Debt time bomb set to go off

Britain faces a debt time bomb because years of low interest rates have tempted people into unsustainably high levels of borrowing, a debt charity has warned.

National Debtline has had so many calls from people worried about defaulting on mortgage and loan payments that it is almost doubling the number of credit advisers available on its helpline. From today, 12 new credit advisers will bring to 30 the total number of money counsellors based at the charity's headquarters in Birmingham.

"We are sitting on a time bomb because interest rates have been so low for so long that people have become accustomed to cheap debt," says Carl Bayliss, manager of National Debtline. "Even people with standard variable rate mortgages have not seen much of a change in their monthly payments over the past year and a half. When interest rates do start increasing - and they eventually will - people who are just about managing to cope with their debt could quickly start to have difficulties."

Those most at risk are people in their 20s whose income barely covers credit card bills and personal loan payments and the thousands of people who have remortgaged their homes to pay off debt. "A total of 40% of our calls are from people in the 25 to 35 age group," says Mr Bayliss. "This is because credit has been available to them as a matter of course. It has become such a part of everyday life that it has become socially acceptable."

At present, interest rates are at an historic low, so that, although house prices rose by up to 30% last year in some areas, property is still affordable in relative terms. National Debtline, which is funded by the Department of Trade and Industry and the credit industry, is concerned that consumers are failing to factor in that even a small rise in interest rates would hit them hard.

It's not only the young or low paid who struggle to manage their money: more than half the people who call National Debtline for help are in full-time employment, and a quarter of them are in the 36-50 age group.

"Used responsibly, credit is fine and can improve your quality of life by allowing you to pay for something over a period of time," says Mr Bayliss. "Too few people think about what would happen if payments were to rise. There is a very fine balance between managing your borrowings and having uncontrollable debt.

"Often it is life changes that tip people over: a loss of overtime payments, divorce, redundancy, starting a family, problems in a relationship. People tend to live up to their means and two thirds of the people who call us are having difficulty with their credit cards or unsecured personal loans."

He is particularly concerned, however, about the problems facing young people who get into debt in their 20s. "There is a whole generation which does not know how to budget, and is burdened with large amounts of debt," he says.

If you are worried about your credit problems, here are National Debtline's tips for sorting out debt:
· Put together a budget of income and expenditure and leave out any unsecured credit payments.
· Prioritise your debts: Your mortgage, council tax and utility bills should be top of the list.
· Don't give into pressure from debt collection agencies by promising more than you can realistically pay back.
· Be realistic about what you can afford, and make sure you have enough money to live on.
· If you can't afford credit card payments you can continue to pay small amounts or write to the company asking them to freeze the interest on your card.
· Call a debt counselling service like National Debtline if you cannot cope on your own.
· Be wary about consolidating your loans - you will end up paying off your debts over a much longer period.
· When you have cleared your debt, chop the card in half. Many of National Debtline's callers are people who clear their debts once, but then fall back into the spending habit and end up even further in the red.