Economists continually study various financial indicators, seeking clues about the future of the UK economy. In the meantime, closer to home, millions of UK families are caught in an unhealthy debt cycle, fueling a national crisis.
Spending, borrowing, saving, and other personal finance habits offer insight, so they’re naturally scrutinised by stakeholders predicting economic outcomes. Among the many prevailing phenomena influencing the health of the national economy, personal debt is a private, individual finance concern that impacts analysts’ forecasts. Like the individuals themselves struggling with excessive debt, informed observers cannot ignore the negative effects of problem debt. Many point to even bigger issues that may arise, if UK consumers don’t get a grip on burgeoning credit balances.
An Evolving Problem
Problem debt doesn’t happen overnight, so the issue evolves both in individual homes and across the UK, where sweeping debt problems now comprise a collective national crisis. One of the most visible, and also most troubling, trends impacting UK debt during the past decade is the source of the problem in many households.
Whereas bloated balances could once be attributed to impulse buys and poor discretionary spending decisions, today’s problem debt is more likely to grow from regular, day-to-day expenditure. That means people are going into debt for basic lifestyle requirements, more than they are for their lavish, undisciplined spending habits.
The symptom doesn’t bode well for working families that are fully employed, yet unable to consistently make ends meet. Short-term loans help some breadwinners fill the gap when earnings come up short, providing short-term funding solutions for bad credit applicants. But until wages better reflect the UK cost of living, working families may continue struggling to find consistent financial balance.
Problem debt plagues low earners, but the issue can also impact households with larger incomes. According to expert analysis, it was more typical ten years ago finding high credit card balances and general overspending among credit-troubled UK consumers. The prominent profile has now shifted, presenting lower levels of debt, but also low incomes, resulting in more debt from daily spending.
Hard to Reverse the Negative Cycle
The full effect of problem debt ripples outward, impacting family members, friends, and even professional associates. In many cases, background debt pressure exists, when extraordinary circumstances arise, such as illness or income interruption. The single unexpected financial difficulty can often be enough to derail family finances that are already on shaky footing. As the cost of servicing outstanding debt grows, payments are missed and added fees and penalties make it hard to reverse the negative debt cycle.
The Financial Conduct Authority (FCA) has taken steps to intervene and reverse the spread of problem debt, including initiatives protecting consumers from unfair lending and excessive interest charges. The UK remains near the bottom of the list for national savings, among the poorest savers in the industrialised world.
The call is out for further action, including FCA oversight that also addresses debt to public organisations, which is a growing segment of individuals’ debt burden. Criticism has also been leveled at the public sector for aggressive collection tactics that make the process more stressful for problem debtors. In particular, the government’s dogged pursuit of rent arears, council tax, benefit overpayments, and parking fines, has come under fire.
Breathing Space Relief
Government consultation on breathing space has concluded, and a response won’t be long. The protection shields problem debtors from creditors and debt collectors for a period of 60 days, allowing time to work out repayment solutions. It is hoped the measure applies to as many debts as possible, giving struggling consumers time to regroup and get their finances back on track – without added financial pressure from creditors.
Further reform and wage growth may help turn around the UK national debt crisis. In the meantime, UK families living without a financial safety net may be one expense away from a money meltdown.