British Household Debt Spirals Out of Control

Like millions the world over, Britons have spent the past few years recovering from one of the worst global financial crises in recent history, a crisis that caused many to lose their jobs or businesses, their savings and even their homes. With the economy seemingly on the mend the outlook is brighter in many ways, and people are finally spending money again, making purchases and going on holidays they had put off for years. But now a new crisis seems to be emerging: British household debt is even higher than it was just before the financial meltdown.

According to figures obtained from the Bank of England, consumers now owe £1.46 trillion collectively, up from £1.41 trillion in June 2007 just before the financial crisis. There is no doubt that consumer spending is on the rise, and though that may seem like good news to retailers, it isn’t really good news across the board. Even worse, many consumers seem resigned to a life in debt, with 14% of the borrowers questioned in a recent survey stating that they expect to be saddled with their debt for at least the next two to five years.

False optimism?

Whilst politicians crow about the economic recovery, others ask if what is really happening is what consumer expert Dan Plant recently described as a rapidly growing debt time-bomb. That’s a legitimate question, given that by the end of 2016, the average UK household will owe close to £10,000 in debts such as personal loans, credit cards and overdrafts. A report by PriceWaterhouseCoopers (PwC) titled, “Precious Plastic: How Britons Fell Back in Love With Borrowing,” warns that consumers’ complacency over managing their debt could very well lead to a resurgence in bad debt.

Though the report acknowledged reasons for optimism, it also uncovered “warning signals” – one of these being that people aged between 35 and 44 are increasingly depending on credit to be able to afford essential items. Credit cards were never intended to be used that way, but close to one in five people in this age group said that they have to borrow simply to make ends meet.

Simon Westcott, a director of PwC’s financial services practice, said, “As the total household to debt income ratio heads towards 172% – exceeding its previous peak in the runup to the financial crisis – and interest rates increase, consumers could begin to feel squeezed once again.”

Ouch.

You can avoid being just another statistic.

There are some organisations and resources that are trying to do something about consumer debt. Numerous debt charities exist for this very purpose, and the Centre for Social Justice is trying to tackle the issues faced by the poorest in our society, who pay the highest price for becoming burdened with problem debt.

Most of us have run into money problems at some point in our lives, and many people who have weathered the worst of the recent financial crisis have learned to manage their money more wisely. However, young people who aren’t very experienced in handling personal finances can easily fall into the trap of spending as if there’s no tomorrow. Seasoned spenders aren’t immune to such problems, for as times get better it is easy to grow complacent and fall back into old habits. For all too many people, spending tends to increase with income, and plastic compounds the problem. When people’s credit card limits are raised, or their bank accounts grow, many find it all too easy to whip out the credit or debit card for impulse purchases without really thinking of the actual money that is changing hands.

Money problems can sneak up on you, and what starts out as an occasional indulgence can become habitual overspending, which can lead to a full-fledged personal financial crisis before you know it. To avoid this you need to adopt a practice of mindful rather than mindless spending. Taking an honest self-assessment of your spending habits is the biggest favour you can do for yourself. Even if you’re already in crisis you can take steps to reversing it, but the first step, to borrow a concept from the recovery movement, is to admit that you have a problem in the first place. And then ask for help if you need it.

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