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Britain is facing an escalating personal debt crisis which threatens to "overwhelm" large numbers of people, according to hard-hitting new research this week from the National Association of Citizens Advice Bureaux.
The average amount owed by Citizens Advice Bureau debt clients it surveyed was £10,700, which is more than 13 times their average monthly income of £800. And a quarter of those surveyed were receiving treatment from their GP for stress, depression or anxiety.
The report focuses on the casualties of the credit boom, which has seen borrowing hit record levels - only this week it emerged that net lending by the major banks to the public was up by £6bn in April, compared with £5.7bn the previous month.
Consumer credit debt - problems with loans, overdrafts, credit and store cards, mail order and hire purchase repayments - was by far the biggest problem area, accounting for 70% of all the debts in the survey.
Citizens Advice Bureaux advisers have seen an alarming 47% increase in new consumer credit debt problems over the last five years.
During that time there have been a multitude of government initiatives.
But the new report, "In too deep: CAB clients' experience of debt," warns that current initiatives "do not go far enough or fast enough".
It calls for a wide-ranging government review of ways to prevent over-indebtedness. It also says the need for free, independent debt advice far exceeds supply, and is likely to become ever more acute. The Nacab findings add to the growing bank of evidence that consumer debt is at crisis point.
Research commissioned by the Banking Code Standards Board watchdog reported earlier this month that the average adult now has unsecured debt of £5,000, and a sixth of the population is having trouble repaying debt of some kind. And recent research by City watchdog, the Financial Services Authority, suggests that over six million UK households are now finding it difficult to meet their financial commitments.
The new study found that CAB debt clients are most often lone parents, social housing tenants and low-waged or benefit dependent, which means many of them are socially and financially excluded.
On average, the clients surveyed owed £10,700, with amounts ranging from £132 to £111,000. A "significant proportion" faced debts which were totally unmanageable.
A change in circumstances, such as losing your job, ill-health and relationship breakdown, as well as over-commitment and poor money management, are the most common triggers for debt problems.
But for CAB clients, the level of credit commitments relative to income often means they are likely to have serious problems as a result of a relatively small change in their circumstances - a 10% drop in income is enough to tip many over the edge of manageable payments. The survey results showed that there has been a big shift over the last 10 years in the types of debts for which people are seeking advice. Advisers are helping people who mainly have credit card, loan repayment and mail order catalogue arrears. By contrast, a decade ago, clients had as many "priority debts" - where the ultimate sanction for non- payment is imprisonment, the loss of their home or disconnection of utility supplies.
The CAB this week called for a raft of reforms including initiatives to: Promote responsible lending and borrowing
Develop alternatives to high-cost credit for the financially excluded.
Ensure people in difficulty are dealt with more appropriately by creditors.
Improve payment protection insurance, which Nacab slammed as "often useless".
More protection against harsh debt collection practices
Remove the financial barriers to insolvency and legal mechanisms to manage debt.
Increase funding for, and access to, free independent money advice.
Citizens Advice chief executive David Harker adds: "Our research shows personal debt problems threaten to overwhelm large numbers of people in this country, with potentially devastating personal and social consequences."
· The report can be downloaded from the Citizens Advice website at www.citizensadvice.org.uk
Alone, married, retired... redundant? It can happen to you
A lone parent with three children in West Yorkshire received income support and child benefit for her family totalling £155 a week after deductions for social fund repayments and community charge arrears. Repayments to her other creditors came to £126 a week - leaving her with less than £30 a week to cover groceries, fuel bills and other essentials. She told her CAB adviser that she could only afford to buy bread, milk and chocolate spread from this limited amount of money.
A married man from Warwickshire with four dependent children became unable to work following a back injury. He thought he would be able to go back to work, so he used his credit cards to pay for essential items. As a result the man now owed £30,000 and found it impossible to cope. He considered bankruptcy might be his only option, but could not afford the £250 deposit fee.
A 64-year old woman from Suffolk was left to pay a £24,000 bank loan following her husband's death a year earlier. When she asked the bank for help, it suggested she remortgage. After paying the proposed mortgage, she would have been left with £64 a month to live on and care for her elderly father.
A CAB client in Cumbria received a liability order summons for council tax arrears of £5, plus £40 court costs. He had been paying £5 regularly and was just slightly overdue with his final payment to clear the debt.
A man who was made redundant in South Yorkshire managed to find a part-time job, but his essential spending needs exceeded his income by £50 a week. As a result, he couldn't pay his mortgage and he was accruing council tax arrears. His wife was unable to work because she had multiple sclerosis.
A lone parent with several unsecured debts was being contacted up to 15 times a day - sometimes at work - by a debt collection agency acting on behalf of one of her creditors.
A pregnant woman on Jobseekers' allowance owed £6,000 to eight creditors. Because she owed more than £5,000 she could not apply for an administration order, which would have allowed her to make one payment to the court to distribute to her creditors. She could not go bankrupt either, as she could not afford the necessary £250 deposit fee.
A wife's credit card debts totalled £70,000. The cards had all been taken out in the two-years since she had stopped work due to a potentially terminal illness. The CAB was concerned that the credit card companies had not checked her lack of income and other commitments.
Where advice comes free
Check out the credit and debt section on the Financial Services Authority website: www.fsa.gov.uk.
Citizens Advice Bureau : the largest provider of free, impartial and holistic debt and money advice in the UK through its 2,000 outlets. For your nearest bureau, see your local phone book or visit www.citizensadvice.org.uk.
National Debtline : telephone-based information and advice for people in England and Wales. Call 0808-808-4000 or at www.nationaldebtline.co.uk.
Consumer Credit Counselling Service : a charity funded by the financial services industry specialising in setting up debt management plans. Call 0800-138-1111 or at www.cccs.co.uk.
Payplan : a not-for-profit organisation recommended by some trade unions, 0800-085-4298 or at www.payplan.com.
The Money Advice Association : gives details of your nearest adviser for people in England and Wales. Call 01476-594970 or visit www.m-a-a.org.uk. People in Scotland can contact Money Advice Scotland on 0141-572-0237 or at www.moneyadvicescotland.org.uk.
Advice UK: the new name for the Federation of Information and Advice Centres, is a large network of advice-providing organisations on 020-7407-4070 or at www.fiac.org.uk. For agencies in Northern Ireland, contact the Association of Independent Advice Centres on 028-9064-5919 or at www.aiac.net.
What steps you can take...
RULE ONE: Face up to the problem. It won't go away. Then...
Avoid more borrowing to try and pay off existing debt. This is likely to lead to more problems.
Contact creditors and tell them you have a problem - don't stop payments without explaining why.
Work out a budget and decide how much you can afford to pay off debts.
Tackle priority debts first. It is not the size of the debt, but where any lack of payment can result in the loss of your home, imprisonment or loss of essential services. Include in this list mortgage and rent arrears, income tax and VAT, court fines, maintenance, child support, council tax and fuel bills.
Don't be panicked into offering more than you can realistically afford. Most creditors know this is exactly what a court would order, so they have little to gain by taking you to court.
Cut out all unnecessary spending and cut up store cards and credit cards so you can't run up more debts.
Is there any way you can increase your income? Are you eligible for any state benefits you aren't claiming? Could you work more hours or take in a lodger?
Don't struggle alone. There are lots of agencies offering free, independent, confidential advice or who will put you in touch with a debt counsellor.
Think twice before paying a fee-charging debt management company.
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