Barely a month ago, the shadow chancellor of the UK, John McDonnell, warned of the personal debt crisis enveloping the country.
According to government statistics, the average UK household has debt levels of £14,000, and by the end of the current parliament that is expected to rise to £19,000. Unsecured borrowing is leading the way in this relentless scourge upon personal finances.
By 2019, the Labour Party believes that unsecured debt a.k.a. credit card debt and installment loans will rise above £15,000, and within the next four years they will be a smidgen under £20,000.
This is a worrying statistic, and one that could be worsened by an unfavourable Brexit. It is important to understand that debt levels are impacted by a multitude of factors, including the current interest rate, the inflation rate, and the unemployment rate, among others.
A weakening of economic conditions in the UK could result in higher unemployment numbers which would then place additional pressure on credit lending. If the Bank of England embarks upon interest rate tightening, this will make it even more expensive to repay outstanding debt, adding to the current burden.
The most pressing problems in the UK are currently low wage growth and high inflation. This is contributing to higher expenditure, less personal disposable income, and increased credit utilisation.
The situation has become so dire that various think tanks anticipate real wage stagnation will dominate most of 2018.
Labour has gone so far as saying that they will introduce a £10 per hour real living wage, and remove limits on public sector pay, and restrict consumer credit so that the UK economy can get back on track.
These macroeconomic objectives don’t always resonate at household level. Grassroots level UK households are battling rising debt levels across the board. The Office for Budget Responsibility (OBR), and the Office for National Statistics (ONS) corroborate the dual demons currently in place in the UK economy – stagnant wages and rising inflation.
How can individual households fix the problem?
Rising debt levels are a result of multiple factors, notably spending that exceeds income, leading to an inability to repay existing debt. For the average UK household, it may seem foolhardy to suggest that reigning in spending is the way forward. However, there are failsafe techniques that can be implemented to manage, reduce, and ultimately eliminate high levels of unsecured personal credit. These include:
- Paying off high interest (high APR) credit card debt ASAP
- Using the services of credit counselors and financial planners to structure a blueprint for debt reduction and settlement
- Considering options like debt consolidation to eliminate high credit card debt once and for all.
Each of these techniques has merit. Before you can tackle high debt burdens, it’s important to understand precisely how much debt is outstanding. DebtConsolidation.com provides invaluable insights into the merits of debt consolidation loans. These serve as the perfect way to reduce the overall interest rate on monthly debt payments.
For UK households, this results in dramatic cost savings in the form of more of the payments going towards the principal, or towards savings. By having to deal with fewer bills every month (through consolidating debts), it’s much easier to manage outstanding balances and pay them down.
A debt consolidation loan is offered at a lower interest rate than the prevailing interest rate of the credit card debt. This means that you pay less on your repayments every month.
Other issues to consider include cutting unnecessary expenditure such as magazine subscriptions, cable television, telephone accounts and the like.
It may even be worthwhile to shop around for the best automobile insurance, reduce utility usage, and shop sparingly for household goods and groceries. An extreme version of cost savings to bring down debt is to actually cut up credit cards or put them in the freezer in a bowl of water.
By removing temptation, you will reduce your credit card debt. By ignoring a problem, it won’t go away. Debt needs to be faced head-on – that’s the only way to beat this monster.