personal finance

How can you tell if someone has a debt problem?


Bad debtors look no different to the rest of us. They often earn good money, dress well and appear happy. Like many of us, they owe large sums to credit card or car loan companies (the average consumer now owes £7,863) but they struggle to make the minimum payments each month. They may only recognise that they have a problem when a threatening letter arrives — or a bailiff knocks on the door.

I have met a great many people facing financial disaster. I was a trustee for Citizens Advice and spent a lot of time in my nearest branch, and I now run financial and debt workshops as part of financial wellbeing programmes for major companies.

Debt problems pay no respect to income. The more you earn, the greater your debts are likely to be. The only thing bad debtors tend to have in common is their failure to understand exactly how much they owe, the rates of interest they are being charged and what penalties they face for late payments.

Things have become worse in recent years as many card users and bank account customers have been persuaded to forgo paper bills; they do not have regular reminders of how much they owe or when the payments are due. Contactless payments are another aggravating factor, hiding the true scale of daily spending until the end of each month.

Most debtors continue to live their lives seamlessly until a personal disaster strikes — a lost job, a family illness, a death or an unplanned baby that causes their finances to implode.

Take a successful designer I know. I will call her Celia. She had built up credit card debts over several years to pay for her business travel, expansion costs and work purchases. She made minimum payments that amounted to thousands of pounds a month to the credit card companies, with occasional penalties added for a late payment or exceeding a credit limit.

Celia’s wake-up call came with a letter from her mortgage lender telling her she needed to find more than £100,000 to pay off the capital on her interest-only mortgage within two years.

She could not sleep. She thought that she would lose her home and business. Her panic increased when she realised that she owed more than £30,000 on credit cards, some of which had been taken out after picking up application forms when she did her supermarket shopping.

Celia agreed to work out new rules for spending so she could live within her income. It took months to negotiate with the card companies, which eventually agreed to accept less money in return for cancelling some of her many cards. Her credit profile was damaged because the cash settlements were counted as “defaults”. This was not a major problem, since she did not plan to borrow any more in the next few years.

She now has one card for essential spending which is paid off in full each month, helping to rebuild her credit profile. Her mortgage lender refused to move her to a repayment loan, saying she could not afford the higher payments. However, she has started repaying the capital of her loan, using the money she previously used to pay for her credit card debts.

For many, life would have continued with no evident problems if nothing had changed. Each year their debts increased. As a counterbalance, new zero-interest credit cards were obtained with the intention of sorting it all out. Instead, having released a new credit line, the spending increased. By the time such cardholders seek help they have often spent several years noticing that the amount they owe has increased each year, but have not managed to cut back.

Another couple that approached Citizens Advice were appalled to find that they owed more than their substantial joint annual income. By their second meeting, they had cut their spending drastically, sold one of their cars and a lot of possessions on eBay, and had both found second jobs.

For others the wake-up call is far more serious — a lost job, illness or the need to replace a car essential for work.

The diagnosis of a serious illness wrecks finances, especially for workers who get scant benefits from their employers or the government. I previously advised a man who had been diagnosed with cancer. He did not have income or mortgage protection insurance, and found he was entitled only to statutory sick pay — now £94.25 a week. He expected to be off work for six months, but the illness persisted. When his mortgage company started chasing his arrears, he was too ill to deal with the letters. He was facing eviction when he finally sought help.

Macmillan Cancer Support is vital in helping people with deal with their finances. Most are so grateful that when they have recovered they become fundraisers for the charity.

Parents who take time off to be with a sick child can also be pitched into crisis. Yet mental illness and vulnerability are even greater causes of financial disaster than cancer. People with mental health issues such as bipolar disorder and depression are three-and-a-half times more likely to be in problem debt than those without such conditions, according to the Money and Mental Health Policy Institute (MMHPI).

Its recent research paper, “A Silent Killer”, also highlights how problem debts can be the cause of mental health problems, as well as increasing the risk of suicide.

One participant in MMHPI’s research says: “To be in debt and have people calling up to 15 times a day, to have your voicemail full, to have the postman open your letterbox with even more debt letters with even more threats is too much for anyone. You think your life isn’t worth living.”

All too often, debt collection methods used by the public sector — particularly local councils — are poorly communicated and cause a great deal of unnecessary anxiety.

One family in south London asked for my help when bailiffs arrived in the early hours of Saturday morning, demanding the instant payment of an allegedly unpaid bill. They wanted access to mark the client’s possessions.

The timing was deliberate: the council offices were closed and so were the debt advice offices. The family were vulnerable and terrified. As a result of my guidance, they managed to refuse entry, sought help on Monday morning and had the debt and bailiff charges eliminated.

If it enrages you to read this as much as it enraged me to write it, then why not consider volunteering for Citizens Advice, Macmillan or another debt charity yourself? With the number of calls to debt helplines rising each year, investing even a small amount of your time carries a very high return.

Lindsay Cook is co-founder of consumer website MoneyFightClub.com and co-author of “Money Fight Club: Saving Money One Punch at a Time”, published by Harriman House. If you have a problem for the Money Mentor to look into, email money.mentor@ft.com

How to volunteer

Citizens Advice has a number of ways you can get involved as a volunteer, either with local Citizens Advice or Witness Service.

Visit .citizensadvice.org.uk to find out more and apply.



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