According to recent figures from the Bank of England Britons currently owe around £230 billion of unsecured debt. This figure has risen sharply in the last 5 years. The question is whether this level of unsecured debt is actually a problem?

I believe that the significant increase in personal debt in the UK is in itself not a problem as long as it can be serviced. If credit facilities are available, these can be extremely useful. For example, using credit cards to pay for everyday items is very convenient as long as the balance of the card is paid off each month.

When does personal debt become a Problem?

The convenience of serviceable personal debt may turn into a disaster when the individual has no buffer of savings to tied them through bad times. Unfortunately, the increased appetite for borrowing in the UK has come together with a reduced culture of saving. Whether it be in the form of pension saving or just regular deposits into a savings account, people in the UK just do not seem to be able to save for a rainy day.

Reasons why personal debt can get out of Control

The general state of the economy is not the only catalyst for debts to turn into disaster. There are other situations which will effect an individual or family’s financial health and may cause significant problems:

Pregnancy
The birth of a new child is a wonderful experience. However, in today’s world it is usual for both male and female partners to be working to support a certain standard of living. Very often, a significant part of the household income is lost because of maternity leave. The normal reaction therefore is to increase borrowing to try to make up for this loss. Even on both parties returning to work, it can be extremely difficult to support both the additional borrowing and additional expense of the baby (and associated child care). Personal debt problems then start to mount and spiral out of control.

Divorce or Separation
Very often while in a relationship, one party will take on debt in the form of loans or credit cards. The repayments of this do not seem a problem as there may be two household incomes and the burden of the household expenditures can be shared. However, if the relationship breaks down, one party may be left carrying the burden of the debt. This will then immediately be too much to cope with and personal debt problems start.

Ill health
If you find yourself off work due to ill health, it may very well be the case that your income will fall. Your employer may make sickness payments, however, you will loose additional income such as overtime. It may be possible for you to claim on insurance policies associated with your loans. However, if this is not the case personal debt can quickly become out of hand.

What can you do if you have a Personal Debt Problem?

Given the potential for these very real situations people must be mindful that if they are living with significant levels of personal debt they need to be ready to take action if times turn more difficult.

If you find yourself in a position where your financial circumstances have changed and you are no longer able to repay your debts, then take advice about implementing a debt management solution. Trying to struggle on borrowing more to see yourself through in the hope that times will get better often makes the whole situation much worse and more painful to resolve.