Belatedly, it seems that the financial watchdog, Bank of England and MPs have woken up to a steadily growing pile of borrowing from our future.
Their pledges to investigate and act are welcome but come a considerable time after they should have done – this is not a new problem.
Had we acted earlier we may have had more of a grasp on where the debt is coming from.
Debt pile: The £201bn personal debt mountain is now in touching distance of its peak in September 2008
We know that it is largely credit cards, personal loans and car finance, but we aren’t quite sure who is doing the borrowing and why – beyond the helpful statistics that debt charities can provide.
Some of this pile of credit card and personal loan debt is down to people who can’t make ends meet any other way, a considerable amount is down to others who prefer to live beyond their means and borrow a better lifestyle today from their earnings tomorrow.
The £201billion debt pile is now within touching distance of its peak of £208billion in September 2008 when the financial crisis was in full flow.
In the crisis, as worried lenders slammed the doors after the horse had bolted – and done an entire lap of the field – consumer credit dried up and borrowing fell, down to about £160billion in 2013 to 2014.
Since then it has been on the rise.
But that in itself and the absolute size of the pile is not necessarily a problem.
You would expect consumer credit to rise in an economic recovery and as long as people’s ability to pay back that debt is improving through rising wages, then a higher debt pile becomes an economic factor not an issue.
There’s a problem in Britain though. Our ability to pay back debt hasn’t been improving – real wages have fallen.
Once our earnings are adjusted for inflation, we have less money to pay back our debt today than we did at the financial crisis peak.
The other factor that comes into play here, of course, is interest rates. These, as you won’t need to be told, are super low.
If you can borrow at those low rates then the affordability of your debt is better, yet here there are also some problems.
Firstly, rates will one day have to rise. Secondly, while for some people this may be the best time ever to borrow money, for others rates are considerably higher.
Only those with the best prospects and credit scores get the incredibly cheap personal loan rates – and often the mega interest-free credit card deals.
Advertised personal loan rates only have to be offered to 51 per cent of successful applicants.
Those who aren’t the best borrowers pay much higher rates of interest and if you borrow big, fall into a debt trap, and miss a payment or two, you will find the rates you are offered rise very swiftly indeed.
This is a problem that goes right through society, you can get a Ford Fiesta on finance – and a Bentley.
The Government says its doing something delivering more jobs, a higher minimum wage and tighter lending rules. The numbers point to that not being enough.
