Warning signs for those with debt

With the credit crunch tightening its grip on the financial sector, borrowing at an all time high and house repossessions breaking new records Brits have to ask themselves the question how much debt is too much?

Until recently how much is too much debt was something the British public did not need to worry about. House price inflation meant that the British public could always be sure that in a couple of years time equity would build up in their property. This meant that they could look for cheaper mortgage deals and perhaps consolidate some their debts by releasing equity, low interest rates ensured that the monthly mortgage repayments were manageable.

However, in the context of the Bank of England's "danger threshold" many Brits should reconsider their spending patterns and their debt consolidation strategies. The Bank of England has calculated that the two most vulnerable groups are the ones which have debt repayments of more than 55% of their monthly total household income. For example, if 55% of your household income is servicing your debts then the Bank of England considers you be vulnerable too. The other group which the BoE considers vulnerable is those who have a net worth of less than a third of their income. For example, if your household income is £45,000 and you stay in a house which is worth £100,000 and you have £90,000 outstanding mortgage your net worth is £10,000 which is less than a third of your income.

Debtwatchdog urges everyone to examine their finances closely to see if they fall into the above two categories. If you think you may fall into these categories we encourage you to take control of your finances and do a Statement of Affairs (SOA). This free tool will enable you to see where you can make improvements to your finances and take your self out of the BoE danger threshold. If you need help with your SOA you can either seek help from our debt forum or submit your SOA for the forum to examine.