Drowning in Debt
15th December 2009
Citizens Advice Drowning in Debt Report
Summary of Key Points
Most people attempt to manage debt by their own means, i.e. without professional help, but these attempts often don’t succeed and sometimes even worsen the situation while the quality of life of debtors and their families suffers.
2/3 of people facing debt have considered bankruptcy as a way out.
1/4 have taken additional credit to pay back debt, but this frequently only protracts their indebtedness – a case of robbing Peter to pay Paul.
1/3 have borrowed from family or friends.
4/10 have gone without essentials to pay back debt, or 1/2 in the case of women debtors.
Legal Remedies
The new “Low Income Low Assets” (LILA) route to bankruptcy, introduced in April 2008, has proven attractive to many debtors, with 2/3 considering it, yet only 1/5 can afford the £100 fee.
1/10 use a Debt Arrangement Scheme, but this requires a certain income level.
Most debtors who take professional advice report that this has helped relieve the stress of debt.
Lone Parents
Lone parents make up only 14% of Scots households, yet they constitute 45% of CAB clients with the average debt faced by lone parents at £14,963. For every £1 of income the average debt owed is £19.
Lone parents tend to use credit cards more frequently now than in the past, and this is the commonest form of debt for this group, being a more readily accessible source of credit.
Contributing factors include relationship breakdown and Tax Credit problems.
40% of lone parent debtors have a child under 5 years of age. Often the additional cost of a new child makes for a difficult transition from non-parent status.
People on Low Income
Low income is defined at a household income of less than £800 a month. Those on a low income make up about a half of people with debt problems, with an average debt of £13,563. Those with an income of less than £400 a month represent about a quarter, and for every £1 of income the average debt owed is £52, a considerably higher debt/income ration than debtors on high incomes, despite the total average debt being less.
People of a low income face exclusion from cheaper credit options, thus find themselves forced to take dearer credit, e.g. doorstep loans, pay day advances etc.
Older People (60+)
Older debtors owe the most debt with an average of £26,010, which has increased by 50% since 2007. They also tend to have the lowest income, and for every £1 of income the average debt owed is £21.
Illness
2/5 debtors attribute their problems to illness, and households with someone suffering long term illness or disability have an average income of only £798 a month.
Debt often slows recovery from illness and sometimes worsens it.
Debt Recovery
Twice as many debtors face threats of informal debt recovery as in 2003, and a third more debts are referred to debt collection agencies.
Creditors seek to enforce 4/5 debts. Government and Council creditors have the highest rate of debt recovery action.
Frequently creditors do no follow informal action with legal action. Statistics suggest that in as many as 9 out of 10 cases creditors prefer informal action. However, this often constitutes harassment.