Loan Debts Causing Problems For Self Employed
The credit crunch and economic slow down has caused huge financial problems for many individuals in the UK over the past couple of years, as their income has dropped whilst at the same time their debts on personal loans, credit cards and overdrafts has continued to increase, leaving many borrowers unable to keep up with their monthly loan repayments, with the inevitable result of them facing insolvency and even bankruptcy.
According to a new survey, based on the national insolvency figures over the course of the past twelve months, the number of people becoming insolvent through loan debts has risen dramatically, but particularly so with those individuals who are self employed.
The debt help company ClearDebt, has studied the insolvency figures for the last three months and has seen a dramatic increase in the percentage of self employed people becoming insolvent. The study compared the first six months of this year with the same period for last year and although the average amount of unsecured debt on loans and credit cards has only gone up by around 4 per cent to £27,072, average income has dropped from last year to this year, which has the effect of increasing the income to debt ratio by 8 per cent, to reach a level of 172 per cent.
However, it appears that this situation is even worse for self employed individuals, who have seen their average earnings drop from £36,000 to just £32,000, whilst their average unsecured loan, credit card and overdraft debts have reached £40,078, leaving them with an average income to loan debt ratio of 219 per cent.
Andrew Smith of ClearDebt said “The Government should be particularly concerned by our self employed debt figures. This shows that banks are unwilling to make business loans to these people, who will play a major role in economic recovery. Instead, small entrepreneurs may be keeping their businesses financed through expensive credit card borrowing and personal unsecured loans, whilst seeing their ability to repay plunge. This could be a major accident waiting to happen.”
