How Bad is Debt in the UK?
These days you can not turn on the television or open a newspaper without hearing about debt. And that’s not surprising because the levels of debt in the UK are at an all-time high. The Citizens Advice Bureau apparently received 20% more enquiries from people in debt between 2006 and 2007 than the previous year and with the current economic climate things look set to get worse. But why is this?
What is Causing the Problem?
There is no doubt the UK is suffering an economic crisis when it comes to debt. It’s no wonder that advertisements about individual voluntary agreements and debt consolidation are on the television so often. The problem has been caused by both gradual and unexpected factors, namely, the spending culture in the UK and the recent interest rate rises.
The Interest Rate Rises
In 2006 the Monetary Policy Committee, the group who decided on the Bank of England base rate, took the step to increase the interest rate by 0.25% to 4.75%. This was followed by four more rises throughout 2006 and 2007. The increases were said to serve to keep a hold on inflation but they brought with them more problems.
Mortgage Repayments have Increased
Many people had two-year fixed rate mortgages, which meant they paid the same amount each month regardless of what happened to the interest rate. However obviously this only lasts for two years and once those two years were up the borrowers were faced with the nasty surprise. They could no longer get a deal at the rate they initially had due to the rise in interest rates. Many were faced with increases of several hundred pounds on their monthly mortgage payments.
Credit Cards Rates have Gone Up
Of course interest rates affect everything, not just mortgages. This meant credit card payments rose too leaving many people unable to make the repayments. While interest rates are now thought to be on the decrease, following recent cuts many people are still suffering the effects of the rises in 2006 and 2007 meaning debt troubles are continuing.
The Spending Culture in the UK
Of course one of the biggest causes of debt in the UK is the spending culture. Buying the luxuries we want takes priority over saving and being responsible with money for many people. Advertisements and the media thrust the temptation in our faces, holidays, cars, fancy clothes, we want it all and for a long time credit has been so easy to get that there was no reason to wait. Economic experts have long pointed out the spending culture as the reason for the debt crisis and urged people to reign in the spending. Now it seems they have no choice but to do so.
Debt in the UK is more of a problem currently than it has been in recent years and if things are going to get easier then consumers are going to have to tighten their belts and be more responsible, otherwise they are going to suffer the affects for many more years to come.
