People In Debt 'Must Understand Their True Situation'

Consumers overspending on credit cards and living beyond their means in other ways have been told they must face up to the reality of their situation before things can improve.

According to the Debt Advice Foundation, consumers need to be more open to debt resolution plans during the recession.

Analysts at a well known financial powerhouse forecast that even though consumers across the UK have stalled their debt increases, they remain significantly high.

Of the total income going into UK households, approximately 15 per cent must be spent to address this situation.

The managing director of Debt Advice Foundation, said: "The latest figures show that around 300 people a day are not coping with current repayment levels and are turning to insolvency solutions as a result."

Lenders and borrowers are changing their ways and this will herald a new era in the way in which the sector conducts itself in the future.

This change should come about swiftly, in order to prevent consumers becoming further embroiled in debt.

He said: "The reduction in credit card spending by consumers in the last year has shown that habits are already changing.

"The habit of debt denial is a habit we would like to see change within the next year."

The report found that credit card and other lenders' current business models is unsustainable with increasing bad debts, funding constraints and the toughest macro-economic climate in a generation.

It found that the government's plan to introduce the Consumer Credit Directive, with the prospect of further industry regulation has added to the pressure on lenders.

A partner at the finance firm said that over the last 12 months there has been a "cooling passion for plastic", as credit card borrowing has fallen by three per cent to £64 billion. Furthermore, the number of cards in circulation has fallen by eight per cent.

He said: "Large scale change within the sector over the next few years is inevitable. We're likely to see credit cards being reinvented as payment rather than borrowing tools."

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