Debt consolidation ‘may save some borrowers’ from QE inflation

The debt consolidation measures many consumers are taking may ensure they have enough control over their debt levels to avoid the worst possible consequences arising from any further increase in inflation caused by the Bank of England's quantitative easing (QE) programme.

Independent financial advisor at Bestinvest Adrian Lowcock noted that if the £75 billion expansion of the asset purchases scheme has the effect of pushing the cost of living higher, "It could result in greater pressure on individuals paying off existing debt and push some over the edge."

However, he added: "On the whole, households are starting to reign in their debt and pay it off. Low interest rates and low mortgages have helped here."

People who are reaching the point at which they can no longer afford to clear their debts could find an individual voluntary arrangement (IVA) helps to get on top of such problems.

Unlike bankruptcy, it does involve still making payments, but these are reduced and the payment period will not exceed five years, after which anything left owing is written off.

In addition to this, it can be kept confidential, whereas bankruptcies may be published in the local press and are automatically logged in the weekly London Gazette.

Although some are concerned that QE will cause more inflation, the Bank of England's Monetary Policy Committee argued in its announcement of the new asset purchases that this will not be the case.

It said other inflationary factors are losing strength and that without more QE the economic weakness that would be suffered will see Consumer Prices Index inflation falling below its two per cent target.

By Joe White