Credit card and loan defaults causing problems for families

Research that was carried out by the Organisation for Economic Co-operation and Development has shown how families across the UK are being driven to financial ruin as a result of soaring credit card and loan defaults that are said to be making the recession even worse. The OECD has stated that the debt levels of families in the UK have reached the highest level of any major economy, largely as a result of easy access to credit over the past ten years.

Between April and June of this year credit card companies have had to write off around £1 billion worth of credit card debt according to figures from the Bank of England, which are due to be released over the coming weeks. This represents the highest figure in sixteen years, which is when the country was last going through a recession. Worse still the situation is set to get worse over the course of this year, and the figure is a massive sixteen times higher than in 1997, when the Labour Party came into power.

Total bank write offs on Personal loans and mortgages is set to reach an astonishing £2.25 billion according to Capital Economics, and this is a figure that is far higher than the £1.96 billion that was seen during the same period a year ago. It is thought that this high level of household debt could result in the banking crisis getting even worse, with an increasing number of people having to file for bankruptcy.

Forecasts from the Association of Business Recovery Professionals have predicted that over the course of this year around 139,200 individuals will become insolvent, and this will reflect an increase of over 30 percent compared to last year. This could then have a knock on effect on the banking industry, which could end up restricting lending even further, hiking up interest rates, and ultimately deepening the recession.

It is also thought that amongst the reasons for the expected increase in debt defaults is the rising level of unemployment, which is set to force an increasing number of households into financial difficulties to the point where many will be unable to keep up with their debt repayments.