Families struggle with debts as lending hits pre-recession levels

Problem debt is putting stress on family relationships, damaging children and trapping families in a downward spiral of borrowing, according to a new report by The Children’s Society and StepChange Debt Charity.

Archbishop of York Dr John Sentamu visit to South Yorks...The Bishop visits St Thomas Church,Crookes for its 'Big tuesday' gathering talking to interns from across Sheffield parishes.
Archbishop of York Dr John Sentamu visit to South Yorks...The Bishop visits St Thomas Church,Crookes for its 'Big tuesday' gathering talking to interns from across Sheffield parishes.

The Debt Trap report, which is backed by the Archbishop of York, reveals that a third of all families have had to borrow money to pay for essentials for their children in the last year.

It says this often marks the beginning of the debt trap as credit repayments begin take up a larger proportion of income.

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Alarmingly, nine out of ten families in problem debt said they had had to cut back on essentials like food, clothing or heating for their children in order to keep up repayments.

The report coincides with The Children’s Society’s launch of The Debt Trap – a campaign to lift the lid on the impact of debt on children’s lives.

Those in families with problem debt are more than twice as likely to be unhappy at school and be bullied because they don’t have the same things as their friends.

There are 2.5 million children living in families with problem debt, who are behind on a total of £4.8bn of household bills and loan repayments. There are a further five million children in families struggling to keep up with repayments.

The Archbishop of York, Dr John Sentamu, said: “Parents living in poverty face incredibly difficult choices. What is to come first? Heating your home or putting food on the table?

“Many choose to go without themselves so they can provide the basics for their children. Parents want to make the best choices for their family, but low wages, expensive childcare and inflexible jobs make this very difficult.”

He also urged the promotion of viable alternatives to pay-day lenders, who charge high rates of interest for short-term loans.

“When the monthly struggle to pay the bills becomes too much, often families think they have no option but to borrow money to provide the basics for their children. We need to make sure families living in poverty have somewhere to turn other than to usury-lenders,” he said.

The report calls for a number of measures to combat the worst effects of debt on families. It says regulators should ensure creditors have ‘early warning systems’ to flag up customers’ financial difficulties early on. It also urges wider access to debt support, better financial education for children, restrictions on advertising by payday lenders to children, and savings account pilots for children through credit unions.

The Debt Trap report was released just as financial capability charity The Money Charity released its Debt Statistics. Citing new figures from the Bank of England, it showed the UK is currently seeing the biggest increase in loans and overdrafts for individuals since February 2008.

The rise in total consumer credit, which includes credit cards, is at its highest since September 2012, up by £1.132bn month on month.

Total consumer credit lending has now increased for 17 months in a row – the most sustained growth since the recession. The average consumer borrowing (including credit cards, motor and retail finance deals, overdrafts and unsecured loans) was £3,184.

Michelle Highman, chief executive of The Money Charity, said: “The fact that we are seeing the biggest increase in personal loans and overdrafts since before the recession could demonstrate a number of different changes in the industry, including an improved willingness to lend by the banks. Whatever the cause, it is important to ensure that whatever you are borrowing, you can afford to pay back.

“Borrowing money when it’s done in a carefully thought out, affordable way, can make things happen that would otherwise seem impossible or actually save you money in the long run. However, if you don’t have a plan to pay the money back, things can quickly spiral into more difficult, unmanageable debt.”

StepChange Debt Charity, 0800 138 1111.