Will personal debt become unmanageable when IR's rise ?

IveSeenTheLight

Graham_Devon wrote: »

As I stated on one of your threads yesterday, personal loans are going up, as are credit cards. Indeed, a card I have with egg has gone from 11.9% just before christmas and it's now after a couple of rises 21.9%. That's quite a large jump, which would put up payments a fair bit.

And a couple of facts, to show the problems here:

Average household debt in the UK is ~ £9,305 (excluding mortgages). This figure increases to £21,640 if the average is based on the number of households who actually have some form of unsecured loan.

331 people today will be declared insolvent or bankrupt. KPMG estimate this will increase to 411 people a day throughout 2009 or 1 person becoming bankrupt or entering into an Individual Voluntary Arrangement (IVA) every 3.5 minutes

Average consumer borrowing via credit cards, motor and retail finance deals, overdrafts and unsecured personal loans has risen to £4,860 per average UK adult at the end of May 2009.

More scary stuff here: http://www.creditaction.org.uk/july-2009.html

Notice the last paragraph, credit card borrowing etc is rising, not falling.

Like I said, hopefully people will "See The Light" and start paying off these sort of debts.

I was keeping in line with the OP's posts who was talking about BoE base rates

P.S. you can up the average personal debt, as I have none

lemonjelly

Consumer debt has been a bigger issue than generally agreed for a lot longer than most accept. IMO, consumer borrowing has been unsustainable for over 5 years.

Over the past 6 months, credit has been harder to access. The credit which is available now, is a lot more expensive by comparison. The market is also more restrictive on who they are lending to.

For years, we have seen bankruptcies increase. We now have Debt Relief Orders - a type of bankruptcy lite.

For me, the crunch for joe public will come with living costs being too high (food, fuel etc) plus increases in petrol duties, VAT going back up (never really went down to be honest) etc etc. Many low income earners will then really have to decided whether to pay bills, or eat. Let us not forget we will have much higher levels of unemployment soon too.

Unfortunately, some of the above will co-incide with the winter months, meaning costs will increase at the worst time of year.

Graham_Devon

Really2 wrote: »

Average consumer borrowing via credit cards, motor and retail finance deals, overdrafts and unsecured personal loans has risen to £4,860 per average UK adult at the end of May 2009.

Could that be the car scrapage scheme taking effect?

You could well be right there! I'd assume theres quite a few people who have stretched themselves to buy a new 09 plate with the scrappage scheme and done it on a loan.

IveSeenTheLight wrote: »

Like I said, hopefully people will "See The Light" and start paying off these sort of debts.

I was keeping in line with the OP's posts who was talking about BoE base rates

P.S. you can up the average personal debt, as I have none

In honesty, I believe debt did start reducing end of last year before christmas in anticipation of the recession, plus people had really started to struggle last summer with prices of commodities, so suddenly got the push they needed to start paying down other areas. But since then, it's started rising again. In relation to another thread, I guess people just feel richer, especially those on SVR's, so think it's all passed them by. Of course, I'm assuming!

Max_Headroom_3

I think that whilst it's undoubtedly true for many, it's probably idealistic to think that the majority of people in debt are busily and carefully overpaying everything with the slack that low interest rates are affording them.

I suspect the truth is that many are right on the limit of debt management as things stand now, and only surviving because of low interest rates. When rates go up they will have no slack to take up, they'll just go pop.

I imagine that the government are well aware of this and that's why they lowered interest rates so incredibly far in the first place, and why they won't in fact go up unless they really really have to.

But if/when they do I predict another tidal wave of financial Armageddon as many who are clinging on by their fingernails now get swept away by it.

IveSeenTheLight

Graham_Devon wrote: »

In honesty, I believe debt did start reducing end of last year before christmas in anticipation of the recession, plus people had really started to struggle last summer with prices of commodities, so suddenly got the push they needed to start paying down other areas. But since then, it's started rising again. In relation to another thread, I guess people just feel richer, especially those on SVR's, so think it's all passed them by. Of course, I'm assuming!

One thing you should be able to take from the quote and link of yours regarding average personal debt.

These people should not be able to afford to buy a property until they have cleared said debt

ad9898_3

wolvoman wrote: »

1. BoE rate needs to rise to at least 3% or so before current SVRs start to match the SVR rates pre-credit crunch. Ok, fair point.

2. The spread between bank base and SVRs will likely narrow as the SVRs would become uncompetitive too quickly and lenders will want to resist losing too many from SVRs They may narrow in some cases, but I don't think you're reasoning holds much water.

3. Rising interest rates would indicate returning growth and therefore more risk appetite. This would lead to the return of more 90% LTV mortgages so would allow those who have lost some equity to remortgage. Disagree, completely with this, there are quite a few scenarios where rising IR's would have nothing to do with growth, many of them discussed already on the board.

4. As IRs have stayed so low for a while, many people have been paying off debts. This means they'll have a lower capital total to pay interest on when IRs rise and so help offset some of the rises. Some will have been paying off debts, but many won't or can't due to the economic climate, one look at the DFW board on this site answers that question, it's by far the most popular board.

Answers in red.

StevieJ

Graham_Devon wrote: »

Indeed, a card I have with egg has gone from 11.9% just before christmas and it's now after a couple of rises 21.9%. That's quite a large jump, which would put up payments a fair bit.

.

You should get a card like the Barclaycard I have 2% discount for petrol and supermarket a tip, it is best to pay it off each month.

Really2

StevieJ wrote: »

You should get a card like the Barclaycard I have 2% discount for petrol and supermarket a tip, it is best to pay it off each month.

first direct 0%, never had a card before and have not used it but thought it was about time mean as I buy of the net.

StevieJ

Really2 wrote: »

first direct 0%, never had a card before and have not used it but thought it was about time mean as I buy of the net.

Wouldn't be without one.

ad9898_3

Max_Headroom wrote: »

I think that whilst it's undoubtedly true for many, it's probably idealistic to think that the majority of people in debt are busily and carefully overpaying everything with the slack that low interest rates are affording them.

I suspect the truth is that many are right on the limit of debt management as things stand now, and only surviving because of low interest rates. When rates go up they will have no slack to take up, they'll just go pop.

I imagine that the government are well aware of this and that's why they lowered interest rates so incredibly far in the first place, and why they won't in fact go up unless they really really have to.

But if/when they do I predict another tidal wave of financial Armageddon as many who are clinging on by their fingernails now get swept away by it.

My feelings exactly, many people who are in serious debt are there because they are financially illiterate, so it would be fanciful to think that these very same people are now 'not going to the mall, shopping everyday' and staying in so that they can pay more than the minimum payment.