DPF Briefing

June 2002

Debt in the workplace proves costly

Every day we are bombarded with enticements to borrow more money. The postman delivers unsolicited mail from an endless stream of credit card companies, high street stores promise instant credit deals and adverts offer seemingly endless loans.

Debt is certainly soaring and there are few signs that consumers are battening down the hatches for the economic slowdown that is already underway. Bank of England figures released at the end of January showed that consumer borrowing increased by a record £2.2 billion in December and now stands at £140 billion.

Many people are using cheap credit to refinance their debt. At least a third of loans advanced by Sainsbury’s Bank are for debt consolidation and most of this has been accumulated on credit cards.

A poll for the National Consumer Council (NCC), carried out at the height of the Christmas shopping season showed that four out of ten people felt their spending was out of control. The ratio of outstanding debts to personal income has increased rapidly since 1997 and stood at 1.05 by the third quarter of last year. This means the average household has borrowing in excess of a year’s disposable income.

FCL, the free credit advice company have seen the number of calls to their freephone helpline soar over the past year. Amanda Ryans, the helpline manager explains how easy it is for debts to become unmanageable. “It is often a significant event that leads to debt spiralling out of control, relationship breakdowns, illness or the loss of a partner’s income. Many people who contact us having been robbing Peter to pay Paul for a long time, taking out further credit rather than addressing their debt problem.”

Amanda and her team of advisers are only too aware of the consequences of debt. “In many ways, personal debt is the last taboo,” she says. “Our confidential approach allows clients to reveal the true extent of their debts for the first time. The burden of debt can take a heavy toll on individuals. Living with debt leads to absenteeism from work, stress related illnesses and depression. Many have not known where to turn for help; unaware of the solution we can offer. A call to our freephone helpline or accessing our website is the first step to solving the problem.”

FCL have been established for over nine years, working closely with the police force, national companies, welfare departments and Citizen’s Advice Bureaux. Each case is assessed individually in order to provide the appropriate debt solution. For those clients who need to reorganise their repayments through a debt management programme, FCL recommend their in-house system, Payplan. John Fairhurst of Payplan explains its benefits. “Unlike fee charging companies advertised through television and the tabloids, Payplan is free to our clients and is supported by the credit industry. Clients make a single manageable monthly payment, which Payplan distributes to their creditors. The credit industry recognise Payplan as the most efficient and reputable system.”

Alongside Payplan, FCL provide in-house insolvency practitioners, Shaws. For those clients with larger debts, Shaws can provide an alternative to bankruptcy through an Individual Voluntary Arrangement (IVA). Licensed insolvency practitioner Ken Marland of Shaws says. “An IVA is a legally binding agreement, a proposal to creditors to repay a percentage of the debt in a monthly payment over a fixed period of time, usually five years. When people fear the consequences of bankruptcy to their homes, jobs and livelihoods, it is vital that they are aware there is an alternative.”

With credit easily available, managing debt becomes ever more important. When debts become unmanageable, the longer it takes to seek help, the more difficult the problem becomes.