Consumer Debt: Where Did it Come From?

by : Martin Mcallister

In recent times, there have been growing concerns with regard to the ever-increasing levels of consumer debt in the UK. Such is the height of the problem that recent figures revealed that by the end of March 2007, personal debt levels in the UK had risen to over ?1.3 trillion - a rise of 10.5 per cent over the previous twelve months.

Yet despite these figures, and the fact that debt levels have risen further since, the consumer love affair with loans, credit cards, store cards and other forms of unsecured credit continues unabashed - while lenders continue to provide the finance that consumers crave. Making applications for finance has become easier and easier, which many industry analysts claim is an important factor in creating the huge levels of debt faced by UK consumers.

Previously, applications for credit usually meant a trip to the bank and a meeting with the manager to discuss your application. Lending criteria was much more stringent than it is today, with the applicant having to provide much more information to support their application than by today's standards. Being stressful affairs, meetings with the bank manager were often avoided unless finance was necessary and many people chose to do without rather than face a grilling over their application.

When banks and other financial companies began to offer telephone applications for loans and credit cards, the application was made easier and more convenient. Furthermore, many financial institutions began to advertise loan offers in newspapers and on TV, but although you still had to talk to someone about your application, the fact that you were apart from the other person made the process of applying for finance much more accessible. With more and more lenders setting up call centres to process loan applications, greater numbers of people began to make applications.

The introduction of the internet as a consumer commodity is reckoned to be the real catalyst for the UK's mounting debt problem. With most major banks, credit card companies and financial institutions beginning to accept finance offers made online, customers were able to make applications for credit from the comfort and convenience of their own home without the need of having to speak to anyone, justify their application or make any additional effort on their part. The availability of internet applications resulted in many people making applications they would normally have thought carefully about previously. Being easily available, people would apply for loans and credit cards simply because they were there for the taking, not because they either needed or wanted them.

Today, the level of consumer debt is a problem that is blighting the UK. However, of equal importance are the rising levels of bad debt, much of which is now in the hands of consumer debt collection agencies, such as , as lenders sell off their bad debt in an attempt to cut losses generated by the burgeoning levels of consumer debt. These levels of bad debt, whereby a consumer has accumulated more debt than they can afford to repay has seen a huge surge in the number of people seeking advice for debt problems, with the Consumer Credit Counselling Service (CCCS) claiming it had received 33 per cent more calls in the first quarter of 2007 compared with the same period in 2006.