No matter how much Chancellor George Osborne talks up the economic recovery, there is little escaping the fact that Britain is fast becoming addicted to credit. Like all addictions, credit is a difficult habit to break. However, we shouldn’t rely on the government’s fiscal policy to help us out of a credit mess. Instead, there are certain measures that we can all take to curb or manage our credit debt.
Like many addictions, credit addiction can lead to spiraling associated problems. Once you miss credit payments, you are more liable to accrue a poor credit score which in turn will make it harder to take out future loans. The net result is that the overall debt simply increases. And there is no doubt that the UK is a country where credit and debt are playing an increasing role in our lives. The Smith Institute recently warned that the country is “sleep walking into a major personal debt crisis,” claims which would seem to be supported by the British Bankers Association which reported that the total owed on credit cards has grown by £9billion since 2009 to an all-time high total of £38.7billion. The sharp and well-publicised spike in pay-day loans over the last few years is yet further indication of a growing appetite for credit. And the impact on individuals is not hard to work out. The Office of National Statistics reported that one in two families in the UK describe their debts as “heavy” or “somewhat of a burden.”
Of course, some economists would argue that borrowing is a positive sign of increased spending, which in turn can only boost the economy as a whole which will eventually benefit everyone. That is all well and good when borrowing and credit can be sensibly managed and debts ultimately repaid. However, the growth in credit cards and pay-day loans is evidence not of responsible borrowing, but desperate borrowing. The popularity of quick, short-term loans at often high rates of interest has recently been the target of sharp criticism by Leader of the Opposition, Ed Miliband and is an indication that it could be a major issue in the build-up to the 2015 General Election. This kind of desperation when it comes to requesting a loan is a sure sign of an inevitable struggle to pay back and manage debts. And this is where the optimistic economic theory goes awry. Borrowing is a sign of impending spending, but when it is debt that can’t be paid back, it has a negative net impact on the economy. It may just be that the UK is heading for a credit crisis before the much-vaunted economic recovery has a chance to bring on the good times. However, don’t expect that simple logic to prevent the government from releasing figures showing continued growth and with it a false sense of security.
Ultimately, the responsibility for reducing debt remains with the individual. Thankfully, there are several simple measures that everyone with a credit card or a loan can put in place. First and foremost, be aware of your credit status. A lot of people don’t know or at least haven’t checked for a while whether they are considered to have a good credit rating. This will go a long way to determining what credit you can expect in the future. Check with one of the credit rating services for a credit rating check and to receive a credit report. These are the very details which any potential lender will likely access before authorising a loan, so it makes absolute sense that you too should be in the picture.
There are plenty of other sensible tips too. Make sure that if at all possible, you pay back more than the minimum on each monthly payment, or else the interest may well continue growing faster than you can manage. It is also important to meet your payments ruthlessly on time. Failure to do so will incur extra charges which are unnecessary with a little extra care. A late payment on something seemingly minor such as a mobile phone bill could even be noted and count against you in a credit report.
In the end, the debt cycle has to be broken. At the moment, the authorities are showing little sign of weaning the British public off the temptation of unstable credit. If institutional change isn’t going to rescue us from debt, then the kind of baby steps listed above must be the start of an individual responsibility to make a difference.Powered by Sidelines