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Tackling the problem debt

Household debt is on the rise, so too are the numbers of those struggling to pay. On the face of it, this might logically explain the steady increase of personal bankruptcies, but what if a lot of these could be avoided?

Growing UK household debt problems

Over the last four years, the average total household debt in the UK has continued to rise. While this debt in itself can have benefits for the economy, high-levels can create problems. A sudden change in personal circumstances, e.g. a relationship breakup, an illness or broader instability in the economy itself, can make it difficult for individuals to keep up with repayments, quickly turning outstanding debts into problem debt.

About 8.3 million people in the UK are affected by problem debt, but the most significant source of this debt is perhaps the biggest concern. Figures from Citizen Advice suggest that UK households now owe over £18.9 billion on essential bills alone. Meaning debt repayments for vital services has overtaken consumer credit as the UK’s most common personal money problem.

At some point, every problem debt must come to a head. When those trapped in debt don’t fully understand their options creditors may feel forced to pursue more conclusive actions. While the overall total of individual insolvencies fell in Q3 2018 by 10.5%, compared to the previous quarter, this was offset by a higher number of debt relief orders and bankruptcies. Meaning evermore households are ending up in devastating financial conditions which may even be avoidable.
The National Audit Office (NAO) recently published a report on “Tackling problem debt”. This examined the type of impact the debt has, both on the lives of individuals and the wider economy, as well as trying to establish root causes to address.

Their findings estimate that “4 in 10 people in the UK cannot manage their money well day-to-day” and the consequences may be as severe as having services cut off, losing a roof over their heads or facing prison for unpaid council tax. The problem debt also has far-reaching implications for the economy itself as it costs the public purse £900million each year, though providing extra public service support alone.

The NAO is clear in stating there is not enough hard, official data available in order to understand the scale of the people’s household debt. And while the government is making an effort to address this issue, a clear strategy to educate and advise needs to be in place. (Its estimated that 600,000 people are still unable to access debt advice.)
Leading debt charities and organisations have welcomed the NAO findings. The Money Advice Trust believes the report ‘hits the nail on the head’.

There is a unanimous call upon the HM Treasury to do more. This could be through introducing better debt collection practices and provide more accessible help with managing debt. There is also a need for the government to work far more closely with regulators, creditors and the advice sector to work together to tackle these challenges.

If you have any questions about the article or if you are concerned about your financial situation, please contact us for a free initial consultation on 01622 764 612 or 020 7253 7171.

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