There are more than 8m people in the UK struggling with some degree of problem debt. Yet most will not call a debt helpline until their finances are at breaking point.
Problem debt is usually a private battle. Callers are likely to have spent two years sinking deeper into debt and juggling multiple creditors until all their options are exhausted.
When they finally do pick up the phone, they will come through to a trained adviser in a call center.
The first thing the staff do is take a contact number in case they are cut off.
Often, the agents speak to people with the calm resignation of having nothing left to lose. They are sitting in front of a pile of letters that they are too scared to open. Most are overdue bills; some of these have morphed into demands from debt collectors or county court summonses for unpaid debts.
Debt advisers have to obtain a full picture of everything a person owes to find the best solution. They also have to ask detailed questions about a person’s income and outgoings to assess what they can afford to repay and whether it will be possible for Consumer Care to broker a debt management plan with their creditors or use insolvency to see some of the debts written off.
Though problem debt is primarily an issue for low earners and those with few assets to their name, it also affects those on larger incomes — and its ramifications can be felt by a much wider group, affecting family relationships and putting a strain on friendships. Ahead of a government consultation response on plans to help people tackle problem debt.
Evolution of problem debt
The nature of problem debt has shifted over the past decade. Debts arise less often from impulsive spending as from day-to-day expenditure, advisers say.
The typical caller to debt helplineshas debts of £15,000 and a household income of less than £2,000 per month. Most are living in rented accommodation and often have young children.
The helpline conversations are difficult to listen to but follow a similar pattern. Most people have been struggling on for months, if not years. Most have kept their debt problems a secret, and the stress is taking a toll on their mental health. Sadly, it is common for callers to say they feel suicidal.
Nearly a quarter of people who attempted suicide last year were in problem debt, according to a study by the Money and Mental Health Policy Institute (MMHPI).
Many callers report issues with benefit payments, notably universal credit. Problems arising from benefit overpayments are also common. These debts are clawed back via reduced levels of future benefit, and helpline staff say individuals often get into more debt as a result. Others have given utility companies permission to take payments directly from their benefits to avoid being cut off.
The cost of servicing greater levels of debt steadily rises. Payments are missed. Charges increase. More money is borrowed to cover the gaps — and for those with a chequered borrowing history, this credit comes at a high cost.
Yet this is dwarfed by the rates charged by some short-term lenders. Some names that come up are almost comical —Uncle Buck (slogan: “Ask Uncle”) — yet their rates of interest are no laughing matter. Uncle Buck’s website shows “representative APR of 1,249 per cent”.
Alternatively, the indebted might be able to persuade a family member or friend to take out a guarantor loan. One of the biggest UK providers of these is Amigo. Its website promises: “Borrow up to £10,000 over four years with a guarantor, no credit scores”. The representative APR is 49.9 per cent.
In the later stages of problem debt, it becomes impossible to juggle the repayments or obtain any fresh lines of credit. Defaults mount. Bad debts are sold on to third-party debt collection agencies for so many pence in the pound.
Although these debts might have originally been owed to household names such as high street banks, the firms chasing the payments are not so familiar. Call Centre staff type out the same names time and time again: Lantern Debt Recovery, Frontline Collections, Carter Forbes Collections, BW Legal (which, according to its website, is “an award-winning debt recovery law firm”).
Often, it is a bailiff’s knock that triggers the first call to Consumer Care’s helpline.
Helpline staff are given suicide awareness training
The knock at the door
Numerous studies have criticised local councils for rapidly resorting to bailiff enforcement for relatively small debts, often through an automated process.
Council tax collection is so aggressive it pitches people into a crisis,if you miss just one payment, and the reminder, you automatically lose the right to pay in monthly instalments. You then get a bill for the whole lot, plus the court costs, which can add another £60 to £120 to the debt. If councils send a bailiff — and they overwhelmingly do — then even more costs will be added.
People working within the debt advice sector are emphatic that government departments and utility companies should be treated equally alongside other creditors, and contribute fairly to the cost of funding debt advice needed to set up repayment solutions.
In England and Wales, while the private sector funds debt advice through FCA levies and voluntary contributions, there is no such obligation on the public sector.
The solutions gap
The eventual introduction of breathing space is expected to swell the numbers calling debt helplines. Citizens Advice estimates there are already 600,000 people a year who need debt advice, but are unable to access it.
If you are in debt, please don’t hesitate to contact us. We are here to help!