Debt - A growing Concern

For more than five years this Bureau has highlighted growing concerns about rising levels of consumer indebtedness and with it the increasing risk that many who currently struggle to keep their heads above financial water will find it hard to stay afloat as interest rates climb.
By March 2007 the debt load carried by this Bureau had risen 172 clients with aggregate debts amounting to over £3.3 million owed to 1,021 creditors. We continue to issue Debt Packs at the rate of one per day on average. In practice over 60% of clients to whom a debt pack has been issued seek further help and support from the Bureau.
Following bankruptcy changes from April 2004, in the ;last year we have advised/helped 64 clients with their bankruptcy application, 5 of which have been referred by the County Court. Debts of approximately £1.5 million have been written off in this way.
Under some circumstances an individual voluntary arrangement (IVA) can be a sensible alternative to bankruptcy. In other circumstances it can be a total disaster, leaving the debtor far worse off. IVA’s are difficult and complex procedures that need considerable face to face meetings between the debtor and a Licensed Insolvency Practioner. The average debtor can expect to pay around £8000 for an IVA, possible a great deal more.
Debt management companies have experienced tremendous growth in the last 5 years. they usually only deal with non priority debts, leaving clients still to negotiate such debts as rent, mortgage and council tax arrears themselves. The companies charge a front end fee, normally equivalent to one month’s surplus income and then take a percentage each month. This can be as high as 20% of surplus income. The only advantage they have over CAB is that the client makes one payment a month and the company then distribute the surplus funds to the individual creditors.
We have found that CAB clients, many of whom are on a very low income, owed up to 20 times their monthly income. Only a small change in financial circumstances had been enough to tip people over the edge into unmanageable debt. At present we have no current cases involving negative equity, but with rising interest rate we “guess and fear”.
Research by Mori for Citizens Advice, Financial over-commitment found that:
“Twenty per cent of people who have loans and credit are using that credit to cover everyday household bills and to make ends meet until the next pay day.” Twenty three per cent of people with credit and loans have no idea how much they owe - this lack of awareness of their financial situation is much higher among students (37%).
A quarter of CAB debt clients surveyed by Citizens Advice were receiving treatment from their GP for stress, depression and anxiety, and nearly half of these people felt their symptoms had been caused by debt problems. Our clients report that relationship breakdowns, feelings of isolation and the stress of being in debt and living on a tight budget had affected then deeply.