Rising Debt Levels Prompt Some to Ask: Are We Headed for Financial Ruin?

The global financial crisis continues to fade from recent memory, as years separate us from the unprecedented downturn. Recovery hasn’t been a straight-line prospect, but gains have been made in many important areas. For starters, financial watchdogs and government agencies have changed how business is done within the banking and mortgage industries. And some consumers have made strides, finding firmer financial ground. Unfortunately, despite adjustments to monetary policy and better employment figures, a significant number of UK residents appear to be struggling with personal debt.

Recent research shows alarming financial trends, in many individual cases, pointing to rising levels of personal debt. And since runaway consumer debt played a large role in the financial meltdown, growing payback obligations are of considerable concern for many informed observers.

Debt Uptick is on the Record

According to research conducted by Experian and Step Change, the fourth quarter of last year saw more borrowing than prior months. In fact, November, 2015 showed the largest increase in borrowing since the storied economic downturn, occurring during the prior decade. The snapshot furnished by the study does not include mortgage information, but the figures do reflect personal loans and credit card spending, as well as store cards.

Using more than 700,000 calls placed to StepChange during the past 5 years, researchers analysed debt worries across UK regions. Callers sought help or debt advice. Although the London Borough of Newham topped the list for the number of callers from a particular region, location was not considered a major influence on an individual’s debt status. On the contrary, debt concerns strike areas of affluence as well as localities characterised by lower income levels. More notable is the connection between increased debt and major life events, such as divorce, illness and job loss. Approximately half the calls came from debtors grappling with these types of personal upheaval.

While it can be difficult to predict future conditions and project the financial health of individuals, it is clear Britons are currently borrowing at a brisk rate. Will economic growth and rising salaries keep pace with growing debt levels, or are consumers setting a course for future difficulties? Only time will tell. If you are worried about your own monetary affairs, however, shrewd financial management is the key to avoiding problems.

Mindful Moves Hedge Poor Outcomes

As UK borrowers take on more debt, observers point to the potential for negative outcomes. And while it is important to consider all the possibilities, financial catastrophe is not a forgone conclusion. On the contrary, debt is a natural part of personal economics. As long as they are managed properly, debt obligations won’t necessarily sink your fiscal ship. However, successful personal money management relies on a proactive approach, so it pays to take these steps to protect your financial health:

Mind Your Financial Status – Personal debt crisis does not set-in overnight. Though stressful events, like unexpected expenses, job loss and other income shortfalls can accelerate the process, accumulating unmanageable balances takes time. As such, staying atop your financial circumstances is the best way to maintain workable cash flow that adequately balances income and outgoing payments. By harnessing this ongoing sense of equilibrium and managing debt accordingly, you’ll sidestep unanticipated distress.

Recognise Risk – Low interest rates and widespread access to credit can be misleading to consumers, lulling them into a false sense of security. Especially when employment numbers are good and creditors extend favorable credit card rates, for example, users perceive affordability. Should conditions change, however, individual debt and payback terms can become unsustainable. As you manage personal financial obligations, it is important to run risk analysis, accounting for various scenarios.

Help Yourself – Though debt is prevalent and controllable, occasional cash flow problems also exist for personal money managers. Fortunately, there are remedies available for those experiencing uncertainty. To preempt the potential for financial hardship, start with a workable household budget, balanced to account for all of your expenses. When anomalies do arise, tackle issues head-on, before bigger problems develop. Contact creditors, for example, when shortfalls loom on your horizon, but don’t wait until you’re delinquent. Banks and other lenders can help you surmount temporary setbacks, unless you’ve already slipped into default, at which time options become limited. If negative financial circumstances cannot be overcome in short-order, you may wish to reach out to professional credit counselors and debt charities for long-term help.

On the whole, growth in UK borrowing outpaces wage increases. The troubling condition is not yet reflected as repayment delinquency, because steady employment and affordable interest rates are helping Britons keep pace with rising debt. However, growing debt levels have many analysts asking: “Are we on the way to financial turmoil?” Though the trend’s ultimate impact on national economics remains unknown, each debtor can protect his or her financial health by responsibly managing household debt.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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