Debt problems mount for struggling families


Debt problems mount for struggling households

A debt advice charity says a third of debtors have no solution to their financial problems, as separate figures show one in five households now have no adult in work.

Jill Insley wrote for the Guardian on Wednesday 8 September 2010

Non-homeowners are managing to run up significant levels of debt.

Nearly a third of people seeking help with their debts from a leading advice charity have been told there is no solution to their financial problems, according to figures released today.

The Consumer Credit Counselling Service, which provides free help and advice to those struggling with debt, said 30,446 (32%) of the 96,334 clients counselled in the first half of this year had no “appropriate” solution to their debts. The only course of action was to earn more, which the charity acknowledged would be impossible for many people.

The charity said these deficit problems were not because the clients have borrowed too much or have the lowest incomes, but simply because their household expenditure exceeded their income by an average of £449 a month – in many cases because they have been made redundant, suffered a wage freeze or reduction, or had an added expense such as having a baby.

Meanwhile, figures released by the Office for National Statistics today showed that almost 4 million UK households – one in five – have no adult in work. The number of people aged 16 to 64 living in workless households was 5.4 million, up 26,000 from a year earlier, representing 13.5% of all people in that age group. Lone parents with dependent children had the highest percentage of workless households at 39.7%, followed by one-person households at 36.8%.

National Debtline, a telephone-based debt advisory service, said it had seen the number of calls from unemployed people more than double to 23,886 in the first six months of the year.

Joanna Elson, chief executive of the Money Advice Trust which runs the National Debtline, said: “We have grave concerns that households witnessing a fall in income due to unemployment will start to default on debt repayments, and that we may start to see a sharp rise in personal insolvencies.

“Research undertaken by the University of Wales last year found there were 2m ‘iceberg bankruptcies’ in the UK – employed people who could not afford any fall in income without defaulting on debt repayments.”

Una Farrell, a spokeswoman for the CCCS, said bankruptcy was not considered a suitable option for many people struggling to cope with debt because they either own a home, which they would lose, or they could not afford to pay the charges for going bankrupt.

It costs £600 to go bankrupt if your debts are more than £15,000 or you have assets worth more than £300, although the cheapest version for those with smaller debts and assets – a debt relief order – costs £90.

Farrell said: “It is exceedingly tough out there, and we are expecting it to get worse over the next year with further redundancies, interest rates going up and VAT rising in January.”

The CCCS said the 9.8% of clients who were advised to go bankrupt had substantially higher unsecured debts – an average of £31,161 compared to the charity average of £23,007 – despite the majority of them earning less than the average of £1,514 a month earned by all clients. It said this indicated “some degree of irresponsible lending”.

Debt relief orders were recommended to 4.8% of clients in the first six months of 2010. The CCCS said: “As clients with significant assets are not normally recommended to bankruptcy, it is not surprising that so few bankruptcy clients are homeowners. What is surprising, however, is that without property they have been able to run up such significant levels of debt.”

Fewer clients were advised to enter a debt management plan – 27.2% in the first six months of the year compared to 40% in 2007. Clients entering such a plan must have a monthly surplus of income to enable them to repay a certain amount of their unsecured debt each month.

Call the National Debtline on 0808 808 4000 and the CCCS on 0800 138 1111