Record numbers seek debt help as debts rise

A record 600,000 people sought advice for debt problems from StepChange Debt Charity last year (up 9% from 550,000 in 2015), equating to one person every 53 seconds. The average unsecured debt of the charity’s clients has increased for the first time in eight years from £13,900 to £14,251. The figures are taken from the charity’s annual Statistics Yearbook, which details the latest trends in personal debt, based on analysis of the charity’s clients and is released today. The increase in debt levels is sharpest among clients under the age of 25 who saw their average debt level increase by 13% from £5,151 in 2015 to £5,812 in 2016; those aged 25-39 saw a 6% increase in debt levels from £12,841 in 2015 to £13,178 last year.

As demand for the charity’s services has increased, there has been a marked shift in the age of clients aged under-40. This group now represents 60% of the charity’s clients, up from 52% five years ago.

The housing status of the charity’s clients is also undergoing a significant change, with the proportion of people in rented accommodation increasing from 61% to 78% in the last five years. This is predominantly driven by increases in the numbers of clients who live in the private rented sector.

The increase in client debt levels comes at the same time as a surge in consumer borrowing that has seen household debt heading towards the level of its 2008 peak. If firms respond to concerns from Bank Governor Mark Carney and others by tightening their lending, and with the prospect of higher interest rates edging closer as inflation rises, struggling families will need more help and support to manage their debts.

The charity is calling on the Government to commit to a ‘breathing space’ scheme to better support hard-pressed households who fall into financial difficulty. The scheme would see those who seek advice for debt problems potentially given a period of six months to a year in which interest and charges are frozen and enforcement action, such as visits from bailiffs, is halted, in order to give that person time get back on their feet. Where people can repay their debts at an affordable rate and within a reasonable time, these protections should continue.

A similar scheme already exists in Scotland – the Debt Arrangement Scheme (DAS). New research conducted by StepChange Debt Charity shows the Scottish scheme is delivering major benefits. A survey of those who’d used DAS found that 81% said it’s easier to repay debts, 78% said they were less stressed and can now sleep and 72% said their finances had stabilised.

Mike O’Connor, Chief Executive of StepChange Debt Charity said “Too many people are borrowing just to get by, struggling to save, working hard and finding it difficult to make ends meet. The record number of people coming to us for help shows how dealing with debt is a daily challenge for ordinary working households. Borrowing is growing at its fastest rate in 10 years and for the first time since the economic crisis of 2008, the level of problem debt we see is also rising. If this continues, the social cost of personal debt will increase even further.”

“This makes it all the more urgent that the Government commits to a ‘breathing space’ scheme that will help people who are struggling to get back on their feet. Breathing space is the missing piece of the puzzle when it comes to debt solutions and it already has widespread support. As levels of personal borrowing approach their 2008 peak, we need a set of policy measures to better protect those who fall into difficulty.”