Huge rise in redundancy and debt concerns
Citizens Advice has reported a sharp rise in the number of people contacting it with debt and employment concerns over the past 12 months.
The charity says that it advised on six million new problems between April last year and March 2009, of which 1.93 million related to debt, and saw nearly two million clients. Its advice website also saw 8.8 million visits during the period as struggling consumers sought out information during the recession.
While debt was the main concern brought to its door during the year, Citizens Advice also reports a 114% increase in redundancy enquiries and a 61% rise in people looking for information about Jobseeker’s Allowance.
Fears about mortgage and secured loan debt also rose over the year, with 95,342 new enquiries – nearly a 50% rise.
David Harker, chief executive of Citizens Advice, says: “These new figures show the human impact of the recession as more people are coming to the Citizens Advice service for help. In particular we are seeing an enormous rise in the number of people turning to us for help because they have lost their job, or are struggling with debts or having problems keeping up with their mortgages.”
Citizens Advice, which was awarded £10 million additional funding earlier this year, says its average client owes around £16,971, an amount it would take 93 years to repay. While low incomes, illness and job losses were the chief reasons for people accruing this level of debt, irresponsible lending, poor financial skills and increases in the cost of living have also played a significant part.
As the name suggests, secured loans require security, or “collateral”, usually in the form of property, a motor vehicle, or another valuable item, as a guarantee for the loan. This effectively reduces the level of risk to which a lender is exposed, as the lender has a claim against your home, or other effects, if you default. Secured loans are often available at competitive interest rates. Types of secured loans include mortgages, logbook loans and some types of hire purchase where the loan is secured on the goods you’re buying and these are repossessed if you default.
A person (or business) unable to pay the debts it owes creditors can either volunteer or be forced into bankruptcy – a legal proceeding where an insolvent person can be relieved of their financial obligations – but loses control over their bank accounts. Bankruptcy is not a soft option. Although it may wipe the financial slate clean, it is extremely harmful to a person’s credit rating (it will stay on your credit record for six years) and will adversely affect your future dealings with financial institutions. Bankruptcy costs £600 paid upfront.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.