Recession changes British attitude to debt

Figures to be released by the Bank of England may show that consumer credit increased by £0.5m in February, but the Consumer Credit Counselling Service (CCCS) believes the economic downturn has made a lasting impact on the way people in Britain view debt. According to a spokesman for the charity, which provides assistance for people in financial difficulty, the reported increase in personal loan and credit card borrowing is more likely to stem from escalating competition in the market than a return to pre-recession borrowing habits.

Nevertheless, the spokesman has warned that Britain’s debt crisis has yet to come to a head, suggesting the importance of shopping around for the best personal loans is now more obvious than ever.

Increased lending

Growth in consumer credit has fallen sharply in the wake of the economic downturn, with many households being forced to rein in spending as a result of decreased income or prohibitively high interest rates. However, the latest figures suggest the tide is turning as the annual growth rate of consumer credit rose by 0.3 percentage points to 0.2% in February. This followed a £0.4bn increase in credit card lending and a £0.2bn surge in personal loans and other advances.

Yet while it would be easy to conclude from this that the return of growth to the British economy has filled consumers with greater confidence when it comes to borrowing, the CCCS spokesman believes the trend has been driven by providers rather than consumers. He argues that relaxed lending criteria combined with lower rates has injected more life into the market, and is not worried that Britons have forgotten one of the main lessons learned during the recession, namely that they should not borrow more than they can afford to repay.

Changing attitudes

Indeed, the spokesman believes the greater focus on budgeting which came with the recession is here to stay, with consumers now showing an improved willingness to pay off their personal loan and credit card debt. That said, he also noted that a changed attitude towards debt is not enough to help those in trouble. The recession might officially be over, but the number of people turning to the CCCS for help is still on the rise, with many of those seeking advice unable to cover the cost of their basic living requirements, never mind their debt repayments.

Furthermore, the spokesman predicts that things will get worse before they get better. “Future interest rate rises and cuts in public spending will hit consumers hard. 2009 has been a year of ‘pain deferred’, and more households can be expected to come unstuck next year,” he confirmed. In the meantime, consumers will have to concentrate on restricting expenditure and seeking out the best personal loan deals so interest repayments can be kept to a minimum.

Source: compareandsave.com