Requests for debt help hit record

More people across the UK are struggling to pay their debts. Families are falling into arrears on their mortgages, payday loans, car payments, and credit cards among other bills. The problem is so large that StepChange, the nation debt counselling agency, has received a record number of requests for free advice as well as counselling. There are in fact almost 700,000 residents in the UK that need help, and the amount of debt arrears owed from those people is over 14,000 pounds.

Not only do people owe over £14,000 to their lender, but this is unsecured debt as well. This is the most risky and if often comes with the highest APRs. What is considered to be unsecured will be arrears on accounts such as credit cards or bank loans. A mortgage is not part of this as the home is the asset and an automobile loan also has the car as the asset. So what this means is that the 14,000 pound+ amount does not even consider those forms of secured borrowing.

Banks and lenders that issue credit cards are also seeing more people fall into arrears. The amount of money being spend using credit cards is increasing at over 9 per cent from last year, and the amount of money spent using this form of unsecured debt is the highest since 2006. In fact, the total outstanding credit card debt that is in arrears stands at over £67 billion. This is a ~£5.4 billion dollar increase from 2016.

The problem is so bad that 9% of credit cards would take more than 10 years to pay off if the borrower were to pay the amount billed by their bank each year. The Financial Conduct Authority (FCA) reports that this is equivalent to 8.9 million credit cards, or ~15 per cent of the entire population of the UK. While millions of credit card cards now have a lower introductory interest rate, it is likely that the APR will “reset” to the average of 18% if the account were to not be paid in years time.

Even worse news is that the problem may continue to increase as the Bank of England reports that borrowing is growing about 10% per year. The number of borrowers seeking assistance for paying debts will continue to increase. The ten percent increase means that families are taking on an ever increasing amount of debt which their incomes do not support. Wage growth varies widely by job type, but is is average about 2 to 2.5 per cent according to the Office for National Statistics. The demand for counseling from StepChange is only bound to increase. But in addition to StepChange, there are many other places people can go to for advice, and find various schemes that help with debt arrears of all kids.

Age of StepChange clients

While people of all ages are borrowing too much money, the biggest problem is for the under 40s. Individuals under the age of 40 make up 60 per cent of the not-for-profits 600,000 clients. This is about a 20 per cent increase from 5 years ago. Not only are most of the clients under the age of 40, but the under 25s had the highest percentage increase in debt. They now owe over £5,800, which is a 13% increase. Many of them have high interest rate credit cards to their name as well

The younger generation across the UK is struggling due to slow wage growth, increasing cost of living (rent being the biggest), and other factors. Sadly they are spending too much money in this economic environment. This is the time when they should be saving money for a future mortgage or to live on their own, and instead they are racking up all types of unsecured debt on often frivolous spending.