Householders ‘bringing debt down’

Debt consolidation measures are helping householders to reduce their debt levels, a new survey has indicated.

The February digest of statistics from finance charity Credit Action has revealed the amount of interest being paid by UK consumers on personal debt was £171 million in December 2011, compared with £173 million a year before.

However, this may not be quite as simple a good news story as some would imagine, the charity's chief executive Michelle Highman suggested.

She said it is likely the falls in debt "represent an increased level of caution and concern in your average household, which impacted confidence in putting Christmas on credit last year".

"Whilst it is heartening that people did not overspend, the underlying reasons for not doing so may prove to be a real cause for concern in the coming year," Ms Highman added.

People who are struggling financially to the point that they dare not borrow more may find they are still finding it impossible to pay what they do owe, a situation that could leave those owing £15,000 or more left considering an individual voluntary arrangement.

Such a deal works by agreeing with creditors not to go bankrupt and leave them with nothing, but to pay a reduced amount over a period of up to five years, at the end of which any remaining debt is written off.

One advantage of an IVA is that it is confidential, so the potential stigma of having an insolvency made public knowledge that bankruptcy can cause will be avoided.

The statistics in the survey tally with the findings of the Bank of England's latest Trends in Lending report, which suggested consumer credit borrowing was subdued, with credit card usage levels "weak".

By James Francis