What drives people into unmanageable debt?
By Mr Bankruptcy
30th September 2024
Facing an unmanageable debt is a tough experience but someone not in that situation might assume it was your fault – you can’t manage your finances or spent money recklessly. But it’s rarely as black and white as that; and debt problems are affecting more and more people in the UK.
According to The Money Charity the average level of personal debt in the UK at the start of 2024 was almost the same as the average UK annual wage – and it’s rising. And the reasons why individuals get into that situation vary hugely with personal circumstances.
The most common causes of personal debt
According to the data collection service Statista, common causes of household debt in 2022 included, in order:
- Lack of financial control (17%)
- Cost of living (15%)
- Unemployment (12%)
- Drop in income (10%)
- Health problems/injury (9%)
- Broken relationships/separation (5%)
- Covid-19 (4%)
- An unplanned expense (3%)
Budgeting and the cost of living
I’ve written before in this blog about the importance of working to a budget to stay in financial control, especially if your means are limited. Knowing your income and outgoing can be crucial to identifying early on if you’re building up problem debt.
But life has become ever more difficult since the 2008 credit crunch, with global events, structural economic deficiencies and government policies adding to our woes. As a result, the price of essentials such as food, fuel, utilities and rent, have gone up relentlessly in recent years. Many people in low-income jobs who were already living on the edge of affordability are now struggling to make ends meet and can’t put any savings aside for a rainy day.
In addition, interest base rates are returning from record lows to more historic norms of around 4-5%. Even better-off borrowers are now struggling to absorb higher interest payments on their mortgages, business or car loans.
And when things get hard, it’s too easy to start racking up debt on a credit or store card without keeping track. Cheap retail credit is a thrill and looks like an easy solution at the end of the month, but failure to keep up with even minimum repayments can quickly pile up debt until it morphs into a serious financial problem.
Resilience
This leads on to the issue of resilience. According to the Bank of England, the average amount in a UK savings account is £17,365 but, when asked, around a third of adults had less than £1,000 in savings; many had nothing at all.
This explains why just over two thirds of those asked didn’t think they could survive for three months without work before borrowing money.
The upshot is that it would only take one unexpected event – a car needing replacing, a leaking roof, a family death – or a drop in income – through losing your job or serious illness – for someone who was just getting by to fall into an unmanageable debt spiral, especially if they have a large, regular outgoing such as a mortgage or business loan repayment to keep up.
Divorce and relationship breakdowns
It’s another event that no-one expects or wants, but households built on the basis of two incomes can be financially devasted if one partner moves out.
Legal expenses and maintenance, as well as a painful division of assets, can leave both sides struggling.
Business problems
The business environment is always challenging, and many businesspeople have to take on debt with a bank, either to start up or to tide their company over the bad times, in the hope that it moves back into profitability. However, this doesn’t always work out.
If, as a business owner or director of a limited company, you made a personal guarantee agreement with a lender, then you are still personally liable to repay the loan if your business defaults or becomes insolvent. If the debt is secured against, say, your house, you can lose it.
Managed debt
Properly planned and managed debt can be a good thing so long as repayments are affordable, allowing you to invest in something that will transform you or your family’s life, such as a car to take on a new job or a mortgage for a larger home.
But if that debt becomes unmanageable it can impact your whole life – friends, family and your mental health. No-one wants to be in that position, so we take a non-judgemental approach with all of our clients when we sit down with them to explore their circumstances and options open to you or your business.
Even when there seems to be no way out, there is always support available to talk – a professional debt advisor, charity or someone close to you – to help you see your way forward.
James Rosa Associates
James Rosa associates is a firm of debt advisors and debt adjustors. With a supportive, friendly approach, we offer a full range of advice and professional services to individuals and business owners/directors who face unmanageable debt and are looking for a solution. We also help anyone involved in a civil or commercial dispute with a range of services:
We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.
Find out if you qualify for a free consultation
If you need to tackle an unmanageable debt or bring a dispute to a swift and satisfactory resolution, then contact James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk and find out whether you qualify for one of our free consultations.
Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.