Almost ten per cent of all UK adults now spend over half of their monthly income to pay off unsecured debts.
According to a survey from credit reference agency Callcredit, the number of individuals paying 50 per cent of their earnings or more each month towards unsecured credit balances has soared over the last 16 months.
Eight per cent of UK adults now spend over half their wages to repay balances such as credit cards, overdrafts, personal loans and store cards compared to only 2 per cent in August 2007. Since August last year there has been an increase of over 30 per cent.
The number of 25 to 34 year olds repaying 50 per cent or more towards unsecured debts doubled – seeing the greatest rise. Women were also more likely to be spending a larger proportion of their wages than men.
With credit harder to come by, the option to consolidate balances with a loan is no longer an option for many if they start to struggle with commitments.
As a result, debt advice organisations have seen a rise in the demand for their help.
Many companies offering debt help will provide free advice to people struggling with their finances, and may recommend suitable solutions.
Debt help solutions include Debt Management Plans (DMP), Individual Voluntary Arrangements (IVA) and Trust Deeds.
Debt Management is an informal way of joining unsecured balances into a single payment. Debt advice organisations will calculate how much can be realistically afforded by the customer, which is then paid to the firm and distributed on the customer’s behalf.
These plans can be an effective solution that helps regain control over finances whilst still repaying balances at a more affordable rate. This is done by spreading the total amount owed over a longer period of time – thus making finances more manageable.
An IVA is a more formal debt help solution. IVAs involve a legally binding agreement between a customer and their creditors, which is drawn up by a qualified insolvency practitioner. The insolvency practitioner will offer impartial IVA advice and work out an affordable and acceptable level of repayment.
Once the IVA has been agreed payments are made over a set period of time – usually five years – after which time all unsecured balances are written-off and the customer is debt free.
Reputable organisations offering impartial and free debt advice include: The Debt People, Chiltern Debt Management and Hamilton Locke. Their debt advice is free and they tailor their debt help to the individual’s needs.
Other notable conclusions drawn from the Callcredit study were that over two thirds of adults were more concerned about their financial situation than they were a year ago.