David Prosser: We all have to fight the debt monster

It hasn't taken long for the Christmas and New Year hangovers to kick in. Retailers may have feared a slow Christmas period, but it's rapidly becoming clear that consumers borrowed yet more money to spend during the festive period or at the sales.

Grant Thornton, the accountant, reckons 30,000 people will declare themselves insolvent in the first three months of 2007, following 100,000 borrowers who did so last year. That will add yet more to the £1.4bn of debt that lenders have been forced to write off over the past 12 months, more than ever before.

The traditional response to stories about debt is to blame lenders rather than borrowers. But is it all the banks' fault? I don't believe for a moment that simply because a bank offers to lend someone money, it is at fault when that person gets into financial difficulties. But statistics from Citizens Advice do make worrying reading.

The charity says the typical person it advises will take 77 years to get back into the black. Not because their debts are huge - the average amount owed by a CA client is a relatively modest £13,000 - but because these people are on low incomes, typically just half the national average income.

It does seem pretty stupid to lend someone so much money on credit cards and personal loans when their earnings clearly give them so little prospect of ever repaying the money. And given the detailed information that all lenders now hold on potential borrowers, there's no excuse for it.

Equally, however, there's no getting away from personal responsibility. Everyone who borrows money knows that they will have to repay it. The fact your bank is prepared to offer you a loan does not mean you should take it - or that you'll be able to keep up with the repayments. It's up to you to make those decisions for yourself.

It's not as if people are struggling because of some unexpected surprise. Previous consumer debt crises have been caused by a sharp rise in unemployment or interest rates, and it's obviously easier to sympathise with someone who runs into financial trouble because they lose their job.

However, there have been no such shocks in recent times. Unemployment rose marginally last year, as did the cost of borrowing. But the vast majority of borrowers who lost control of their debts did so because they overspent their means. Grant Thornton thinks a third of the 30,000 insolvencies it is forecasting for the quarter, will be a direct result of excess at Christmas.

If people can't be trusted to take responsibility for themselves, should the Government intervene? Certainly, in retrospect, the decision two years ago to relax the bankruptcy laws - people can now emerge from bankruptcy after one year rather than three - was a mistake. Give people less reason to fear going bust and more people will do so.

That said, we also need to think about the culture of borrowing we have created. Encourage people to borrow tens of thousands of pounds to go to university, for example, and it's no wonder they don't feel there's any stigma attached to excess debt.

Similarly, allow dodgy loans companies to get away with misleading advertising on daytime television and it's not surprising that people end up stumbling from one crisis to another.

In other words, there's been too much carrot persuading borrowers to get into trouble, and not enough stick to prevent lenders exploiting such opportunities. Repealing the reforms in the bankruptcy laws would help redress the balance. So too would tighter rules on how much lenders can lend - and how they explain their products to borrowers. Let's stop giving borrowers so many excuses to be feckless.