Thousands face debt ruin

By DAILY MAIL REPORTER
Updated: 03:00 EST, 15 August 2005

THE personal debt crisis has escalated to the point where six out of ten borrowers would default on loans and credit cards within three months of losing their job, a report warned yesterday.

More than 40% have so little saved they would no longer be able to pay their mortgage, according to a survey by the Combined Insurance company.

It comes on top of a warning from Citizens Advice Bureaux that personal debts of £100,000 are becoming increasingly common.

Dozens of borrowers with six-figure debts are walking through CAB doors every week to seek help. The charity has advised three - quarters of the clients it has seen with money difficulties in the past few months to declare themselves bankrupt because of the huge size of their debts.

CAB handled more than one million consumer debt cases in 2003 to 2004 and said next month's figures would show a significant increase.

Senior social policy officer Sue Edwards said: 'It's going to get worse before it gets better.

'Our bureaux are seeing more and more cases of bad debt every week - many with huge debts built up from several creditors. Levels of debt over £100,000 are not uncommon any more.'

The Combined Insurance survey, carried out by YouGov, asked 2,000 respondents which financial commitments they would not be able to keep up for more than three months should they lose their income.

One in two first-time buyers said they would not be able to afford their mortgage payments.

Around 59 per cent of all people said they would be forced to default on credit card balances and loan repayments.

As many as 41% of borrowers would be unable to pay their utility bills while 38 per cent would not have enough to put food on the table.

Nigel Brittle, of Combined Insurance, said: 'As a general rule of thumb, the equivalent of three months' salary put aside to guard against any unforeseen circumstances is generally a good level of protection for most people.

'Losing your income through illness or injury won't stop the bills coming in. Debts will still have to be paid and food will still have to be bought.'

So far this year banks have made provisions of £3bn to cover possible bad debts. Last week, mortgage lender Bradford & Bingley revealed the number of homes it repossessed in the past year had increased threefold.

Earlier this month, the Department of Trade and Industry said the number of people declaring themselves insolvent hit a record high during the second quarter of this year.