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From 2012 to 2017, the UK household debt has increased a worrying 7% from £1,518.5 billion in 2012 to £1,630.1 billion in 2017. Student debt and consumer credit are the two factors which have increased the most in this period.

These figures suggest a worrying trajectory, with the household debt to GDP ratio going back to that which was seen just before the financial crash. The government has planned to reduce its annual deficit progressively until the year of 2025, however the households of the UK are moving in the opposite desired direction.

One major contributor for this significant increase in the UK debt is the fact that consumers are using credit to purchase their essential items. There has been found a great increase in the borrowing of loans and subsequent fall into arrears on their repayments. One part to this issue of loan borrowing that is contributing to this upwards trajectory of UK debt is the consumer finance loan.  

High cost consumer loans that fall into payday and unsecured continue to be popular choices for 3 million Britons each year. Keeping up to date on the payments of such loans can help borrowers to boost their credit score, meaning future applications to banks and credit unions may be successful. Other methods to rebuild credit scores are better though, including credit builder credit cards and paying off any credit and store cards where feasible.

High cost loans are typically taken out by borrowers to tide them over until the next pay date, pay for bills, food, utilities and keep up with debts. However, these types of loans typically come with very high interest rates, meaning those who borrow from the companies offering them have a larger amount of money to pay back, and therefore a higher risk of being over-indebted.

To avoid using high cost loans, households are advised to use alternatives forms of finance including credit unions, borrowing from family and friends and also using debt management charities such as StepChange and National Debtline, with the former helping 620,000 Brits per year.

In search of sub-prime loans for poor credit, borrowers can look at adding some form of security to their loans which includes using a car or property as collateral or getting a loan with a guarantor to add more credibility. The rates charges are significantly lower, but come with the added risk of collateral repossession or a guarantor having to make payments on their behalf.

Although predictions from the Office for Budget Responsibility, the official UK government’s forecaster, were hopeful in rebuilding the UK’s economy with business investments and an increase in worker’s wage following improved productivity; the reality of cutbacks to public services and welfare when combined with the low growth of wages has meant that more and more people are turning to loans they simply cannot pay back. 

In this age of increasing consumer credit debt, it is vital to understand the rights of borrowers that are protected by the Consumer Credit Act of 1974, to ensure all practices of lending and debt collection are legal and fair. This could help in the safeguarding of a borrower’s financial situation, and prevent more debt than necessary. 


UK household debt increases by 7%
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