A THIRD of people who become insolvent during the first three months of this year will have been tipped over the edge by excessive Christmas spending, according to new research.
It is estimated that 28,000 people will be unable to cope with their debts during the first three months of 2008, and will either file for bankruptcy or take out an individual voluntary arrangement.
The research, by accountancy firm Grant Thornton
, predicts that a total of 120,000 people will go insolvent during this year.
This would beat the figures for 2006, when the number of people going insolvent broke through the 100,000 barrier for the first time, reaching 107,288.
Mike Gerrard, head of Grant Thornton's personal insolvency practice, said: "Sadly, many individuals spend up on credit at Christmas and pay no heed to the financial warning bells.
"Come January, they find themselves in a situation where previous financial woes are compounded by the bills arriving from the festive season and in these situations insolvency becomes the only way out."
Mr Gerrard said he expects insolvency figures for the first quarter of 2008 to be slightly below those for the same period of last year, but he predicts numbers will then rise as banks tighten their lending criteria, the housing market continues to slow down and consumers face higher food and fuel bills.
He added that the recent quarter-point cut in interest rates would do little in the short-term to help people who were having problems keeping up with their debts after a series of increases during the past two years.
The situation is also likely to be further exacerbated for the 1.4 million people whose low, fixed-rate mortgage deals are due to end this year, and who will now be facing much higher repayments.
Meanwhile, a separate report published yesterday found that one in four people Britons are struggling with their debts and that the country collectively faces a £93 billion annual interest bill.
Borrowing through credit cards, loans, overdrafts and mortgages has hit £1.39 trillion, according to comparison website uSwitch.com.
The group claimed an estimated 9.5 million people had "maxed out" on one form of credit during the past six months, while 38 per cent have had a credit card application rejected.
About three million people have taken out a debt consolidation loan in an attempt to get on top of their borrowings.
But nearly two-thirds of these failed to close down their existing credit facilities, and went on to rack up a further £2,300 of debt on average.
The research found the average household has unsecured debts of £4,281 – £2,684 owed through loans, £1,204 on credit cards and £393 on an overdraft.
Households now pay an annual average of £3,744 in interest on debt, including their mortgage, £517 more than last year.
Mike Naylor, a personal finance expert from uSwitch.com, said: "People have enjoyed easy access to cheap credit for quite some time, but for some the party really could be over.
"Anyone with multiple debts and a poor credit history could be vulnerable to the impact of the credit crunch and should seriously consider consolidation while the option is still available."
The full article contains 548 words and appears in The Scotsman newspaper.
