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Written by Martin Sumner
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Friday, 02 February 2007 |
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Word Count: 571 Why We're So Deeply In Debt
It's been widely reported that as a nation we're collectively in debt to a
higher level than ever before, and many more people are starting to experience
problems keeping their finances together. The level of personal insolvencies and
bankruptcies is skyrocketing, and banks are having to put aside ever increasing
amounts of money to cover bad debts that their customers are failing to repay.
Many financial experts are predicting a debt crisis in the near future, and
there's talk of a severe impact to the economy as the chickens come home to
roost. How did we get into this situation? Why are our debts so high?
- Easy Credit
We're constantly bombarded with advertising and marketing telling us how easy it
could be to take out credit, and how much doing so could change our lives for
the better. Competition between lenders has meant that many of them have relaxed
their lending criteria, accepting applications that they may have rejected in
previous times. Combine these two facts and it's little surprise that the number
of people taking out loans has increased dramatically.
- Cheap Credit
Interest rates are, historically speaking, at very low levels. This means that
we pay less in repayments on our debt, making it easier to borrow larger
amounts. While interest rates remain low this is perhaps not a problem, but
rates will inevitably rise at some point, which could be very bad news indeed
for those already stretched to the limit.
- High House Prices
The last decade or so has seen a mammoth surge in the cost of housing, with
prices spiraling upwards year after year. This has led to increased debt in two
distinct ways. Firstly, people buying their first home are having to take out
huge mortgages to be able to afford them. Where once it was normal to save up a
deposit, even this isn't realistic for many people, and so 100% mortgages for
large amounts have become more common.
Not only do high prices mean higher mortgage debt, they also give a feeling of
increased wealth to people whose properties have doubled or tripled in value.
Many people who bought houses before the property boom are now fortunate to have
huge amounts of equity in their home, as their outstanding mortgage is much
smaller than the value of their home. 'Cashing in' this equity by taking out a
loan secured on their home is a seemingly easy way of obtaining extra cash to be
used for a variety of purposes from consolidation to home improvements, and has
become more and more popular as our collective equity has increased.
- Attitude to Debt
Society as a whole is now a lot more open to the idea of debt. Where once being
in hock was anathema to most, it is now an ordinary part of life. Whether this
is a cause of debt or a result of our new-found dependence on it is, however,
open to question. What's certain is that more and more people are starting to
question whether their personal debt levels are supportable, a trend that's
likely to grow in the next few years.
Article Source: www.webraydian.com
About the author: Martin Sumner runs debt management site
http://www.debtsorter.co.uk/ as well as writing on a range of financial
issues including credit and debt.
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