An estimated one million people in the UK have ‘problem’ unsecured debts according to a report entitled UK Debt Problems – consumer crisis or efficient market? Published by debt management solutions firm, TDX Group, the findings showed that these arrears totalled up to £25 billion, which equates to an average of £25,000 for each of these identified borrowers.
The report also suggested that the number of people facing financial uncertainty looks set to double during 2008 as firms tighten their lending ability resulting in a reduction in options for borrowers to re-finance their expenditures.
Around 60% of this debt is owed on credit cards, with the remaining outstanding money coming from personal loans, say the TDX Group, whose clients include lenders such as HSBC, HBOS and Alliance & Leicester.
The findings warned of a changing economic picture, highlighting an increase in personal inflation and a slowdown in the property market which will result in a rise in the number of people facing financial difficulties.
In addition, the report cited the recent credit crunch and a squeeze on lending practices as having an instrumental impact on how people will manage their debts.
A spokesman for TDX Group said, “There will be fewer refinancing solutions such as re-mortgaging and homeowner loans available, because banks and building societies have tightened up their lending criteria. This could mean there could be a doubling in the number of people taking out repayment plans such as Individual Voluntary Arrangements (IVA’s) and debt management plans.”
During 2007 up to 58 per cent of people who were unable to keep up with debt repayments were forced to refinance them or re-mortgage their house in order to reduce their outgoings.
The TDX Group have urged people to look around for the best Individual Voluntary Arrangement deals for their own personal needs, saying that the majority of borrowers will sign up with the first debt solution company they approach. This despite the varying fees of £5,000 to £9,000 IVA providers offer.
An Individual Voluntary Arrangement, which acts as an alternative to bankruptcy, allows borrowers to restructure their debts, typically over five years. Yet up to 45 per cent of people fail to complete their arrangement deal, with 15 per cent withdrawing from it within the first 12 months.
In response to these figures, chief executive of TDX Group, Mark Onyett said, “These issues need to be addressed urgently, as we expect strong growth for the debt management market during 2008.”
The findings also showed that the number of people falling in to insolvency actually dropped during 2007, the first time this had happened for nine years.
Government figures showed that personal insolvencies in England and Wales fell by 4% during the last 3 months of 2007 to a total of 24,846 people. This was an overall drop of 16 per cent from the same period of 2006.
Levels of bankruptcy saw a rise of 2.4% during 2007, although a fall of nearly 5% in the number of Individual Voluntary Agreements helped to draw this figure down.
Despite this, experts warned that 2008 was likely to set another record as money problems mount.
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