide on the UK’s rising household debt problem? Let’s take a look at the issues below.
Is debt really rising across the UK?
Measured in periods of two years, household debt has risen to £1.28 trillion from 2016-2018. Of that debt, £1.16 trillion (or 91%) is property debt. This includes mortgages and equity release, which may be considered by some to be a less worrying kind of debt, as we tend to plan and budget around mortgages as our primary expense.
However, the financial debt still accounts for £119 billion, or 11% of all debt, in the UK. Compared to the last period of 2014-2016, financial debt has risen by £12 billion, continuing a trend of rising financial debt.
What’s getting people in debt?
The rise in financial debt is perhaps the most worrying statistic from the government’s latest household debt reports. The majority of the increase in financial debt is caused by £6 billion more in hire purchase debt, and
£7 million more in student loans. There have also been increases in credit store and charge cards debt. However, there has been a slight decrease in arrears and overdrawn current account debt.
Furthermore, while the least wealthy 50% of households hold less household debt than the most wealthy 50%, their overall debt is relatively larger when compared to their total wealth. This means that they are less financially equipped to get out of that debt.
What is the way out of rising debt?
Debt is leaving more and more of the UK population in the risk of severe financial difficulty. However, amidst the rising tide of household debt, there are steps you can take to swim to safety:
• As a rule, avoid using your credit to buy anything that lasts less time than it takes you to pay it back.
• Always aim to pay more than the minimum on any credit arrangements you owe to ensure you’re not just extending debt by paying the interest alone.
• Look at the loan terms and interest rates of current debts and see if a debt consolidation arrangement could help make debt both more manageable and affordable.
• When you get any new income, make a habit of “paying yourself first” taking out the money that is set aside to pay your debts before you start spending. This can ensure you don’t end up spending the money that’s supposed to help you fight debt.