Extent of instant credit revealed

Millions of people have the ability to draw on thousands of pounds of instant credit whenever they feel like it, but with the financial flexibility this brings also comes an element of risk.

New research published by the Debt Advisory Centre has shown more than one-third of people in the UK have access to at least £5,000 in credit, while one in seven – the equivalent of 5.8 million people – have access to more than £10,000.

Meanwhile, almost two-thirds of Brits have an authorised overdraft facility of £1,000 or more and while this latter form of borrowing is often used as a buffer against individuals suffering charges from their bank for unexpected bills and other expenses, it does provide a possible temptation for people to spend that bit more and live beyond their means.

Indeed, in three per cent of cases, individuals have an overdraft facility of £10,000 or more.

While access to this level of immediate borrowing is not inherently risky, it does create potential for future financial difficulties for some if they overstretch themselves and borrow more than they can reasonably afford to pay back.

Ian Williams, a spokesperson for the Debt Advisory Centre, commented: "Many people in the UK have access to credit, but it's surprising just what large sums some of these customers are able to borrow should they choose to.

"Although these sums are incredibly tempting, there are some borrowers who could be at risk of getting into trouble. The more they borrow, the more confident they need to be that they can pay it back, or they could end up with a problem debt they're unable to manage or, at the very least, a damaged credit rating that makes it harder to borrow in the future."

Total outstanding consumer credit debt in the UK stood at £162.6 billion at the end of August, while average consumer credit borrowing per household (excluding mortgages) was £6,155.

Meanwhile, 32.1 million card transactions take place every day in the UK, with a total value of £1.522 billion. It is therefore imperative for all cardholders to understand both the common nature of credit borrowing, but at the same time the need to pay back this money before borrowings get out of hand.

Overall, UK borrowers have paid £162 million per day in interest, while 71 homes are repossessed every day after individuals became financially overstretched – the equivalent of one every 20 minutes and 15 seconds.

Individuals who face mounting debts but are unclear on what the best course of action to take should therefore consider booking an appointment with a qualified financial adviser who will be able to run through their options with them, such as consolidation of their borrowings or more drastic measures like IVAs.

Meanwhile, the Citizens Advice Bureau recommends that anyone with problem debts first takes the time to document all of their borrowings, as this will give them a clearer picture of their financial situation and ensure they have all the information needed to present to a financial adviser.

When planning how to reduce borrowings, individuals should also prioritise their debts and make sure they are paying off those which are most urgent first. It is also sensible to complete a budget of one's income and essential outgoings at this point, as this could highlight other areas where people could save in order to pay off their debts more swiftly.

Contacting creditors to arrange affordable and realistic payment plans is also a positive course of action for those with excessive borrowings. This is something a financial adviser can help with, while the use of IVAs to bring down the total amount owed can also be beneficial, but only in extreme circumstances, as the impact such a move can have on a person's ability to take out credit in the future can be severe and longlasting.

Posted by Amy White