Debtors falsely optimistic

by Gill Montia

Story link: Debtors falsely optimistic

Fool.co.uk, the personal finance website, believes that over two-thirds of all borrowers in the UK have unrealistic expectations about the length of time needed to clear their debts.

According to Fool, 66% of borrowers believe that they can pay off outstanding debts in a shorter time than is feasible, and 32% think their personal finances can be in the black in the space of a year.

However, Fool estimates that two-thirds of borrowers need 91 months to clear their debts, a period twice as long as anticipated by the borrowers themselves.

The data from Fool indicates that two out of three people have taken on debts without fully understanding what is involved or how long it will take them to repay their loan.

Furthermore, of those owing in excess of £20,000, 19% cannot currently afford to make any repayments.

According to Credit Action, the charity that provides advice about money management, UK personal debt stood at £1,345 billion at the end of June 2007 and recent research by Credit Expert suggests that some of the debt is being accumulated because of so called peer pressure purchases.

Credit Expert, which is part of the Experian group, has carried out a survey of borrowers and found that 19% admitted to overspending by almost £6,000 per year as a result of peer pressure.

Forty eight per cent of those questioned said they felt pressurised into buying large rounds of drinks when out with friends and an equal number spent more than planned on presents for others.