Debt is a problem when people can’t repay what they owe or when doing so causes them real hardship. The Financial Services Authority has found that 6.1 million families reported some difficulties meeting their debt repayments. Low-income groups are hit harder than any other.

WHAT CAUSES DEBT?

People on low incomes are already living on a very tight budget. They generally have very good money management skills but life events – such as losing a job, illness, separation or having a baby – can tip them into problem debt.
When people fall into debt, they need advice and support on how to escape. Citizens Advice Bureaux alone deal with well over a million new debt enquiries a year, but advice services have the potential to help far more people. At present only 20 per cent of those in arrears seek advice. Given sufficient funding, such services could make significant inroads into reducing the size of the debt problem.

THE IMPACT OF DEBT

Problem debt is damaging to individuals, communities, the public sector and the wider economy.
       Health – Around one in eight Citizens Advice Bureaux debt advice clients have started treatment for stress, depression or anxiety since their debt problems began. Physical health is also affected by stress and by cutting back on food for heating. This imposes a direct burden on services such as the National Health Service.
       Employment – Debt can act as a disincentive to work. People worry about the cost of starting work, bridging the gap until the first pay cheque and greater repayment demands. Problem debt can also cause ill health, absenteeism and loss of productivity for those in work.
       Child poverty – Debt problems can cause hardship for children: one study suggests that two-thirds of children in severe poverty have parents who have experienced debt over the past year. Repayments can cause families to live below benefit levels and cut back on essentials, affecting health, education and leisure opportunities. Debt is also one of the main causes of relationship breakdown.
       Housing – Problem debt can result in eviction, homelessness and re-housing costs. In 2002/03 mortgage and rent arrears were the major causes of homelessness for over 5,000 households in England and Wales.
       Re-offending – Almost a fifth of prisoners experience problems with rent arrears, unpaid bills and fines, problems that many find worsen while they are in prison.
       Neighbourhood renewal – Predatory lending is stripping out money from poor communities. People are paying off interest rather than using their benefits or limited income for their own good, or in local shops.

Extract from "Action on Debt" issued by ODPM