Debt consolidation ‘good for people but bad for economy’

Consumers are right to be trying to carry out debt consolidation strategies, but this comes with its own negative consequences, an expert has said.

Head of consumer finance at lovemoney.com Ed Bowsher said the decade before 2008 saw Britons go on a "massive borrowing binge" that will take "years to pay off".

He said many people are doing this – including himself, but it is not easy for some because of the economic consequences of the credit crunch, financial sector crisis and recession.

"If you've not had a pay rise since 2008, or lost your job, you're always going to struggle to pay off your debts," Mr Bowsher observed.

However, the expert explained, the problem is a cyclical one. Just as the debt caused the economic crisis and this in turn has led to job losses and falling incomes, it is also the case that the economic recovery is being held back by people's efforts to get debt free.

"Our thrift … isn't helping the economy. Less spending on the high street means slower economic growth, "Mr Bowsher explained.

This being the case, it could be that additional help – such as a debt management plan – may prove a useful to aid some struggling consumers, since the situation is one where a swift and strong economic recovery is not going to come to their rescue.

Such a point was emphasised by business secretary Vince Cable in his Liberal Democrat party conference speech this week, where he warned that Britain was embroiled in the economic equivalent of "war", with the "sunny uplands" of economic recovery a long way off.

One of the key problems is that Britain ran up higher consumer debts than just about anyone else, he concluded.

Posted by Paul Thacker