It’s easy to drift off financial course, and it can be difficult to get back in line. The nature of growing personal debt is that it piles new charges upon your existing burden, so once the wheels are in motion, turning things around often calls for drastic changes to your financial habits. Even freezing spending may not be enough to sustain recovery, when interest and finance charges take-on a life of their own. A government initiative in the works may furnish the relief UK families need, getting a foothold against problem debt.
Grace Period for Borrowers
Political pressure provides impetus for change, and national debt trends have long been a point of focus in the House of Lords. Some rebellious members took a recent stand over the issue, threatening to vote down the Financial Guidance and Claims Bill, unless it included a relief period for those in debt.
The idea is to implement a breathing space for families and individuals struggling to keep up with their financial obligations, giving them time to catch up without exacting further finance fees. Unless the bill was amended with language supporting the idea, some members pledged to stand against it. Fortunately for those needing it, the Treasury has indicated this kind of help is on the way for debtors and will become law by 2019. The move reflects a promise made in the Conservative manifesto, recommending breathing space for UK families needing help with their finances.
The debt charity StepChange supports the action creating a six-week breathing space for debtors, but the organisation also indicated that consumers in need may require more than this limited grace period.
The leader of the House of Lords push also wants to see pension cold-calling eliminated as part of the Guidance and Claims Bill. The Department for Work and Pensions promised such a ban, but has yet to deliver a bill disallowing the practice.
What Does The Plan Mean For Debtors?
The debt relief initiative has wide implications, applying to debtors in England, Wales, and Northern Ireland. Scotland already has a similar plan in place. Consumers’ access to credit would not be impacted, even for those selecting from various providers short-term financing options, available without formal credit checks. Debtors would, however, be relieved of further interest, finance charges, and enforcement actions during the moratorium, which could last six weeks. It is thought the pause would give individuals time to evaluate financial conditions and seek advice about the best path forward, given the circumstances surrounding their debt.
According to the Economic Secretary to The Treasury, problem debt migrates into other aspects of families’ lives, leaving them feeling helpless and powerless to escape the financial burden of excessive repayment obligations. Stephan Barclay said the move to halt interest and charges would help people “find a workable solution” and “get their lives back on track.”
Another part of the plan is said to furnish better protection for debtors after they’ve agreed to a repayment plan. StepChange has asserted the consumer protection should apply not only after outlining a workable repayment plan, but also throughout the process of getting debtors established to pay back their creditors. The Chief Executive of StepChange believes any interruption in the protection could destabilise families’ finances and risk them returning to “square one”.
Citizens Advice also weighed-in in favor of the plan’s benefits, but expressed that the Regulator should do more to keep people from getting into problem debt from the start.
From now through the middle of January the Government will consider views from the debt advice and lending sector, and also seek input from charities responsible for helping people with problem debt. In particular, the Government wants input on the best way to enter and manage the six week breathing space and the most effective designs for establishing statutory repayment plans. The consultation will look at the problem from the perspective of creditors as well as debtors.
The initiative follows a recent report from the Financial Conduct Authority (FCA), indicating half the population is financially vulnerable. The FCA also shared conclusions showing more than 4 million Britons are already in financial difficulty, having recently failed to keep up with bills, loan payments and credit card charges.
Breaking the cycle of problem debt is a difficult proposition, as interest and charges compound the problem, month after month. A proposed breathing space, currently under consultation, may be just the relief families need to step-back, seek advice, and restore repayment obligations to affordable levels.