Have you heard of `Debt Freedom Day`? It`s an interesting (if frightening) idea: it`s the day of the year on which `the average person` will have earned enough to pay for the interest on their debts - to say nothing of actually reducing the debts themselves.
In 2007, Debt Freedom Day fell on 1st February. In other words, the average person spent around 1p on debt interest for every 12p they earned throughout the entire year.
In 2008, Debt Freedom Day fell on 10th March. So the average person spent around 1p on debt interest for every 5p they earned that year.
In 2009, Debt Freedom Day fell on 25th March - which means the figure was more like 1p for every 4p...
So - when will Debt Freedom Day fall in 2010? Right now, at the tail end of the recession, it`s tempting to think that it`ll be later than it was last year (i.e. that debt interest will take up more of people`s income), but this may well not be the case.
After all, the credit crunch wasn`t all bad news. It`s worrying to think that people can`t access credit when they need it, but at least it means UK citizens have taken on less debt than they otherwise might have done (than they probably would have done, in fact).
At the same time, the all-time-low base rate (0.5% since 5th March 2009) has given a lot of people a rare opportunity to pay off their debts more rapidly. All kinds of homeowners have seen their monthly mortgage payments fall significantly, freeing up money to put towards their mortgage debt or overpay their unsecured debts. Someone who`s suddenly able to pay an extra £200 or £300 towards their credit card balance per month can take a huge `bite` out of their overall debt level in a year.
|
Month |
Net* lending in that month |
| January |
124 |
| February |
91 |
| March |
-39 |
| April |
211 |
| May |
185 |
| June |
22 |
| July |
-333 |
| August |
-368 |
| September |
-303 |
| October |
-591 |
| November |
-376 |
(Source: the Bank of England)
*net lending = the amount borrowed minus the amount paid back (so a negative (red) figure means people collectively repaid more than they borrowed in that month).
Note that we won`t see December`s figures until the start of February 2010.
As the table shows, people collectively managed to pay back a fair bit more unsecured debt than they borrowed throughout 2009. At the start of the year, they owed £232.9 billion, but by November, this figure had fallen to £227.2 billion - £5.7 billion less than it was 11 months before.
On the other hand, a lot of people have seen their income fall over the year, and many more have lost their jobs altogether. The latest figures from the Office for National Statistics (ONS) show that the `working age employment rate` for August to October 2009 was down to 72.5% per cent - quite a drop from the figure of almost 75% just 18 months previously.
If someone`s income drops substantially, that obviously means it`ll take them longer to earn enough to cover their debts (assuming they`re still able to do so at all).
Of course, the base rate can`t stay at 0.5% forever. When it does start to rise (and in some cases, before it does), mortgage rates will rise too, meaning a lot of people who`ve grown used to low payments will have to adjust their monthly finances to free up money for their mortgage, which means they`ll have:
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Tags: debt, freedom, debt freedom day, 2010
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