Recognising problem debt, and how to escape it

Ruth Duncan, Maxwell Davies Director

Problem debt affects millions of people in the UK. What’s worse, many people don’t realise or refuse to address the issue, so don’t know there is help available to turn things around. Which is why it’s so important to understand what problem debt is and be aware of the signs of stress in ourselves and those around us. 

Mental health issues can affect anyone at any day of the year. World Mental Health Day, celebrated on 10th October, was a perfect reminder to take a moment and consider how much attention we pay to our minds and bodies.

Recently, I have been invited to the BBC Kent Radio “On the Air with Paul Obey” show to discuss challenges and stigma of problem debt and its undeniable impact on our mental health with Dr Caroline Jessel of Dandelion Time Charity. 

Houston, we have a problem (debt)

We live in interesting times, as the adage goes. Many of us worry about money, jobs and (in some cases) benefits, with the global and national economic stagnation, how do we know if we have slipped into problem debt yet?

The simplest definition of problem debt states that over-indebtedness (or problem debt) is when someone becomes unable to pay their debts or other household bills. Obviously, this could mean a wide range of values for different people in different situations. But let’s be clear that even a small amount of debt that one cannot afford may put massive pressure on one’s mental health and their family life. 

Over-indebted? You are not alone.

According to the National Audit Office, problem debt now affects over 8 million people in the UK and is likely to be on the rise. 

The main triggers for the over-indebtedness are stagnant wages, inflation and a rise in the cost of living. Also, life-changing events, such as redundancy and an illness in the family will mean that to carry on the same lifestyle people will borrow a bit more money every month and can easily fall into a debt spiral.

And when debt starts getting out of control, it often triggers anxiety and depression. It can lead to breaking communication at home, in severe cases, domestic violence and increased rates of bullying among school children. 

Debt problems start early

A quarter of young people between 18-30 are now facing a “debt epidemic”. Student loans, rent, cost of living, household bills, but also peer pressure and lack of financial discipline are often quoted as the main triggers for their financial ruin.

However, it’s women and young mothers that are hit the hardest by the financial inequality, with pay gap, lower-income & childcare cost to name a few. 

It’s worth noting that in 2018, women were involved in 65% of Debt Relief Orders and 54% of Individual Voluntary Arrangements.

Debt denial: overcoming stigma and shame

What comes with problem debt is the sense of failure, shame and denial. Often people may feel alienated and not knowing where to turn, taking their financial problems personally. When quite often the reasons for the business or personal financial failures are due to external circumstances. 

Therefore, we all need the cultural shift and the educational drive to ensure that people become aware of the mechanisms and resources available to help them come out of a rabbit hole. 

And professionals, such as myself and other insolvency practitioners, can help review the status quo in a non-judgmental way, offer a list of solutions and potentially avoid filing for bankruptcy. Thanks to a list of powerful tools, such as the Enterprise Act 2002, company voluntary arrangements (CVAs) to individual voluntary arrangements (IVAs) to name a few, we can make a difference in people’s lives.

Time is of the essence, though.

Let’s find the solution

Most people spend years juggling debts, hiding behind the ever-growing piles of unopened letters and unanswered phone calls. At some point, every problem debt must come to a head. Talking from my professional experience, it takes roughly 2 years before people start asking for help.

Delaying the process is also often based on fear of dealing with sometimes hostile debt collectors, agents or HMRC. I truly believe that with a more compassionate approach to people with debt and wider education, we can make a difference in the way they address their issues earlier.

Take the first step

My first advice would be to examine one’s feelings about debt. If they are overwhelmingly negative, it’s time to take the control back.

It’s crucial to face the facts early. Next step will be to talk with the close ones to get their emotional support and to seek professional help. Many organisations, from mental health charities, CAB, to insolvency practitioners nowadays offer free and impartial advice. And an early intervention usually suggests a wider spectrum of solutions, more cooperative creditors and a faster track to financial stability. 

Even if this is just a case of working through “what if” scenarios, anticipating financial issues. Speaking with a professional will usually mean getting the answers early and putting the worries to bed.

Are your employees suffering in silence?

With personal debt at historically high levels, it’s quite possible for the line managers to already have someone with financial problems in their team. Some of the signs may include dropped productivity, changes in behaviour, higher than average sick leave. 

As debt problems affect personal performance and potentially can have a catastrophic effect on the company, the employers need to offer advice, financial education and support. Quite often speaking with someone even for 10 minutes can massively change how they feel and help them start the process of reclaiming their financial freedom.

Don’t let debt define you

It’s worth remembering that debt isn’t something that a person is doing, but a situation they have found themselves in.

Currently, in the UK, one in two adults with debt are also suffering from mental health issues. Debt is a complex challenge and needs a compassionate and holistic approach in order to address it successfully. Absolutely no-one should be ashamed of their circumstances. Let’s eradicate the stigma and promote positive ways of dealing with financial hardships. For our own and the economy’s sake.

To hear the interview in full, please click below.

If you would like to discuss issues covered by this article or to arrange a free initial consultation, please click here. You don’t know what we can do until you ask!

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