The Bank of England has said that the steep rise in personal loans compared to the near-negligible household income growth could put the economy at risk if debts were to spiral out of control.
The growth of personal loans
According to BoE’s Financial Stability Director Alex Brazier, credit card balance transfers, outstanding car loans, and personal loans have grown 10 per cent in the last year. Compare that to the average growth in household income, sitting at 1.5 per cent, and the contrast is scary.
What’s going on?
Britons are under more pressure than they were a year ago. Household items are costing more, whether due to shrinkflation, import costs, the weak pound, or true inflation. Since their incomes have remained the same or actually lost value due to the high inflation, people are struggling to keep up, so they turn to loans to cover the shortfall.
The personal loan trap
The problem is there’s no plan to pay off those debts. People are hoping the economy will stabilise, but hope won’t make it happen. Those that can’t pay either default and have the debt collectors knocking on their doors, or turn to short-term alternatives, like credit balance transfers. This merely delays the issue.
Securing your finances
If you’re caught in the loan trap, then you need to find a way out fast. The only way to do that is to secure your finances and make sure that you can afford all of your outgoings without relying on unsecured credit, like an overdraft or a loan.
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