The growing personal debt crisis

The start of January can be a lean time of year – Christmas is over, the weather’s cold and the summer holidays seem a lifetime away.

There’s also the small matter of paying for all the festive food and gifts with many people borrowing money, or using credit cards to help them out. Which is why the Money Advice Trust (MAT) debt charity is already urging low-earning households to start saving money now in time for next Christmas.

Its advice reflects the growing concern at the rising tide of household debt in this country which has increased seven per cent since 2012.

In September, the Money Advice Service (MAS) warned there are some areas of the UK, including Hull, where more than 20 per cent of residents have debt problems.

Credit card debt is a particular worry. Its estimated this now stands at around £68bn, which is an increase of 18 per cent in the past three years, with more people – particularly younger generations – using credit 
cards to pay for everyday essentials.

With personal debt levels rising again there is growing demand for debt advice amid concerns the problem is getting worse.

What is particularly alarming is even though unemployment has been falling it doesn’t necessarily mean an escape from poverty.

Given that the Bank of England’s own figures put total individual debt at around £1.5 trillion, this ought to set alarm bells ringing among policy makers.

The numbers of people contacting debt charities is increasing, and this isn’t the only worrying trend. Jobs are no longer a protection against debt problems and there is a growing number of people under the age of 40 seeking help.

Saleem Shafi is a former bank manager who now work as operations manager at the Money Buddies and Ebor Gardens Advice Centre in Leeds.

He says Leeds City Council, debt charities and other agencies are working hard to tackle a problem that shows no sign of easing.

“As a city we’re probably one of the best served in the country and we are at crisis point. We had a situation last year where clients had to wait two weeks to get face-to-face debt advice so if we’re struggling then the rest of the country is too.”

Shafi says debt problems traditionally hit low earners in unskilled jobs. “We tend to see more people who are hit by the benefit cuts, or zero hour contracts, or are having to do two or three jobs just to keep going.”

However, he says it’s affecting a broader group of people. “We’re starting to see clients who may have had good jobs, like teachers and people in the police force, as well as mid-managers whose jobs keeping going through restructures – so people who ten years thought they were insulated from all this are now feeling the pinch all of a sudden.”

Theresa May’s government made a big play of helping those “Just about managing” families – or “Jams” as they’ve become known – however, those working on the frontline say a toxic combination of continuing austerity measures and banks not lending to those on lower incomes is exacerbating the situation.

“The austerity measures are driving debt to the point where for a lot of people now it’s not just about managing it’s just about surviving,” says Shafi.

There are those who criticise people for living beyond their means in the first place, but the reality is that for many families it only takes a small change in their financial situation to push them into debt and once caught in that spiral it can be difficult to get out.

“It’s taking people longer to take action on debt issues because there’s still a stigma around getting support and advice,” says Shafi.

“People do feel embarrassed about asking for help, especially if they’ve had a good job. Clients we see often say they feel guilt and shame, but when we look at the reasons why people get into debt it’s very rarely because they have a gung-ho attitude towards money.

“It’s normally because there’s been a change in circumstances, either they’ve got ill, they’ve lost their job, their benefits have been cut, or there’s been some other emergency.”

Problem debt often has a devastating effect on people trying to make ends meet. It can trigger an increase in stress levels and has a detrimental effect on mental health which in turn impacts on health services at a time when mental health provision is already under-resourced.

The Ebor Gardens Debt Centre has been running for the last 30 years and in 2013 launched its Money Buddy scheme – a free, independent service part-funded by the National Lottery to help people stay out of debt and manage their finances.

It’s proved successful offering a free drop-in service for those with debt issues in a growing numbers of centres across the city and beyond.

“We now have Money Buddies in Wetherby and to have one there and somewhere like Otley is indicative of the problems that are here already but are about to get even worse,” says Shafi.

“I think this is really going to hit the middle classes in the next five years or so. People might think debt is bad now but I can only see it accelerating.”

The rising tide of personal debt

Overall debt, including mortgages, now stands at £1.5 trillion and is expected to reach £2 trillion by 2020.

New research suggests that at least one-quarter (28 per cent) of adults in Yorkshire with common credit products – including mortgages, bank loans and Personal Contract Purchase car loans – could find it difficult to repay their debt if interest rates were to rise by one percentage point, according to a survey of over 2,000 British adults by insolvency trade body R3 and ComRes.