Free debt advice axed

offering advice

Free, impartial debt advice looks set to become a thing of the past, following the government's announcement that it to scrap funding.

The Financial Inclusion Fund (FIF) had been spending £25 million a year on 500 debt advisers across the country offering free advice to those suffering from financial problems. But Mark Hoban, financial secretary to the Treasury, announced the FIF would be axed from March as the government strives to reduce the deficit.

Read: Should you pay for debt advice?

The decision has been met with anger from debt groups. "It is difficult to communicate the true impact of the ending of the Financial Inclusion Fund grants, which is the root cause of these devastating cuts," said Craig Gedey, spokesperson for the Debt Advisory Line.

"Cutting these grants is a false economy and at such a crucial time for families struggling to make ends meet, demand for debt management is set to continue and many people need help urgently."

The Citizens Advice Bureau will continue to offer free advice but with more people expecting to fall into debt this year there are concerns it will struggle to cope with demand.

Desperate measures

As free advice becomes scarce the concern is that stressed out debtors will turn to less reputable debt advice services. Following an investigation into the debt sector the OFT has forced more than 30 debt management firms to surrender their licences.

Ray Watson, director of the OFT's Consumer Credit Group, says: "We are determined to improve standards in this sector, as the failings identified by our review are unacceptable. Companies providing debt management services should be in no doubt that we will act against bad practice and ensure consumers are protected."

With free debt advice cut and finding a reputable debt management firm proving tricky alternative sources of advice are being sought.

The national money education charity Credit Action says the role of churches in responding to debt issues is likely to be increasingly significant as demand for debt advice is expected to remain high in 2011.

"We anticipate many more people will be facing problems with debt in the coming months as redundancies increase," said Keith Tondeur, president of Credit Action. "There are many ways that churches can help people in their congregations and communities and by giving practical help they are putting their faith into action."

Read: Why the OFT should name and shame bad debt advice firms

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