National debt – The Heat is On

The last time we saw national debt reach these figures was in 2008 when Northern Rock was nationalized. The population of the UK has run up the highest debt in the last seven years. In the months preceding Christmas UK citizens ran up a debt of over 1.25 billion pounds. Debt charities warn that people will end up struggling to pay bills when their credit card and short term loan payments kick in.

In November 2014 an astonishing 980 million pounds was taken out in short-term loans, credit cards and overdrafts, which is a huge rise from the 728 million pounds borrowed in June 2014.  It is estimated that a whopping 810 million pounds was spent on Black Friday alone. People drew on credit in any form to make sure they didn’t miss out on the discounts and one-off retail deals; however, debt charities like StepChange warn that when the bills arrive in January, people will find themselves in financial distress. At the same time surveys suggest that a quarter of the population are aware of the fact that they will land up in debt after the splurge of the festive season.

People are taking out more credit than ever in the UK, but there is also more credit available than there has been in the previous few years. For example, a loan for 5000 pounds would have cost you 7% interest a few months ago now costs 4.9% interest. A 10000 pound loan costs 3.9% now as opposed to 5.4% in 2013.

Mike O’Conner, chief executive of StepChange debt charity commented on the statistics saying that they “point to a worrying rise in people’s reliance on credit.” He went on to say, “The economy is growing and there is some wage growth but it is very marginal and millions are living on a financial precipice leaving them vulnerable to financial shocks and strains.”

The numbers show that unsecured lending jumped up to 6.9% more in November 2014 than what was borrowed in November 2013.

The question is this; have people borrowed more this past Christmas because they had less money than in previous years, or because they increased the need for goods and services. According to the R3, the Association of Business Recovery Professionals, almost half of the people planning on borrow money would use existent credit cards or overdrafts. 24% of people planning on taking out credit would use an overdraft facility and about 14% said they would rely on a store card. 11%, however, planned to renege on their other bills like a mortgage, for example, in order to pay their credit back. Interestingly only 8% of the population planned on taking out Payday loans to pay for Christmas.

Is the change of heart of the financial institutions in Britain slightly premature? Or is it about time that these institutions come around and start offering the public credit at competitive interest rates?  Is it not time to take the heat off of the Payday lenders so that citizens can take out credit that they can afford and stop abusing a service that was never meant to serve them?