When the Financial Stability Director of the Bank of England makes a statement, it is usually wise to listen to what he says. The fact that Alex Brazier has spoken about the rise of personal loans and the associated dangers of these loans should be all that is required to make people stop and take notice. We all know that personal finances are not what they should be around the country and there are many people who are struggling with money. This is not news but when figures are placed in front of people in a cold manner, the difficulty of the situation comes to the fore.
Brazier has highlighted the role of High Street Banks in creating and aiding a “spiral of complacency”, which has led to mounting levels of consumer debt. It used to be that banks were run for the local community, playing a part in keeping the local area alive and supporting people when they were in need. This is no longer the case when it comes to local banks. Banks are now being run as a purely commercial entity and a decision that is good for the bank without necessarily being good for the community is no longer the issue that it used to be.
Some debt can be positive
Of course, it is fair to say that a little bit of debt can be a good thing. Carrying some debt can allow people to take on new things in life or make improvements in their life. If a business has a debt facility at an attractive rate, there is a great deal to be said for carrying a little bit of debt as opposed to having a clean slate with respect to their finances. However, like most things in life, this is only true in moderation. When you have a little bit of debt, it can be fine but when this little bit of debt starts to grow and becomes a lot of debt, it becomes dangerous and this is something that people need to be aware of.
The Bank of England has stated that the level of individual’s debt in the United Kingdom stands at around £1.5 trillion. This equates to an average of £28,000 for every single person who is aged 16 or over in the United Kingdom. This is a startling figure and one that really grabs the attention when it comes to finance. Of course, the majority of this debt is made up of mortgage payments and a lot of people will find this to be acceptable. A mortgage is a major part of life and if you are paying it every month, you are working towards owning an asset, and this should be viewed as a positive thing. However, the rest of this debt figure is made up of other charges and these may not always be so positive.
A lot of debt can be difficult
The rest of the debt is made up of credit cards, overdrafts and loans, with these loans being used to buy a range of items like vehicles or carrying out repairs or upgrades at home. While there was a levelling off of personal debt after the most recent financial crisis, it does seem as though there is a rise once again. Perhaps the attractive interest rate for borrowing has brought people to the fore or maybe people have held off for long enough after the last financial issues. There is also the fact that many lenders are making decisions based on generating income for them when they should possibly be looking for ways to help people through difficult financial times instead.
The non-mortgage debt stands at around £200bn and this has been growing at a rate that is faster than household incomes. There is also concern over the rise in the credit card element, which stands at £68bn, a figure which has risen by 18% in the last three years. Loans can be of great benefit but they need to be the right sort of loan, with guarantor loans being a good option.
There is a need for people to be aware of the challenges they face these days with respect to finance and managing their money effectively. This can be a challenging time for many people so it is vital to find financial solutions that create a path forward.
Andrew Reilly is a freelance writer with a focus on news stories and consumer interest articles. He has been writing professionally for 9 years but has been writing for as long as he can care to remember. When Andrew isn’t sat behind a laptop or researching a story, he will be found watching a gig or a game of football.