Personal debt hits £1.39 trillion but Brits too scared to open post-Christmas bills

02 January 2008 / by None
British consumers owe a staggering £1.39 trillion and shell out an incredible £93 billion in interest on personal loans, credit cards, overdrafts and mortgages yet new figures show that Brits are more likely to go on a diet or jet off on holiday than to try and sort out their finances in January.

A survey published by the Financial Services Authority (FSA) has shown that just under a quarter of 16 to 44-year-olds are worried or scared about their bills arriving in the New Year while 58 per cent of people either had no idea of the cost of Christmas, or if they did know, they overspent anyway.

The report comes after uSwitch revealed the extent of the UK personal debt crisis. Worryingly, almost one in four UK adults claim to be finding their debts unmanageable while 9.5 million have maxed out on one form of credit in the last six months and a further 38 per cent have had a credit card application rejected.

The two separate studies have revealed both the extent of the UK debt problem and the apathy of those who are quick to take on credit they can't afford and then find themselves spiralling further into debt.

However consumers are now being warned that the credit boom enjoyed by UK consumers over the past few years is almost certainly coming to an end with providers tightening up their lending criteria.

uSwitch.com has found that more than one in three people who applied for a new credit card in the last three months were declined while 19 per cent have found that their applications for unsecured loans were rejected.

Perhaps more disconcerting yet is the lax attitude to increasingly high debt levels held by many consumers. The uSwitch findings revealed that out of those that consolidated their borrowing in 2006, 65 per cent neglected to close down existing forms of credit, resulting in £2,300 of additional debt.

The research also highlighted that irresponsible borrowing and lending are the main factors contributing to the growing personal debt problem. Nine out of ten people said that they were not asked by their lender whether or not they planned to pay off existing debt before being offered credit while many borrowers took on more credit that they needed, saying that a ‘rainy day’ or the need to ‘treat themselves," were reasons for getting the extra funds.

Mike Naylor, Personal Finance Expert at uSwitch.com comments: "People have enjoyed easy access to cheap credit for quite some time, but for some, the party really could be over. Anyone with multiple debts and a poor credit history could be vulnerable to the impact of the credit crunch and should seriously consider consolidation while the option is still available. The base rate reduction is a step in the right direction, but it could be too little too late for people in real financial difficulties."

The uSwitch figures are backed by the FSA study, which found that almost a quarter of consumers use loans or credit cards to finance the festivities over the Christmas season. However rather than ease into the New Year by cutting back on spending, 26 per cent of people questioned said that they would be more likely to book a holiday, work less or take up a hobby while only a responsible 13 per cent claimed they would attempt to get their finances in order.

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