A new study has revealed that since 2017, there has been two-thirds increased in the proportion of UK households that are heavily indebted. About 12.8 million adults in the UK are having trouble keeping up with their financial obligations.
According to Debt Justice’s report, it revealed that, making repayments has been a burdensome process. It has called for an immediate action to keep individuals from becoming “trapped in poverty.”
The conclusion follows last month’s rise in interest rates by the Bank of England to 5%, the highest rate in 15 years. The current expectation in the financial markets is that, the Bank would increase rates to as much as 6.25% by the end of the year.
“The government is turning a blind eye to the colossal household debt crisis that is engulfing millions of people at breakneck speed. Instead of ignoring the problem, they need to raise incomes, boost the protections for people in arrears and write off the unpayable debts to give everyone that needs it a fresh start.”
Heidi Chow, Executive Director of Debt Justice.
In 2017, the Financial Conduct Authority (FCA) discovered that, about 7.7 million adults in the UK were heavily indebted, which indicated that, they had fallen behind on their credit obligations for three months, or more, or were unable to make their payments.
However, by May 2022, there were 9.6 million people in the UK dealing with debt, and by January of this year, there have been 12.8 million. According to Debt Justice, there has been little assistance for people battling with debt, amid the rising cost of living.
“My health started deteriorating and I had to have a major operation,” a 47-year-old community worker said. This worker claimed, he sent a letter to the charity on the impact of his debt.
As a result, my pay was further reduced, because I required time off from work to recover, but my debt grew steadily till it eventually reached £15,000, as a result of pay cut.
“I took out credit cards and loans. I tried everything possible to pay off the debt that was building up. I was put in an impossible situation,” the 47-year old said.
An Individual Voluntary Arrangement (IVA), which is a written and legally enforceable commitment for paying back debts to creditors over a specific period of time, has been one of the choices available to persons, who are having difficulties with settling their debt. The biggest number of IVA registrations in England and Wales since 1990 occurred in 2022, with 87,967 applications.
Moreover, there have been worries that, dishonest businesses have been promoting IVAs to those with significant debt by focusing on them. A group by name, Citizens Advice, has cautioned that, some businesses are “preying on and profiting” from those in debt.
A restriction on corporations getting referral fees from debt solution providers, was introduced by the FCA last month. It discovered instances of consumers experiencing financial distress who have been advised to get into IVAs that would cause them even more harm.
Furthermore, a debt alleviation order, a low-cost debt solution, targeted at those with very low levels of debt, may help homeless individuals to become debt free in one year for £90, instead of recommending an IVA that would cost £6,000.
According to Debt Justice, the cost of living problems coupled with high interest rates, run the risk of keeping people in despair, and would be weighing down the economy for years to come.
It has requested that, the government develop a new plan of action to deal with the problem, which should include a moratorium on all evictions, and the deployment of bailiffs to collect unpaid rent.
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