2010 - Is debt on the rise again?

The latest 'Lending to Individuals' figures from the Bank of England revealed an increase in 'net lending' in the first month of the year.

In terms of unsecured debt, consumers collectively borrowed £500 million more than they repaid in January. After dropping significantly throughout 2009, it looks like debt levels could be starting to rise again as 2010 gets underway.

In fact, the last time we saw net lending rise by more in a single month was back in November 2008, when people ended the month owing £692 million more than they did at the start of the month.

On the one hand, it's reassuring to see that credit is available. On the other hand, it was good to see people's debt levels coming down last year, and a lot of analysts commented on this, hoping that it meant we - as a nation - were becoming more careful about borrowing, and keen to reduce our debt levels wherever possible.

When the Association of British Insurers carried out a survey, it found that in Q4 2009, 42% of the people questioned said that they were repaying their non-mortgage debt faster than they had been previously.

On an individual level, it's hard to worry too much about national figures like these. What matters to individuals is whether or not they can cope with the debts that their own household is carrying.

As long as they can afford their monthly payments - and can see how they'll manage to clear their debts in the long run - the main thing is to focus on steadily reducing their debt, and avoid taking on any more debt, of course.

But anyone who can't afford their monthly debt payments really needs to take action. One way of doing this could be a debt management plan - an informal agreement with their unsecured lenders. Basically, their lenders might agree to accept lower monthly payments that the borrower can actually afford, if they can see that this is the best way of helping them repay the money they owe.

There is a downside to this: repaying any debt more slowly can add to the overall cost and damage the individual's credit rating, but since a debt management plan is only an option for people who can't keep up with their repayments, their credit rating may well have been affected already.

Depending on their circumstances, debt management can be the best way for many people to clear their debts at a rate they can afford - without taking up the money they need to pay for their essential expenses (mortgage/rent, food, transport, heating & light, etc.) on a monthly basis.