‘Smaller but trickier’ debts causing problems for households as demand for debt advice rises

People are increasingly struggling with ‘smaller but trickier’ debts on everyday household bills, according to new figures from National Debtline, run by the Money Advice Trust. The charity expects the number of calls to National Debtline to hit 189,000 by the end of the year – the highest level in five years – with webchat and online demand also increasing.

Its new report, A decade in debt, reveals how the realities of debt problems have changed in the 10 years since the financial crisis – with fewer people seeking advice with credit cards, loans and overdrafts, and more calls about debts on everyday household bills such as council tax, rent and energy arrears.

Smaller but trickier debts
Half of callers to National Debtline (50 percent) are now struggling to repay debt of £5,000 or less – up from just 22 percent in 2008. These smaller levels of debt are proving difficult to repay due to an increase in ‘broken budgets’ – where the money coming in is simply not enough to cover essential spending. Nearly half of National Debtline callers (48 percent) now have a budget deficit – up from 27 percent in 2009.

A shift towards household arrears
National Debtline advisers are helping more and more people with arrears on everyday household bills, with proportionally fewer calls relating to credit-related debts such as credit cards and personal loans. Three in 10 callers (30 percent) now have council tax arrears – up from just 15 percent in 2008, with the proportion of callers with rent arrears rising from six percent to 17 percent and energy arrears from 9 percent to 14 percent in the same period.

Increasing demand
Calls to National Debtline rose in the aftermath of the financial crisis to a peak of 305,000 calls in 2010 – and while demand fell in the first part of the current decade as the economy recovered, the number of calls to National Debtline has since risen every year since 2015. The charity is expecting a total of more than 189,000 calls by the end of 2018 – its highest level of demand in the last five years, with webchat and online demand also increasing.

In response to these trends, the Money Advice Trust – the charity that runs National Debtline – has set out recommendations for government, regulators, creditors and the advice sector, including:

· The introduction of a formal cross-government strategy to reduce problem debt, bringing together the relevant government departments, agencies and regulators into a single, coherent approach
· Ensuring that the government’s planned ‘Breathing Space’ scheme provides protections for people seeking advice from all types of creditors – including utility companies, local authorities, DWP and HMRC
· Further action from the Financial Conduct Authority on persistent credit card debt, unauthorised overdrafts and extending its payday loan cost cap to other forms of high-cost credit.

The report presents trends and recommendations relating to different types of debt – including consumer credit, rent and mortgage arrears, council tax debts, energy, water and telecoms arrears and benefit and tax credit overpayments.

Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs National Debtline, said: “We need to change how we think about problem debt in the UK.

“Ten years ago a typical caller to National Debtline was struggling to pay credit cards and personal loans. Today, callers are struggling with smaller but trickier debts, usually on everyday household bills – and often caused by ‘broken budgets’, where the money coming in is simply not enough to cover their essential spending.

“The government, regulators, creditors and the advice sector need to work together to tackle these new realities. There is some good news with the creation of the new Single Financial Guidance Body, plans for a statutory Breathing Space scheme and a renewed focus from creditors on supporting people in vulnerable circumstances.

“However, with debt problems still changing and growing, there is much more to do – including a new formal cross-government strategy to reduce problem debt, which brings together different strands of work into a single, coherent approach.”