Saving Yourself from “Extreme Debt”

According to an August 2016 report, “Britain in the Red”, from the Trades Union Congress (TUC), approximately 1.6 million UK households are living in extreme debt, with over 40 percent of their income being paid against debts. Of this group, over 1.2 million households have a total income of less than £30,000. Are you one of these “extreme debtors”, or in danger of becoming one? If so, what is being done to help people like you, and what can you do to help yourself?

The very long hangover from the financial crisis

The aforementioned report, jointly commissioned by the TUC and UNISON from the Centre for Responsible Credit, says that official figures actually underestimate how burdensome repayment can be on many individuals and families. Between 2007 and 2015, real wages adjusted for inflation fell by 10.4%, making the task of keeping up with debt repayments increasingly difficult. This imbalance leaves many households with little realistic hope of ever emerging from their debt burden unless significant measures are taken to lower the portion of their income that is applied to their debts.

Easing the debt burden

While the ultimate responsibility for effective debt management lies with the debtors themselves, the confluence of factors beyond their control has exacerbated the problem to the point where government must get involved before the trend can be slowed, much less reversed. The TUC report lists several actions that it feels must be taken if yet another financial crisis affecting the UK and global economies is to be averted. Among their Conclusions and Recommendations:

Reverse the decline in real wages – This could be accomplished by various measures, including increasing infrastructure spending to provide well-paying jobs, eliminating the public sector pay cap, and developing a coherent and comprehensive industry plan to foster creation of jobs that pay a livable wage.

Modernise debt management monitoring, advice, and insolvency systems – In the past, too much emphasis has been placed upon charities and other non-profit debt management organisations. They can be very helpful but are limited in their scope. The sheer scale of the problem, along with its upward trend, necessitates a more wide-ranging approach that is best performed by the government.

Establish a realistic “safe” target level for unsecured debt – Previous determinations of what constitutes a “safe” consumer debt level have been somewhat arbitrary and subject to adjustment that was not always reflective of debtors’ – or the economy’s – best interests. The artificially constrained interest rate levels set in response to the financial crisis cannot be sustained indefinitely, and should not be used as a major factor in establishing a safe debt level target.

Implement effective, sustainable measures to achieve the safe debt level target – Achieving the target would of course involve working toward a material recovery, in great part by implementing infrastructure projects as noted above. Further improvement could be realised if debtors were to seek assistance from debt advice agencies such as Citizens Advice and StepChange before reaching a debt crisis. Government could strongly encourage consumers to take earlier action, which would help optimise agency practices and would improve the services offered by these agencies.

Restructuring the insolvency regime – Government should consider abolishing Bankruptcy and Individual Voluntary Arrangements and replacing them with a single, inexpensive procedure that protects most debtors from losing their homes, and provides the means for debtors to make a fresh start within a reasonable period of time.

Although the government has yet to act on these recommendations and come up with a comprehensive way of dealing with the extreme-debt problem, the web site is a good information resource for people with debt problems. It is a good place to begin researching options to pay off your debts, providing information and links to inform you of the options currently available to you.

What else can you do to help yourself?

If you find yourself in debt that seems beyond your ability to pay off or effectively manage, don’t make it any worse on yourself by pretending the problem doesn’t exist. It does exist, and putting off efforts to resolve it can only make the debt hole you’re in even deeper. If you’re not yet to the panic point, but realize that you could be headed in that direction, the time to act is now. As counterintuitive as it might sound, you might be able to get yourself on the right track simply by borrowing a relatively small amount of money to bring your overall payments down to a manageable level before you’ve paid off all of your debts. Even if you have bad credit, you still have options that don’t involve the tedious amount of paperwork or likely rejection and embarrassment that many people have come to expect from a bank. But you need to research those options and comparison-shop to find the solution that is right for you. This page will allow you to compare rates and terms, as well as read reviews from real customers.

Debt isn’t always a negative factor in your finances, but when it becomes problematic – extreme – it’s time to do something about it. Fortunately there are resources in place now to help you do that, and potentially more resources will be available in the not too distant future. It’s up to you to research and use those resources, and to take measures to improve your financial condition.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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