Rise In Unemployment Leads To More Personal Debt
One of the nastier side effects of any recession is the increase in unemployment. This is a lag effect of the reduced demand for products and services and the inevitable failure of some businesses to profitably compete.
UK unemployment is now at a 12 year high. And it is predicted to rise to over 3 million before the recession ends, demand drives job creation and a more optimistic employment situation returns. In the meantime, it means that a significant number of households will suffer from a reduced income for as long as it takes to get alternative employment.
The last 20 years has been characterised by a period of easy credit and consumer spending. Most of the spending has been supported by a growth in the financial services markets and the sheer number of providers offering loans. With strong confidence, rising property prices and earnings increasing at a healthy rate, it was easy times for lenders to expand and make money.
It has all gone 'pear shaped' in the past few years as the credit market has hit the buffers. As losses from bad property loans crystallised, lenders became harsher in their approach to managing their loans and the source of credit has dried up to all but the best customers.
Losing one's job is a traumatic event. It causes emotional strains and stresses as well as financial hardship. There are not many companies that pay beyond the statutory minimum in terms of redundancy payments so any buffer to compensate for loss of job tends to be small. Even those with long employment records cannot be guaranteed a meaningful redundancy payment. Those who have been employed for less than two years can expect nothing more that their notice payment.
Getting to grips with losing a job is hard – especially if it has never happened before. The sense of loss can be significant and difficult to cope with. Single family breadwinners can experience guilt and feelings of inadequacy. Finding a new job can be a challenge too far for the older, less adaptable members of society.
Because of the high levels of borrowing during the 90s and 00s it is inevitable that the level of default on payments increases. There simply isn't enough money to go around. So what can be done to try and stay in control of your life?
First – make a budget! It is essential that you get to grips with what you have versus what you owe. Prioritise the outgoings into those payments that must be made versus those that could be considered as optional. Essential payments are mortgage/rent, council tax and utilities. Next work out what you realistically need to spend on food and travel. Finally, look for items where savings can be made such as smoking, drinking, entertaining, holidays or club memberships. At the end of this process, you will have an amount that is left to service your debt load – or personal loans and credit card debt.
Hopefully, you have some money left to service your debts otherwise you have serious problems that need to be addressed in a much more fundamental way (see below). If you have a surplus, then you know what you have to target in terms of discussions with your lenders to get the monthly payments down to this amount. If you are not comfortable doing this yourself then you can use a debt counselling service – although some charge a fee so make sure to get a competitive quote. It may be worthwhile considering a debt consolidation loan. This is where you look to take out a new loan at a reduced rate and over a longer period with which to clear all your existing expensive debt. This is best done before you lose your job so if you think you may be at risk of losing your job then do it now! Getting a new loan without a job can be a challenge!
If you have no money left to make payments, then you have to either sell your home to crystallise some cash or find another source of income. Consider part time work or working from home by using your time to write, complete surveys or sell some of your possessions through online auction sites like ebay.
If unemployment leaves you with serious debt problems then get help immediately. Free advice is available through any Citizens Advice Bureau or there are a number of debt counselling organisations that can assist. You may need to look at options such as an Individual Voluntary Arrangement (IVA) or in the worst case, bankruptcy.