MONEY COMMENT
Britain's Bloated Debt Burden

By Cliff D'Arcy
October 29, 2003

Every month, the Bank of England releases figures on lending to individuals and - no surprises here - consumer debt just keeps on going up. But what's shocking is just how strong this trend is, especially in recent years.

To demonstrate this, I downloaded some data from the Bank going back to April 1993 - just short of 10½ years' figures. Even though I'm a hardened cynic, analysing this data stunned me. Here are some facts that I uncovered:

Mortgage debt

• In April 1993, our mortgage debt totalled £346bn.
• At the start of 2000, this figure had swelled to £493bn.
• At the start of this year, it was £670bn.
• It is now £737bn (about £64,000 per mortgage borrower).

So, our mortgage debt doubled in less than ten years. Of course, rocketing house prices make us feel richer, but we still need to find ways to pay off this colossal sum in an era of low inflation and investment returns. Eek!

Consumer debt (personal loans, credit and store cards, overdrafts and all)

• In April 1993, we owed under £10bn on our credit cards and £42bn elsewhere.
• At the start of 2000, these figures had shot up to £32bn and £83bn.
• At the start of this year, they were £47bn and £109bn.
• They are now £52bn and £116bn - a total of £168bn.

Hence, our love for easy credit means that the average British household now owes almost £7,800 in non-mortgage debt, at typical interest rates of around 15%. Ouch!

Our total debt

• Has risen every single month since April 1993 - that's 125 months in a row.
• In April 1993, was £398 billion.
• At the start of 2000: £609bn
• At the start of this year: £826bn
• It's now £906bn.

So, our debt mountain has grown by £80bn since the start of this year and is more than half a trillion pounds (that's a 'five' followed by eleven 'zeroes') higher than in April 1993. Blimey!

With interest rates expected to start rising before the year's out, this debt burden is going to ruin many reckless borrowers. For example, a 1% hike in interest rates will increase our total interest bill by over £9bn a year...

So, before you splash out on a new purchase funded by debt, ask yourself: can you honestly afford a larger share of this gigantic burden?

More: Get Out Of Debt centre | Dealing With Debt discussion board