So-called ‘problem debt’ is on the rise as the cost of living crisis squeezes household budgets. According to the debt charity StepChange, one in five people (21%) in the UK expect to be pushed into debt they will struggle to pay back this year.
Problem debt locks people in a downward spiral that can quickly run out of control. Taking out loans or relying on credit to pay for everyday essentials just stacks up cash flow problems further down the line. When debt repayments can’t be met, people look for more credit as a temporary fix, and so on and so on. Until there’s nowhere else to go.
StepChange claims that up to four million people in the UK already rely on credit to meet their debt obligations, and half of that number are struggling to make the repayments.
All told, that’s two million people already on the verge of bankruptcy. And that’s before the energy price cap and other soaring costs really kick in.
All eyes are on the government and what action they can take to ease the pressure on households. Millions of people defaulting on debts and slipping into bankruptcy could end in economic disaster.
Some measures have already been introduced. One is the Debt Respite Scheme, also known as the Breathing Space scheme.
The scheme sets out to do exactly what it sounds like it does – provide financial ‘breathing space’ for people who are struggling to pay off their debts. This takes the form of legal protection from creditor action for up to 60 days. That means a halt to enforcement action, a ban on creditors contacting debtors, and a freeze on most interest and charges.
The wording of the scheme emphasises that a Breathing Space is not a debt holiday, however. People who enter into the scheme are still encouraged to keep paying off their debts for its duration if they can. The intention is to provide relief from enforcement action and mounting charges if they have genuine reasons for not being able to keep up with repayments in the short term.
There is also a list of debts defined as ‘ongoing liabilities’ which anyone who enters the scheme is expected to keep paying. Failure to do so could lead to participation in the scheme ending early. These include mortgage repayments, lease or rent payments, taxes and utility bills.
Where to turn for help
Breathing Space schemes are administered by debt advisers authorised by the FCA to provide debt counselling. Entering a Breathing Space constitutes a formal agreement between the parties. It is up to the debt adviser to establish that the client is experiencing difficulties meeting repayments on qualifying debts. Qualifying debts include credit cards, store cards, personal and payday loans, overdrafts and arrears on utility bills.
There is also a Mental Health Crisis Breathing Space scheme for people who are undergoing mental health crisis treatment and also experiencing difficulties with debt repayments. The Breathing Space lasts for the duration of the treatment plus 30 days. People can apply to a debt adviser to set up a Mental Health Crisis Breathing Space on behalf of someone experiencing mental health crisis, including carers, mental health professionals, social workers and appointed representatives.
If you find yourself struggling under the burden of debt, it’s better to reach out for help sooner rather than later. For free, confidential debt advice, get in touch with our professional personal debt specialists and we’ll gladly talk through all the options available to you.