It’s an accepted fact that personal debt has risen to almost unsustainable levels, and that the number of bankruptcies and IVAs (individual voluntary arrangements) is reaching record highs. Some commentators put this down simply to the financial ignorance of many people, or the irresponsible ‘buy now pay later’ culture they say has developed.

That’s perhaps a little harsh on the millions of people for whom debt is now an ordinary part of life. There are several contributing factors which have led to today’s debt problems.

Easy Access to Credit

For the last decade or so it has been incredibly easy to obtain credit, even for people with poor credit ratings. Competition among lenders, particularly online, has led in some cases to acceptance criteria being slackened, making it less difficult to be approved.

Low Interest Rates

With base rates at historically low levels, even taking recent rises into account, credit has not only been widely available - it’s been cheap too. This has meant people could afford to take on larger debts forthe same monthly repayment levels. This of course will become a serious problem if rates rise sharply.

The Property Boom

Property prices have long been a hot dinner party topic of conversation, but the property boom has contributed to the nation’s debt problems in two ways. The first and most obvious one is that first time buyers need to borrow more to get onto the housing ladder (the UK’s mortgage debt now exceeds a trillion pounds).

Secondly, people who bought property before the boom have often now got a lot of equity in their homes, as their mortgage is much smaller than the market value of their home. This has encouraged a boom in secured lending as homeowners take advantage of their high equity levels to obtain large amounts of credit secured on their home.

Societal Conditions

Put simply, there is no longer a stigma attached to being in debt, and more people are willing to consider going into the red as a first rather than last resort.

Yes, people in large amounts of debt must look to themselves and how they got into that situation, but to put it purely down to individual profligacy is ignoring the other factors involved.

Follow any responses to this post through the RSS 2.0 feed. You can leave a response, or trackback from your own site.