We all have a responsibility to cut our debt

How we can all contribute by being better with our cash.

In a radio address in 2011, then US president Barack Obama said, "To restore fiscal responsibility, we all need to share in the sacrifice." His words echo an idea that not many politicians are brave enough to say – that if we want a better, richer world then we also need to work hard towards achieving it. Reducing individual debt is one way in which we can all contribute. Debt in the UK is higher that it has ever been – at the end of March 2017 The Money Charity statistics showed that UK consumers owed a total of £1.529 trillion. So, debt is commonplace right across the country – but it doesn’t have to be.

Some debt is essential

Not all debt is bad debt. Mortgages, for example, enable us to buy homes that we otherwise couldn’t afford and there are many opportunities that debt provides us with, from education to healthcare, that demonstrate just how much of a positive impact it can have. But as a society as a whole we all have a responsibility to reduce the debts that we have to the lowest possible levels – here’s why.

Interest rates could go up

Interest rates have been low ever since the recession began in 2008. The Bank of England base rate is currently 0.25% - in December 2007 it was 5.5%. Since the Referendum on leaving the EU, interest rate forecasts have focused on these rates remaining very low. However, there is no guarantee that this will be the case. If interest rates go up then we all begin to pay more for the debt that we have. If interest rates go up substantially then debts may become unaffordable and that could seriously undermine our economy.

House prices may level off

Predictions about the UK housing market cover the full spectrum right now – from very positive to very negative. However, there is no doubt that house prices have slowed in the last six months. According to Nationwide, house prices fell again in May for the third month in a row – the first time that has happened since 2009. If that continues as a trend then the number of people in the UK in negative equity (i.e. where the value of the property is less than the price paid for it) will rise. Cutting personal debt of all types will help to cushion against the impact this could have.

Brexit

No one really knows what leaving the EU is going to do to the British economy but we do know that we’ll be in a stronger position as a society if we’re less indebted and more financially responsible. In the face of so much uncertainty, cutting debts is one positive step that we can all take.

Setting an example for the next generation

As a society we are the most in debt that we have ever been. There is no shortage of consumer reports highlighting the problems that young people who are conditioned to expect to be in debt will face. It’s one thing to have a mortgage to buy a property but another to use credit cards, guarantor loans or even bad credit loans to buy what we want rather than saving for it instead. The finance specialists Solution Loans suggest that if we want to change these spending habits for future generations then reducing the debts we all have now will play a big part in that.

The author has written and published articles on a wide range of topics including Small Business Advice, Tax and Accounting, Interior Design, House Renovation and Project Management.