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Affluent ‘facing debt problems’

Greater numbers of affluent people are seeking help for debt problems as the recession bites, a charity has said.

Unemployment and a housing market slump has caused a “fundamental shift” in the nature of UK debt, said the Consumer Credit Counselling Service (CCCS).

It said 12% of its 93,720 client base had a household income of more than £30,000 last year, a rise from 8.7% in 2007.

Consumers in the UK have total debts approaching £1.5 trillion.

Widespread

The CCCS – the UK’s biggest debt management charity – said that debt problems were becoming more complex, harder to resolve and affected a wider cross-section of society than in recent years.

Although people seeking help for debt were, on average, actually better off and owed less money than previously, they were finding it more difficult to pay off debts.

“When unemployment triggers a debt problem, the fall in income can leave the borrower struggling to service both mortgage and unsecured debts, while the fall in house prices, and growth in negative equity, takes away the option of selling to clear the mortgage,” said chairman Malcolm Hurlston.

“As over-indebtedness becomes a problem for the more affluent, people who come to us are more likely to have mortgages and to lead complex financial lives.

“As a result, our task in providing best advice is bound to be more difficult and time consuming.”

He said that homeowners owed 83% more on average than people who rented their homes. Almost half of those seeking help from the CCCS were homeowners.

Problems loom

As the recession deepened, he expected the complexity of clients’ debts to intensify.

“These trends seem likely to continue for the foreseeable future; the perfect storm may have arrived but we have yet to reach its epicentre,” said Mr Hurlston.

Only 35% of people were able to commit to a debt management plan, under which a set amount is repaid each month, down from 42% in 2007 and 46% in 2006.

The charity said 90% of its clients owed money on credit cards and personal loans, having run up an average debt of £14,000 on these products.

A typical case is that of Tania Houston, who used credit cards to fund a house move to London and ended up owing £16,000.

“I started getting into debt with very poor management of credit cards. It got to the point that I could not cope with the charges I was incurring,” she told the BBC.

Regional picture

A regional breakdown showed that the highest levels of debt were generally in the south of England – at an average of £29,000, but the over 60s in Wales had one of the highest debt levels in the UK at £25,947.

Scots seeking help from the CCCS had the highest levels of debt in the UK relative to their income. Those in Northern Ireland were least able to repay debts.

John Fairhurst, of debt management service PayPlan, said the trend of more affluent earners getting into trouble was not seen during previous recessions.

“It is the result of a society where people do borrow quite freely,” he said.

“Homeowners, in particular, have a very optimistic outlook about their house values and find it easy and cheap to remortgage. They are encouraged to borrow more and these are the casualties of that.”

Many could not now remortgage to deal with debts, although basic budgeting and debt advice could ease many people’s problems, he said.

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