Debt problems affecting the affluent

Posted in 'Dealing with Debt' by Richard Catlin

19 March 2009

There has been a dramatic increase in the number of people on higher incomes seeking help with their debts over the past year.

In its annual report, the Consumer Credit Counselling Service (CCCS) – which received 276,000 calls for help during 2008 - reveals that the proportion of people contacting them who have a household income of more than £30,000 has increased year-on-year – highlighting a shift in the overall debt situation in the UK, with a wider cross-section of society affected.

12% of approaches to CCCS now come from persons earning more than £30,000, and almost half of all requests for help (47%) come from homeowners, who on average owe 83% more than renters.

CCCS also reports that the average amount of debt owed by people contacting them has decreased at the same time that average annual incomes have increased. The failing housing market together with increased unemployment are two of the main reasons that despite this reduction in levels of overall debt in relation to income, people are increasingly struggling to meet repayments.

90% of CCCS client debts relate to credit cards and personal loans. On average, a CCCS client owes more than £14,000 on each of these two types of borrowing.

There are some significant regional differences reported by CCCS. The highest levels of debt are in the south of England, but relative to their income, Scottish clients are proportionately more indebted. The over 60 age group in Wales has one of the highest debt levels in the UK at £35,947. Northern Ireland based clients have significantly lower levels of borrowing but are least able to repay their debts.

With the Government ramping up its efforts to kick-start lending again, in order to boost the wider economy, the Chairman of CCCS has reiterated his plea to lenders to free up money.

The number of personal loans being issued has fallen – from around £3 billion a month before the banking crisis to less than £2 billion a month recently. Those loans that are issued are really only available to consumers with excellent credit ratings, especially on rates such as the 8% typical APR on offer from Alliance & Leicester.

With the availability of new credit - including cards and personal loans but especially mortgages -restricted, the CCCS report highlights that many consumers are now focussing on reducing their existing debts, rather than pursue new borrowing.

Wherever possible however, switching existing debts to cheaper cards or loans is the best way of clearing balances quickly. You can see which lenders are matched to your credit rating, and improve your chances of being accepted first time, for free here.