LONDON - Indebtedness among consumers is falling for the first time since the early 1990s, a survey showed on Tuesday.

Debt, other than mortgage borrowings, is growing at its slowest rate for the past 13 years, and is falling in real terms, according to the latest borrowing monitor from Alliance & Leicester (A&L).

Borrowing growth has slowed to 1.4 percent per year -- a far cry from an average 11.7 percent per annum over the past 10 years.

That means the growth in personal debt is now lower than the rise in earnings, currently 4.2 percent per year, and inflation at 3.6 percent, according the Retail Prices Index.

The index pointed to a reversal in consumers' thirst for credit, which has pushed personal debt to 1.3 trillion pounds.

Chris Rhodes, managing director of retail banking at A&L, said: "2006 has been a turning point for the UK consumer; people are now seeing their unsecured borrowing fall relative to their earnings.

"We have not seen consumer borrowing this subdued since the recession of the early 1990s.

"The good news is that, this time, the economy is performing well and employment is at an historic high."

The rate of growth in credit card borrowing has fallen every month since May 2005 from an annual rise of 11 percent to an annual decline of 3.2 percent in September 2006.

Other unsecured borrowing, such as personal loans, has also fallen, although not as sharply. Annual growth stood at 3.1 percent in September, compared to an average of 10.7 percent over the past decade.

On average, households now owe 2,140 pounds on credit cards -- 103 pounds less than in January -- and 6,027 pounds in unsecured loans.
A&L also found that consumers intend to reduce their borrowing further.

Those who plan to reduce their credit card debt over the next six months outnumber those expecting to borrow more by a factor of five to one, while more than eight times as many people plan to reduce other personal borrowings than those who intend to increase them.
But Rhodes said people living in social housing were the most likely to want to borrow more.

He said those on lower incomes were affected disproportionately by inflationary pressures, such as soaring energy prices, and had also led a "cultural shift" in being less willing to pay back debts.

"The rapid growth of companies that encourage borrowers into taking our individual voluntary arrangements (IVAs) as a solution to their debts is partly to blame," he said.

"By taking what is being marketed as an easy option, many people are unfortunately not considering the long-term consequences."
IVAs are agreements with creditors to make reduced payments towards debts. After five years, the debt is classed as settled, but those who have entered into such arrangements could find it harder and more expensive to obtain credit in the future.

Source: uk.news.yahoo.com