Financial Errors that Create Debt

17 May 2007

Millions of UK consumers are creating financial problems that are avoidable. Research conducted by credit reporting agency, CreditExpert indicates that one in ten adults has considered insolvency either in the form of bankruptcy or an Individual Voluntary Arrangement (IVA) to help clear their mounting debts. According to the company's research, many of those had made basic financial errors that added to their initial problems of overspending.

As an example, ten per cent of those surveyed admitted that they took out a new credit to pay off an existing one, and another one in ten had missed payments on credit cards, store cards, or mortgages. Another common financial error was taking out a long-term, high interest consolidation loan in order to pay off existing debts.

Credit Awareness Week is designed with the sole purpose of encouraging consumers to gain better control of their financial affairs. When it began, the company said that twenty-five percent of Brits admitted to having difficulty with personal financial control.

According to recent government statistics, personal insolvencies reached 30,075 during the quarter that ended March 31st, an increase of 24 per cent over the same period last year. The figure included 6,842 bankruptcies, a ten per cent increase from last year, and 13,233 IVAs, a 48 per cent increase over the same period in 2006. They expect the recent rise in interest rate to cause more people to experience debt problems.

CreditExpert's managing director, Jim Hodgkins, finds it disturbing that so many people admit to making basic financial mistakes that cause them to consider turning to quick fix solutions such as taking out an IVA. He further states that their research is indicative of consumers having a lack of understanding regarding any long-term consequences of their actions and how those decisions can affect their credit rating – a factor that will impact their entire financial future.

Research also showed that eighty percent of adults admitted to overspending during times of stress, after arguments with partners, or simply feeling overwhelmed with their responsibility as the primary breadwinner.