Citizens Advice research warns of deepening debt crisis

New research points to a deepening debt crisis in which many people turning to Citizens Advice Bureaux for help have no realistic hope of paying off their debts in their lifetime.

A life in debt reveals that CAB debt clients owe an average of £16,971 - two thirds more than in 2001, and the equivalent of almost 18 times their total monthly household income. It will take them an average of 93 years to pay off the money they owe at a rate they can afford.

Citizens Advice Bureaux have seen debt enquiries double in the last ten years. Debt is now the number one issue advised on in bureaux, accounting for one in three of all enquiries, and CAB advisers are currently dealing with an average of 7,241 new debt problems every working day.

An in-depth analysis of data from over 1,400 debt clients found nearly one in three had mortgage or rent arrears, or owed money on secured loans. Four in 10 were living in fuel poverty and a quarter had council tax arrears.

More than half had debts on at least four essential household bills and the amount owed on these was 38% higher than when similar research was last carried out in 2004.

Nearly half the homeowners (45%) had mortgage or secured loans arrears - up from 30% in 2004 - and two thirds of these would be in priority need for re-housing if they became homeless. Almost one in three (30%) spent at least half their monthly income on their mortgage and nearly one in five had no equity in their homes or were in negative equity.

One in ten had at least 10 credit debts - credit cards, overdrafts, personal loans and HP - but well over half (58%) had no available income to pay these debts, a substantial increase from 2004.

The most common reasons for debt were low income, over-commitment, illness or disability and job loss. But irresponsible lending, poor financial skills and big increases in the cost of living - especially on petrol, energy, water and council tax - had also played a significant part in people's debt problems.

CAB debt clients tend to be poorer than the population at large, with an average net monthly household income of £1,021 - less than two-thirds the national average. The average spent on housekeeping per week was £69.50, far below the national weekly average of £142.

Citizens Advice Chief Executive David Harker said: "These findings make sobering reading, especially as they are based on data collected just before the worst of the credit crunch began to bite. Since then we have seen an enormous rise in the number of people turning to us for help because they have lost their job, so we can expect to see many more people struggling with severe debt problems as the recession continues to take its toll.

Low income, combined with irresponsible lending, unreasonable debt collection practices and badly informed financial decisions are at the root of many of our clients' debt problems. For many there is little prospect of their income increasing or their circumstances changing. The reality is that they are condemned to a lifetime of poverty overshadowed by an inescapable burden of unpayable debt.

In the current climate it is absolutely vital that lenders and creditors treat people fairly and sympathetically and do everything they can to help ease their debt problems and avoid adding to them. Those for whom there seems no light at the end of the tunnel also need solutions that can offer them a fresh start, lift them out of the poverty trap, and give them a chance to build better financial skills for the future."

Citizens Advice estimates that nearly a third of CAB debt clients could be eligible for the debt relief order (DRO), a new alternative to bankruptcy that comes into force in April 2009. While welcoming this new debt remedy, Citizens Advice is also urging the Government to press ahead with plans to extend the range of low cost, out of court debt remedies targeted at debtors with low incomes and assets.