People are not helping themselves

Cell

Graham_Devon wrote: »

It's also the rapid increase. Even allowing for all households in the UK, average debt has increased 22% in just 6 years. However, it's decreased just 2.3% in 3 years. And we can hardly get a more favourable timeframe to decrease debt, what with low rates, and very hard to come by new lending.

As we all know it's easy to take on debt, but much harder to pay it back.

In those three years credit card companies have increased interest rates substantially for many, and it's only in the past 18 months that we've been able to 'freeze' interest rates on accounts. Egg put mine up from 16.9% to 26.9% over two increases but none since the new rules came in. So I'm actually paying more in interest than I was paying in total beforehand. My income hasn't increased much, so my debt repayment has fallen despite spending more of my income servicing it.

In part that explains why overall debt is falling far more slowly than it rose.

Graham_Devon

Cleaver wrote: »

If, as a nation, we all tried to sell our assets at the same time? We'd be screwed and the entire financial system would fall over. It's unlikely to happen though.

Graham what point are you trying to make? I was just saying that our debt to income ratio looks bad, but even if we sold just our investments and cashed in our savings we'd nearly be debt free. So we're not in a bad a position as the 196% debt to income ratio we have.

My point is you are massively oversimplifying the situation to try and make it look better than it is.

You have come up with a scenario that isn't possible, to state that even if we sold everything we own, which we can't possibly do, we'd still have some debt, but not as bad as it may have been before.

I'm leaving it there anyway. Just couldn't quite believe your first post on this subject. We are one of the highest indebted nations in the world!

Cleaver

Graham_Devon wrote: »

My point is you are massively oversimplifying the situation to try and make it look better than it is.

You have come up with a scenario that isn't possible, to state that even if we sold everything we own, which we can't possibly do, we'd still have some debt, but not as bad as it may have been before.

Oh come on Graham, I didn't paint it all as fine. I was just saying, as Geener did in a much more succinct way, that it's all a bit strange looking at averages and stats. And I'm not sure why my first comment surprised you, I reckon that if you asked 100 people off the street what the average household debt is including mortgages the majority would go for over £50,000 if they were just going off the top of their head.

globalds

macaque wrote: »

Looking at these numbers, it's no wonder that interest rates remain stuck on 0.5%. It would also appear that too few people are using this opportunity to put their finances in order.

Its the old moral hazard problem. Even on this website we hear the line "The government wouldn't let it happen" when referring to the interest rate risk. Perhaps its time for a whiff of grape shot.



http://www.mortgagestrategy.co.uk/economy/total-uk-personal-debt-stands-at-£1452bn/1032071.article

I thought it was all that overpaying that was forcing the B of E to keep the interest rate low.

Every pound I pay off ...That the banks refuse to lend back out ,reduces the money supply.
High interest rates promote saving, reducing the amount of money even more.

Kennyboy66

Graham_Devon wrote: »

It's also the rapid increase. Even allowing for all households in the UK, average debt has increased 22% in just 6 years. However, it's decreased just 2.3% in 3 years. And we can hardly get a more favourable timeframe to decrease debt, what with low rates, and very hard to come by new lending.

when you say, rapid, do you mean to say that it has increased in line with inflation over the last 6 years and in real terms there has been no increase at all ?

ukcarper

Pimperne1 wrote: »

Sorry I wasn't really responding to your post but £95k seems a bit more realistic.

I realised that I was basically agreeing with you just added the rest as an aside.

Graham_Devon

Kennyboy66 wrote: »

when you say, rapid, do you mean to say that it has increased in line with inflation over the last 6 years and in real terms there has been no increase at all ?

What matters here is wage inflation.

ukcarper

Graham_Devon wrote: »

My point is you are massively oversimplifying the situation to try and make it look better than it is.

You have come up with a scenario that isn't possible, to state that even if we sold everything we own, which we can't possibly do, we'd still have some debt, but not as bad as it may have been before.

I'm leaving it there anyway. Just couldn't quite believe your first post on this subject. We are one of the highest indebted nations in the world!

What do you think is the real problem mortgages or unsecured debt.

Kennyboy66

Graham_Devon wrote: »

What matters here is wage inflation.

the only point in the last 25 years when median wage inflation has dipped below 3% is from 2009.

Annual wage inflation in March 2011 was 2.4% - although this seems likely to reduce.

Even during the great depression in the USA wage rates didn't fall.

Wookster

Cleaver wrote: »

As a genuine question, as I'm a bit dumb when it comes to this type of thing, why would GDP be something that measure household debt against? I understand measuring it against income to give you some idea, but not GDP.

I dunno. I did a bit of Googling after reading Graham's post and it looks like Britiain is right up there with high debt whatever source you look at, so we are a very indebted nation. It's just that if you asked me before I knew what the average UK household debt was including mortgages I would have gone way, way over £55,000. I guess that's just my ignorance though.

I know you could never do this, but I'd like to see something around how manageable it all is. If you see what I mean?

We have a household debt that is double our gross income each year. So around 196% household debt to income ration if I've done my calculation right, and that sounds awful. But if we sold all our assets, investments and cashed in our savings tomorrow we'd have a good few times our income in cash. Which then sounds a very healthy position to be in.

I dunno, I'm just confused as to what this stat means to me I guess.

If you reread your first line, you'll see that you have answered your own question.

GDP is national income bar some adjustments in respect of dividends & overseas income. The point of this statistic is to measure how much a country owes compared to its income.

The point about debt is that it reduces spending power as income must be applied to service debt i.e. cannot be spent on consumption which is significant in the UK as we are a service economy (but I'm sure you know that anyway).