Advice company, ClearDebt, has carried out one of the biggest surveys into problem debt in the UK - that is those in debt who have sought professional help to aid them in coping with their financial difficulties. It found that the South East tops the table for excessive consumer debt, having run up an average of £26,576 in unsecured loans, while on a district basis residents of the City of London are coping with average consumer borrowings of £41,002.
The picture is bleak across the British Isles however, with those with problem debt in the East owing an average of £26,264; those in the East Midlands owing £26,060; people in the North West typically owing £25,896; and those in the West Midlands owing £23,896. Wales and the Yorkshire/Humberside regions don't fair much better owing £22,705 and £22,596 respectively. The debt is a little lower in the South West and North East, both of which have amassed average debts of £19,666 while Scotland and Northern Ireland are the regions that have faired best with debts of £18,537 and £17,148 respectively.
What has become clear is that while the poor are most likely to get into debt, the middle class and the wealthy often owe much more when they get into trouble.
How can you get back on top of debt?
According to credit reference agency CallCredit, the number of households spending half their income paying off loans and credit cards has trebled in the past year - with the proportion of adults spending one third of their income on unsecured debt having risen to one in seven, compared to one in 14 just a year ago.
Clearly debt means different things to different people - for some it may be falling behind on a handful of payments, while for others it may be juggling a debt of £50,000 or more, potentially far more than they are earning over the course of the year.
There are many varied solutions to debt problems that depend on your circumstances. For example you may be able to get back on top of payments by simply reducing your monthly outgoings, budgeting and being generally more frugal with your finances as outlined in our article 'Don't panic - debt help is available'.
One of the most common solutions is to move from an expensive store or credit card to a 0% balance transfer deal. A 0% card gives you an introductory period in which you pay no interest on your existing debt (though you will have to pay a balance transfer fee usually in the region of 3%). As a result you can use this period to chip away at your debt and get your finances back on track. The leading 0% balance transfer card in the UK is the Capital One Balance Transfer Exclusive, which offers 0% until December 1, 2009 with a 3% balance transfer fee. Another good option is the Virgin Credit Card which offers a 15-month interest free period on balance transfers. The transfer fee on this card is 2.98%.
If moving a debt to a 0% balance transfer card it's important to see it as a solution to debt and not a licence to go and spend more on credit, otherwise it can lead to the start of a slippery slope. Many consumers spend on a credit or store card, move to a 0% balance transfer deal and then spend again on the cards they've just cleared. When the 0% period expires they move on to a debt consolidation loan and then use this as an excuse to spend again on their credit cards. The results can be disastrous - so make sure you focus on clearing your debts before you consider spending again.
How can you reduce your monthly spend?
Cutting out unnecessary spending can go a long way - think about taking a packed lunch to work instead of buying sandwiches each day; consider car sharing with a colleague; perhaps reduce your number of nights out over a month. Shop around for market-leading products too on items such as car insurance, utilities and broadband to ensure you're getting a competitive rate. You may be surprised about how much you could save just by taking simple steps such as these.
If your debt problems can't be shifted with a little financial spring cleaning, then consider a debt consolidation loan. With an unsecured loan you will have a fixed repayment vehicle which will help you budget and bring your credit commitments into one reduced monthly payment making your debt simpler and more affordable. You will generally pay back more over the lifetime of the loan, but it can help you cope for the immediate future.
The leading unsecured loan rate in the UK is offered by Moneyback Bank, part of Alliance & Leicester, at an annual rate of 7.6%. However, the leading loan rates are only available to those with good credit scores - use our Smart Search tool to find deals you're likely to be accepted for based on an assessment of your credit profile.
For larger debts, perhaps of £20,000 or more, secured loans are a solution - albeit your property will be at risk if you fail to meet repayments. You must think of the risk before taking out a secured loan particularly as house prices are falling and many homeowners are slipping into negative equity.
If you decide to take this option it's crucial to shop around for the best rates - the lowest annual percentage rate on a secured loan is available from First Plus exclusively through moneysupermarket.com at 6.6%. However, this deal is only available until the end of the month so you must act now if you want to take advantage of it.
For those who don't own their own home, don't qualify for a loan or perhaps are over indebted, then a debt management plan could be the solution. The advantage here is that you won't take on any further debt as you would with debt consolidation, but on the downside, your credit file will reference the plan and it could affect your chances of securing credit in the future.
A debt management plan works by going through your income and expenditure and then working on a repayment plan with your creditors. There are a number of non-profit organisations that could assist you with a debt management plan including the Citizens Advice Bureau and the Consumer Credit Counselling Service. Alternatively you could use a fee-charging service that will try to negotiate a freeze or reduction on interest payments, although none can guarantee this. Some of the leaders in this field include the Debt Advisory Centre, Debt Advisory Line and Debt Matters - for more information on debt management check out our video blog 'Debt Solutions'.
What if your debt problem has gone too far?
If you have a large level of unsecured debt, typically £15,000 or more, then an Individual Voluntary Arrangement (IVA) may be a solution available to you.
An IVA is a Government-approved scheme in which an arrangement is made between you and your creditors for you to repay back a specified amount over an agreed period of time - usually five years. Your incomings and out-goings will be taken into account when assessing how much you can realistically afford to repay. Once your IVA term has ended any outstanding debt will be written off.
However, while this may sound an appealing option it should not be entered into lightly. An IVA will involve a legally binding agreement and will require the service of a qualified Insolvency Practitioner. Entering an IVA will also affect your credit score and it could take years for you to build it up again. Consequently this will make it harder to obtain a mortgage and other types of credit such as credit cards and even mobile contracts for years to come.
If you decide an IVA is right for you, there are a number of companies that could assist you including the Debt Advisory Centre and Baines & Ernst.
Have your say: Perhaps the most important thing to remember if you are deep in debt is that you're not alone, as the debt map of Great Britain proves. Our debt forum give users a chance to discuss their debt problems anonymously - check them out as you could pick up some valuable advice.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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