Debt freedom day - an ‘interesting’ concept

From 1 January to 10 March 2008, the ‘average Briton’ didn’t really make any money for themselves. Believe it or not, they’ll need every penny they earned just to pay this year’s interest on their credit card and loan debts, without even touching the debts themselves.

That’s why independent financial adviser website Unbiased.co.uk named 10 March ‘Debt Freedom Day’, the day in 2008 when people had finally worked long enough to pay the cost of their debts.

20p in the pound
No-one, of course, put their first 70 days’ wages towards their interest payments. Even if the terms of the credit allowed it, people need their money for food, rent / mortgage, petrol…

So 10 March is really a symbolic date, but it’s an important symbol, reminding people just how much of their money is taken up by interest payments. It’s more realistic to see interest payments taking up around 1 day’s wages a week – or about 20p of every pound the average person earns throughout the year.

70 days – and climbing?
Last year’s Debt Freedom Day came on 1 February, ‘just’ 31 days into the year. Even then, the thought of working for a month (or 1 day in 12) to pay off interest was alarming, but this year the figure is closer to 1 day in 5.

So what happened? According to Unbiased.co.uk, credit card debt has dropped from £55.6 billion to £54.9 billion, but there’s been a huge increase in personal lending over the last year – personal loan levels have risen from £2.6 billion to £9.8 billion. As a result, British consumers are faced with interest charges of nearly £1.5 billion.

This time next year, will we be looking back on Debt Freedom Day 2009, or will we still be waiting for it? We can’t know for sure, but we’re seeing reassuring signs that people are starting to pay more attention to debt matters.

Hope for next year?
A recent study by Alliance & Leicester showed that debt problems have become a common topic of conversation – more popular than celebrities or sport events. While 40% of respondents said they’d recently spoken to a friend about the latest sporting match, a full 50% had discussed debt problems in the recent past.

It’s good to talk. Apart from reminding people that they’re not alone, it’s a great way for them to pick up good advice – and find out what could happen if they don’t take action to sort their debts out. They might also hear ‘real-life’ stories about the various debt solutions, which might prompt them to seek debt help and pinpoint the debt solution that might be right for them.

Debt management, for example, can be an excellent way to address the issue of unaffordable debt. Anyone can talk to a creditor and ask them to accept lower payments, reduce interest and / or waive charges, but many people feel more comfortable asking an experienced debt management company to do this on their behalf.

Or they might choose to pay off their high-interest debts with a single debt consolidation loan. This can seriously reduce their monthly payments, but there are downsides to this. It’ll probably take them longer to repay their debts, and securing any debt against a house can put that property at risk of repossession.

Finally, people in severe debt might consider an IVA (Individual Voluntary Arrangement) or even bankruptcy. As forms of insolvency, IVAs and bankruptcy both have their drawbacks, but they do provide a valuable way forward, giving people the chance to write off the debt they can’t afford to repay – and look forward to a debt-free future.

To see if you qualify for an IVA go to www.debtline-direct.com and fill in a form that will take you no more than a minute!