Credit crunch lessons ‘not being learned’

Despite all that has happened in the economy and the consumer credit sector over recent years, some have failed to learn the lessons of contemporary history, an expert has said.

Financial psychologist and creator of Taming the Pound Kim Stephenson warned many consumers are “still living as if we’re in 2007”.

He noted many are still “assuming that you can keep borrowing because your house will go up in value and your income will keep rising, so you’ll just pay off all the debts in the future when you sell the house”.

Even four years ago, this only worked for some people and in the current economic climate it is an assumption few can bank on, Mr Stephenson added.

Those who continue with a buy now, pay later approach will feel the “squeeze” eventually and end up “deep in a hole”.

Failing to realise the risks may add more people to the ranks of those already struggling to deal with large amounts of debt run up over years of excessive spending.

For people who have run up debts of £15,000 or higher, it may seem bankruptcy is the only way out, but individual voluntary arrangements (IVAs) offer an alternative.

These involve agreeing with creditors to make lower payments over a period of up to five years, with interest frozen and all remaining debt written off at the end of the period, as long as payments have been maintained.

To establish an IVA, it requires 75 per cent of creditors to agree, at which point any dissenters left will be obliged to accept the agreement.

Insolvency Service figures showed there were 50,716 IVAs in England and Wales last year.

By Joe White