Increasing Levels of Debt Lead to Bankruptcy
The days of living on borrowed money and lines of credit are coming to an end. The number of new credit card applications now being rejected is up by 30%, cutting the overall chances of approval by half.
Individuals who depend upon consolidating old loans and moving debt to lower interest credit cards will soon find it harder to continue such habits as lenders begin to restrict their practices even further.
In 2007, the number of people falling into bankruptcy was just below 110,000, but after the festive spending of the holiday season accountants at KPMG are expecting that number to climb to 130,000.
KPMG reports that a majority of these people will declare bankruptcy or arrange for Individual Voluntary Arrangements (IVA’s). When consumers agree to an IVA, they are able to repay their creditors in lower repayments over longer periods of time with some of the debt often forgiven – allowing borrows to restart building their credit.
Mark Sands of KPMG said it has been very easy in the past to borrow money and extra credit has been a lifeline for people already in debt, with consolidation loans, second mortgages, and new credit cards having come to their aid. However, Mr. Sands warned that these lifelines will not be there for many people much longer.
Mr. Sands concluded that high interest rates and homeowners facing increasing mortgage payments are partly responsible for the rise in debt. Homeowners facing the expiration of their fixed-rate mortgages can only expect their repayments to increase in the future, as demonstrated by a £150,000 mortgage repayment growing by £400 a month to £1,390. As repayments double, consumers find themselves unable to escape the credit squeeze.