As a nation, Britain is now more than £1 trillion in debt. National debt surpassed this eye-popping figure during first quarter 2012. More than 86.8 percent of the total British Gross Domestic Product is currently represented by debt. It costs nearly three percent of that GDP, or approximately £43 billion, to service this public debt each year. To put this figure in clear perspective, it is approximately the same size as the British budget for defense.
Public debt is money borrowed by the UK government so, other than paying more taxes, there is not much that consumers can do to reduce it. Personal debt, on the other hand, is something that UK consumers can directly control. This is debt incurred when purchasing goods with something other than cash, such as using a loan or credit card.
Personal debt is rising in the UK, standing at £1.412 trillion as of the end of August 2012. UK consumers owed almost as much as the country produced during the previous year and unsecured consumer credit accounted for £156 billion of this figure.
In August 2012, average UK household debt, excluding mortgages, was £5,949. The ease at which this debt can be amassed has kept credit counseling agencies and debt consolidation firms very busy. Though personal debt may seem like it will never go away, there are actually some simple ways to get rid of it. In many cases, the experts at these organizations recommend debt consolidation loans to their clients.
Streamlining Your Repayments
A debt consolidation loan allows consumers in debt to multiple lenders reduce their payments to a more affordable single monthly payment. The loan pays off existing debts and transfers the balances owed to a single loan that typically features a lower interest rate or longer repayment period. Learn more about the benefits of a debt consolidation loan to see if this financial management tool will help you.
Most store cards and many credit cards have high interest rates. Each month, this interest is added to unpaid balances. A debt consolidation loan usually has a lower rate of interest, allowing the loan holder to pay more toward the principal portion of the balance. Another possible benefit for individuals who are able to repay their consolidation loans without accruing additional debt is an improvement in credit rating.
To determine whether an individual is eligible for a consolidation loan, a lender will review the amount of outstanding debt and the credit risk of the individual. Consumers with a large amount of debt and a bad credit history may need to secure their property against the loan. This makes keeping up with loan repayments important in order to prevent placing the house at risk of repossession.
By first quarter 2017, total UK household debt is expected to reach £2.044 trillion. If the number of households within the UK remains steady between now and then, the average household debt will be £77,719. It is not far-fetched to predict that debt consolidation loans and other debt management tools will be even more popular than they are today.