Debt 'breathing space' called for to help families in crisis

A "breathing space" scheme should be introduced so that people in debt crisis can still afford to heat their homes and feed their families, according to consumer champion Martin Lewis and charity StepChange.

Those making the joint call said it would help to fix the "patchwork" of rules and voluntary schemes for people struggling with temporary debt problems across England and Wales.

Research from StepChange Debt Charity, involving 1,000 people experiencing financial difficulties in the previous 12 months, found that one in five (20%) was left unable to afford food after making non-mortgage debt repayments.

A further 15% said they could not afford to heat their home and 12% said they did not have enough money left over for electricity.

The charity argued there is currently no consistent approach by creditors over how people asking for debt help are treated. Some will get interest and charges frozen and affordable repayment plans accepted, but others will not.

The suggested scheme would see people who seek advice for debt problems given six months to a year in which interest and charges are frozen and enforcement action halted, to give them time to get back on track.

Where people can repay their debts at an affordable rate and within a reasonable time, these protections should continue, those pressing for the scheme said. The protections would kick in when recommended by a regulated debt advice agency.

Mr Lewis, founder of MoneySavingExpert.com, said: "The inability to heat your home and feed your family is an easily prevented nightmare - if we bring in a widespread breathing space scheme. It won't just help people financially, but also reduce the damaging mental health consequences that are often a symptom of serious debt pressures.

"While some creditors already freeze interest and charges for people who are struggling, it only takes one creditor to not provide breathing space to stop those in financial difficulty sorting their finances. It's time for the Government to step in.

"By freezing the costs for people who are trying to repay, and allowing them time to get their finances back on track, it could also help lenders increase the amount they actually recover in the long run."

Those in financial difficulties in StepChange's research were asked what would help them regain control the most over their finances.

More than one in three (35%) said a freeze on interest and charges, 30% said creditors accepting reduced payments or an affordable payment plan and 11% said a halt to enforcement action would help.

Mike O'Connor, chief executive of StepChange Debt Charity, said that Scotland has already "shown the way" with the development of a debt administration scheme.

He continued: "Our research shows the desperate position that many people with financial difficulties face and how the pressure to repay debts at an unaffordable rate and threats of enforcement can leave them forgoing even the basics like food and heating.

"When people who are struggling with debt get advice, take action to deal with the problem and do their best to repay their debts, they deserve help and support which allows them and their families to get back on their feet.

"The absence of statutory protections for people in temporary financial difficulty is a serious public policy failure."