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Citizens Advice research warns of deepening debt crisis

New research published today points to a deepening debt crisis in which many people turning to Citizens Advice Bureaux for help have no realistic hope of paying off their debts in their lifetime.

A life in debt reveals that CAB debt clients owe an average of £16,971 – two thirds more than in 2001, and the equivalent of almost 18 times their total monthly household income. It will take them an average of 93 years to pay off the money they owe at a rate they can afford.

Citizens Advice Bureaux have seen debt enquiries double in the last ten years. Debt is now the number one issue advised on in bureaux, accounting for one in three of all enquiries, and CAB advisers are currently dealing with an average of 7,241* new debt problems every working day.

An in-depth analysis of data from over 1,400 debt clients found nearly one in three had mortgage or rent arrears, or owed money on secured loans. Four in 10 were living in fuel poverty and a quarter had council tax arrears.

More than half had debts on at least four essential household bills and the amount owed on these was 38% higher than when similar research was last carried out in 2004.

Nearly half the homeowners (45%) had mortgage or secured loans arrears – up from 30% in 2004 – and two thirds of these would be in priority need for re-housing if they became homeless. Almost one in three (30%) spent at least half their monthly income on their mortgage and nearly one in five had no equity in their homes or were in negative equity.

One in ten had at least 10 credit debts – credit cards, overdrafts, personal loans and HP – but well over half (58%) had no available income to pay these debts, a substantial increase from 2004.

The most common reasons for debt were low income, over-commitment, illness or disability and job loss. But irresponsible lending, poor financial skills and big increases in the cost of living – especially on petrol, energy, water and council tax – had also played a significant part in people’s debt problems.

CAB debt clients tend to be poorer than the population at large, with an average net monthly household income of £1,021 – less than two-thirds the national average. The average spent on housekeeping per week was £69.50, far below the national weekly average of £142.

Citizens Advice Chief Executive David Harker said:

“These findings make sobering reading, especially as they are based on data collected just before the worst of the credit crunch began to bite. Since then we have seen an enormous rise in the number of people turning to us for help because they have lost their job, so we can expect to see many more people struggling with severe debt problems as the recession continues to take its toll.

Low income, combined with irresponsible lending, unreasonable debt collection practices and badly informed financial decisions are at the root of many of our clients’ debt problems. For many there is little prospect of their income increasing or their circumstances changing. The reality is that they are condemned to a lifetime of poverty overshadowed by an inescapable burden of unpayable debt.

In the current climate it is absolutely vital that lenders and creditors treat people fairly and sympathetically and do everything they can to help ease their debt problems and avoid adding to them. Those for whom there seems no light at the end of the tunnel also need solutions that can offer them a fresh start, lift them out of the poverty trap, and give them a chance to build better financial skills for the future.”

Citizens Advice estimates that nearly a third of CAB debt clients could be eligible for the debt relief order** (DRO), a new alternative to bankruptcy that comes into force in April 2009. While welcoming this new debt remedy, Citizens Advice is also urging the Government to press ahead with plans to extend the range of low cost, out of court debt remedies targeted at debtors with low incomes and assets.

Cases reported recently by bureaux include:

A lone parent with three children was suffering from serious depression and had attempted suicide several times following domestic violence and a relationship breakdown. She had a number of debts including a £706 fuel bill which was being collected at £10 per week via her pre-payment meter. She could not afford her basic living expenses and was falling into debt with other household bills. At the time of seeking advice, she relied on her local church delivering food parcels.

A woman who was unable to work following an accident and was now living on benefits told the CAB that she could not afford to put the heating on this winter and was terrified of getting further into debt. She had borrowed a ski suit from a friend to wear to keep her warm in her house.

A man with £60,000 of credit debts and mortgage arrears was about to have his home repossessed. He had decided that the best way forward to clear his debts was to go bankrupt, but he could not afford the £495 court fees to petition for bankruptcy.

Notes on the report

A life in debt: The profile of CAB debt clients in 2008, based on an in-depth analysis of survey data involving 1,407 new debt clients seen in 52 Citizens Advice Bureaux in England and Wales in July 2008, is available at www.citizensadvice.org.uk/a_life_in_debt or from the press office.

Key findings:

  • On average CAB debt clients owed £16,971 in 2008, two thirds higher than in 2001.

  • More than half of the clients in 2008 had four or more priority debts, such as mortgage or rent arrears, fuel bills or council tax arrears.

  • One client in ten had 10 credit debts or more.

  • Forty five per cent of the homeowners had mortgage or secured loans arrears in 2008, up from 30 per cent in 2004.

  • Thirty per cent of the homeowners spent half or more of their monthly income on housing costs.

  • Two thirds of the homeowners with mortgage or secured loans arrears were in priority need for rehousing

  • Forty three per cent of the CAB debt clients in 2008 were in fuel poverty because they spent more than 10 per cent of their income on fuel.

  • Half of CAB debt clients were in water poverty because they spent more than three per cent of their income on water.

  • More than half of the clients (58 per cent) had no spare money to pay their credit debts.

  • Clients who had spare money to pay their debts would take on average 93 years to repay them in full.

  • Nearly a third of CAB clients could be eligible for the debt relief order* (DRO), a new alternative to bankruptcy which comes into force in April 2009.

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