At the end of August, ITV’s Tonight programme broadcast an edition that was focused on consumer debt and the problems it’s currently causing. It identified the time-bomb that exists in the UK with millions of people only just managing by taking out loans and maxing out credit cards. With eight million people in the UK struggling to sleep at night because of their debts, the UK is officially in a debt crisis and the Tonight programme looked at some of the most common scenarios, what could be done to help people and what impact high levels of debt were having on mental health.
The UK’s debt crisis
The average British household owes £58,000 and with interest rates set to rise, as the Tonight programme highlighted, debt levels in the UK are only likely to increase. There are a lot of signs of serious issues among UK consumers, for example in 2017 the average family spent £900 more than they earned. Savings levels are at record lows and the UK currently owes £19 billion in every day costs, such as utility bills and council tax. As the show highlighted, people who find themselves in a debt crisis have often ended up there as a result of a series of unfortunate events. It’s not wild spending on shoes and holidays that can plunge someone into unmanageable debt but often something as simple as a change of life – losing a partner, suddenly having health problems or being made redundant. The Tonight programme spoke to a couple who had found themselves in more than £30,000 of debt simply as a result of these small life changes that ended up having a snowball effect.
What are the options for anyone struggling with debts?
The Tonight programme looked at a number of different options for people with debt problems, including:
Individual Voluntary Arrangements (IVAs) – under an IVA the debtor pays off just a proportion of the debt. For example, the couple who owed £30,000+ paid off £9,000. However, they were also required to pay around £8,000 in fees and it’s these fees that may mean IVAs are not always the best idea.
Although going bankrupt is often viewed as a last resort, it can be a preferable option for many people. It costs just £700 per person to go bankrupt and debts are written off after a year with no fees due to advisors.
Write to your creditors – for those looking for respite from debt to provide a small window to get finances in order it’s possible for a borrower to write to creditors and ask if they will accept a token payment of £1 for a period such as a month. The government is currently looking at introducing a “breathing space law” that would provide a six week break on debts to try to support those who are really struggling so there is a basis for requesting this from creditors.
A Debt Relief Order – for those who owe less than £20,000 and who qualify (the qualification is means tested), a Debt Relief Order means that debts can be written off after a year for a £90,000 fee.
Claiming compensation – anyone struggling with debt who believes that a lender has not treated them fairly, can write to the lender to request compensation as a result. The Tonight programme used the example of Ian who received £300 for unfair treatment by a payday lender.
Equity release – for those who are asset rich but cash poor, equity release can be a great way to free up some of the cash in a home to help deal with debt issues. According to the Equity Release Council, 30% of those who take out equity release are doing it to tackle a current debt. However, equity release is not for everyone, especially those who want to leave the full value of a property behind for the next generation. Interest on equity release loans accrues steadily and doubles every 12 years plus there can be penalties if the original loan is paid off early (i.e. before death).
The impact of debt on mental health
One of the key consequences of debt that the Tonight programme highlighted was the fact that it has an impact on our mental health. The charity Christians Against Poverty, interviewed on the show, revealed that six out of ten of its clients were behind in rent or mortgage and simply covering regular living costs was a problem for many. They said that a third of their clients had attempted or thought about suicide because they were struggling with debt.
Debt is something that many of us have in the UK and it can be very useful. As the Tonight programme highlighted, if it is not affordable or becomes unmanageable then it can have a big impact. What’s important, if you are struggling, is to seek help as early as possible.
Amanda Gillam is Solution Loans's General Manager and has been since 2009. She is also a prolific writer on personal finance issues, and has been quoted numerous times in articles published on 3rd party websites and in press releases. Her...Read more about Amanda Gillam