Mike O’Connor: Action needed to help families trapped by debt

TWO and a half million children in the UK are living in families that are struggling with problem debt. Families across the UK are facing the choice between paying their basic household bills or repaying the credit card or payday loan. This is the reality that was revealed in our joint report with the Children’s Society entitled “The Debt Trap”.

Debt can have a devastating impact on people’s lives. Being in debt doubles your chance of having a mental health problem, but debt also affects partners and, critically, children in such households.

The report’s findings are sobering. Nine out of 10 families in debt say they have cut back on essentials like food, clothing or heating for their children in order to keep up with repayments.

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The unseen emotional impact is just as stark. Children in families in problem debt are twice as likely to be unhappy at school and to be bullied because they don’t have the same things as their friends. Many children are acutely aware of the impact debt is having on the people they love and look up to – nearly half say that lack of money causes arguments in their families.

One parent told us: “My son has also seen me at times when I’ve been upset and he doesn’t cope well when I’m upset. So I think sometimes he probably doesn’t talk about things because he doesn’t want to see me getting upset.”

The truth is debt can happen to anyone at any time. For most people, their financial difficulties begin with an unexpected change in circumstances, such as job loss, reduced hours at work, illness or relationship breakdown.

The unprecedented squeeze on incomes of recent years has pushed many families’ household budgets to breaking point, with the struggle to make ends meet becoming impossible, while others find their finances exist on a knife edge, where any change in circumstances could leave them vulnerable to debt.

When times are tough, taking out credit, whether through credit cards, payday loans, hire purchase agreements or catalogues, can seem like the only way to plug the gap. But the truth is these payments become a stranglehold, swallowing up more and more of the family income leaving even less to spend on life’s essentials.

Sadly, there remains a stigma attached to debt, which prevents many people from admitting the depths of their problems. But when people do reach out for support, many creditors simply aren’t listening. Over two thirds of parents struggling with payments said they were treated “badly” or “very badly”, and in some instances were simply offered the chance to borrow more money. Families in financial trouble need a helping hand, not a shovel with which to dig themselves deeper into debt.

How do we protect families and especially children from the harmful side-effects of debt and crucially how do we fix the debt trap? This is the challenge for policy-makers, regulators, creditors and charities.

Crucially, families should be given “breathing space”, an extended period during which charges, interest and enforcement action are put on hold to give them a real chance to get back on their feet.

The high-cost credit sector has continually positioned itself as the lender of last resort, but all too often it simply exacerbates an already bad situation. It’s like offering salty water to someone who is thirsty. The Government needs be work with credit unions, high street banks and local welfare assistance schemes to make sure there are affordable credit alternatives in place.

We need to see early warning systems being put in place by all creditors to make sure they are aware as soon as their customers begin to struggle, so advice and support can be given quickly and effectively. The vast majority of the families in this report said they would have liked more support or support at an earlier stage. Timely advice and support can help to ensure that short-term financial difficulty does not spiral into problem debt, and that advice is available from organisations like StepChange Debt Charity.

And what of the generation of children growing up in families in debt? Advertising of loans is extensive, more than half of the children aged 10-17 said they saw such adverts “often” or “all of the time”. There is an obvious need for the Government to review the case for tighter restrictions on loan advertising seen by children.

Talk of an economic recovery may delight those in Westminster, and any signs of growth are certainly welcome. But this report is a timely reminder that, in reality, many families are still struggling to cover their essential household bills. Until we address their worries – and those of the children who are paying the price – then debt will continue to be a trap that many will inevitably fall into.

n Leeds-based StepChange Debt Charity provides free and independent debt advice via its freephone helpline 0800 138 1111 or through its online Debt Remedy tool.

Mike O’Connor is chief executive of the StepChange Debt Charity.