New Government proposals to tackle debt

Article Written By: BrookeWebb

The Government has just announced proposals to more than double the minimum card payment from 2% to 5% in an aim to help people pay off debts more quickly. Although still in consultation phase the moves have proven popular among personal finance advisory groups.

In the UK, average household debt is just over 9,000 excluding mortgages, according to Credit Action. If based on the number of households who actually have some form of unsecured loan, this figure rises to 21,305. Furthermore average credit card, motor and retail finance debt has increased to 4,745. The recession has brought to cast and ugly light on the huge personal debt problem that is being experienced across the globe.

Although some groups worry that the increase may further cripple those at the bottom end of the scale who are already struggling to pay off debts, most agree that in the long run the increase in minimum repayment will actually help lift people out of debt more quickly and take responsibility for their debts.

The Governments aim is also to tackle banks lending irresponsibly. The new rules will make banks think more consciously about lending and stop them upping credit limits when people fail to make the full payment and banning raising limits on existing credit. However, consumers have to take some responsibility for their actions; the banks alone are not the only ones accountable. People have been too blaz about buying goods and services on credit when they cant really afford to pay for them.

When purchasing goods and services on credit, people need to consider whether they will just make the minimum payment and if so, they need to take into account the amount of interest that will be added to the product and how long it will take to pay off the debt.

Interest rates on credit cards are usually very high, meaning you will pay more for that TV or holiday if you only pay the minimum than if you pay outright from the start. If these rules come into force, the time to pay off a 1,800 debt would decrease from 40 years to 10 years and the amount to be repaid would be reduced by a massive 4000.

The only way to steer your way through the credit crunch and come out of it debt free is to be realistic about your debt. With the average debt 133% more than the average salary, we really need to reconsider our approach to purchasing if we want to put an end to this recession quickly.

About the Author

Kristan Brangers has recently been looking into debt help offered by Baines and Ernst and is now creating a debt management plan.

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This Article Has Been Published on Mon, 14 Dec 2009 and Read 225 Times

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