News: Sharp fall in consumer debt write-offs

Banks and building societies wrote off £1.83 billion of unsecured debt that people were unable to repay during the third quarter of 2010 - 47% less than the £3.47 billion recorded during the first quarter of the year, which was the highest the Bank of England has seen since it began recording the data back in 2004.

The sharp fall was driven by a decline in the level of credit card debt consumers couldn’t keep up with - with creditors writing off just £740 million during the third three-month period of the year, compared with a staggering £2.14 billion during the second quarter.

The £2.14 billion recorded in the second quarter of 2010 represented only the third time the figure has ever exceeded £1 billion.

Write-offs spreading across all forms of lending improved - with written-off mortgage debt dropping by 27% to £134 million.

Defaults on other types of debt - loans, for example, and overdrafts - fell by 17% to £959 million.

Meanwhile, separate figures from the Insolvency Service have revealed that the number of people declared bankrupt during the penultimate quarter of 2010 dropped to a five-year low.

A debt adviser commented: “On the one hand, it is encouraging to see a sharp fall in debt write-offs and personal bankruptcies - this may point towards improving personal finances.

“However, there are still many people struggling with their debts, and we would like to reassure these people that defaulting on a credit agreement - although it will damage their credit rating - won’t mean their access to all financial products is restricted. For example, if an individual wanted to open a bank account, they could apply for one of the various ‘bank accounts for bad credit’ - a type of bank account suitable for people with a poor credit history.

“It is also important to understand that there is help available, and it may only be a few clicks away. Seeking professional debt advice sooner, rather than later, could make all the difference when it comes to a borrower clearing their debts. Individuals can seek debt advice online, and have an experienced debt adviser call them back at a time to suit them.”