SCANDAL OF 70% RISE IN BAD DEBT.
As Britain's debt crisis spirals out of control, more and more of us are drowning in a red sea. Because getting a credit card or securing a loan has never been easier, the UK's debt collectors are currently chasing an astonishing £5 billion in outstanding payments. As the amount of bad debts has risen by 70 per cent in two years, it has never been a better time to be a bailiff.
These shocking developments are almost entirely due to increasing numbers of people falling behind with credit card and personal loan payments, according to a report released yesterday by the Leeds University Business School.
There are now a staggering 1,500 different credit cards available in the UK and in July of this year, a record £7.42billion was borrowed on plastic. Outstanding consumer credit is a whopping £160billion.
Store cards are increasingly responsible for people plunging into the red. By the end of 2000, 47 per cent of the population had either a store or loyalty card. The study was commissioned by the Credit Services Association which represents the booming debt collection industry. Alarmingly, the study also showed that that the lenders are becoming tougher on those who fall behind with their debts.
Cases can be passed on to bailiffs - who have the legal right to seize items in lieu of payments - when a person is only two months in arrears.
The Leeds study estimates that many followers have fallen behind by one to two months on debt payments totalling £60billion. That's the equivalent of £2000 for every household. These may be shocking figures but this study is just the latest in a series that's shows Britain's army of debtors is swelling by the day.
The average consumer owes £1,062 on cards, £1,561 in personal loans and £760 in overdrafts. Those figures do not include mortgage repayments, which bumps the debt levels far higher.
In all, 20 million cases have been passed to debt collectors within the last year.
It is therefore a high probability that within 15 to 20 years' time, we shall see an underclass of retired people, impoverished because they are racked with debt.
We are constantly bombarded with images of the rich and famous, along with their trappings of success, fast cars, big houses and designer clothes. A Cambridge University investigation showed that even when people earn a salary of £50,000 a year, they complain that they cannot afford everything they want. Goods that were once thought of as luxuries are now treated as essentials by many.
To make matters even worse, we now see debt consolidation companies emerging, to take advantage of those in debt. These companies offer an easy way out but at a very high price. Most will double the amount of debt by halving your monthly payments but over triple or quadruple the time.
In the United States, where the debt problem is even worse, it's the lack of financial education from an early age that seems to be causing the problem. People need the opportunity to live debt-free and cater for their retirement by getting sound advice and education.
The United States.
In the last decade, the average US household consumer debt (non-mortgage) has increased from approximately $8,500 to $14,500. (Federal Reserve Statistical Releases and U.S. Census Bureau)
Credit card debt now averages $8,562 per household.
According to the Federal Reserve, outstanding non-secured consumer debt rose from $355 billion in 1980 to $1.2 trillion in 1996 to $1.65 trillion in 2001 and is expected to exceed $2.2 trillion by 2004.
The average American family is paying about $1,100 a year in interest on credit cards.
Interest rates on bank credit cards have widened as a result of the eleven rate cuts by the Feds in 2001. Card rates, after the introductory periods, now range from 4.75% to 35.00%, the widest spread ever.
The number of consumers who are enrolled in debt management programs has increased from approximately 400,000 consumers in 1995 to over 1,000,000 in 2001. (Industry sources)
There were more than 1.5 million personal bankruptcies filed in 2001. (American Bankruptcy Institute)
A Chapter 7 bankruptcy may stay on your credit report for as long as 10 years. (Equifax, Experian, Trans Union)
A Chapter 13 bankruptcy generally stays on your credit report for 7 years. (Equifax, Experian, Trans Union)
Note: During this 7-year period, a bankruptcy in your credit history will likely either eliminate your ability to get credit or make the credit you can get very expensive in terms of fees and interest rates.
In consideration of those facts and figures, it is obvious that financial education is not a factor in today's society of people who want 'instant gratification' and are willing to pay the price. Unfortunately, that price is far higher than they initially thought.
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© Michael A Fowler. MBA - 2006.
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