Consumers 'beginning to pay back their debts'

01/04/2009

Britons started to pay down their personal loan and other secured debts last month, according to the Bank of England.

A new report from the institution, released yesterday, shows that the debt mountain was reduced by £245 million in February.

This is the first net repayment registered by the survey for almost sixteen years.

Concerns over the credit crunch and economic downturn, which has pushed unemployment rates up, could have contributed to the trend.

Increased difficulties with securing cards and loans on the high street due to the crisis are also likely to have made a difference.

Kevin Still, EuroDebt director, said: "One of the implications of very low interest rates for savers and reduced mortgage repayments means that for some there is merit accelerating the repayment of unsecured credit balances, like credit cards, which can have very high interest rates. For those with significant unsecured debts there may be merit in building up contingency funds in the event of loss of income or rising interest rates.

"Unfortunately, credit issuers are not very sympathetic to a situation where you may have overpaid one month on minimum contractual payments, but are then have a change in circumstances where you are not able to make contractual payments in future months. We would recommend, wherever possible, that consumers create a financial buffer that can provide some short-term protection. If you think that your financial position will be longer term and more serious then we would recommend seeking professional debt advice."

On a year by year basis, growth in the amount of loans owed has slowed to 3.4 per cent, with average growth over the past three months standing at just 1.5 per cent, the Bank of England figures showed.

In January, consumer credit had increased by around £200 million - while the total increase stood at over £2 billion in February 2008.

Tags; Housing Debt and Bills, Credit Card Lifestyle,

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