People struggling with debt could be given 'breathing space'

Senior couple working on home / personal finance using laptop with concerned expression

Lenders may be forced to give people struggling with debt a six-week 'breathing space' under plans being considered by the government.

The idea is that people struggling to keep up with repayments should be given a grace period where they don't have to pay extra interest or charges and are protected from enforcement action.

It would give people the chance to get advice and help, such as informal repayment plans and debt write-off options.

"For many people in the UK problem debt seems impossible to escape. Its effects can be far-reaching, impacting all aspects of a person's life and leaving them feeling helpless," says economic secretary to the Treasury Stephen Barclay.

"That is why we are working to give people who are overwhelmed by debt more time to seek advice, find a workable solution, and help get their lives back on track."

Many banks and credit card companies already freeze interest and charges for vulnerable customers, but the new plans would extend this significantly.

The government first promised the move in its election manifesto, but has now launched a consultation into the plans. It is looking for input from charities, debt advice organisations, lenders and creditors, as well as members of the public.

See also: Brits are badly in debt - and millions are panicking

See also: There are 8.3 million adults who have problems with debt

The amount of unsecured credit in the UK is growing steadily, with more and more people getting into financial difficulty.

Earlier this year, Bank of England figures revealed that the UK's total unsecured debt on credit cards, car loans and overdrafts had hit £198 billion – the highest level since the 2008 financial crisis.

Nearly one in six adults rely on credit cards to get through the month, it found, and one in ten are maxed out on at least one card.

The idea of a breathing space is something that charities have been calling for for some time.

"The absence of statutory protections for people in temporary financial difficulty is a serious public policy failure," Mike O'Connor, chief executive of debt charity Step Change warned last year.

"Scotland has shown the way with the development of the Debt Administration Scheme and that version of this scheme can and does work."

Most common causes of debt
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Most common causes of debt

There are some very common reasons for building up problem debts. Here we reveal seven of the most common, and what you can do if you face them.

Unemployment or illness that means one or more of the household’s earners are unable to work will bring a profound change in family finances, and according to the Money Advice Service is the most common reason for getting into problem debt.

If your circumstances change, therefore, you need to immediately address your family finances, and put everything on a minimum spend lockdown. You should also look into the benefits and tax credits that are available sooner rather than later, to try to close the gap.

If you are on the kind of contract that means varying hours, it can be incredibly difficult to work out what you can afford to spend - making it the second most common reason for getting into debt - according to the Debt Support Trust.

Rather than swinging through the extremes from week to week, the best approach is to establish a budget that will work in the leanest of months, so you don't find yourself getting used to the months when you work more hours.

According to Citizens Advice, trying to service too much debt is the third most common reason for getting into difficulties. The TUC found that those with problem debts spend 40% of their income on debt repayments.

If you are in this position, you officially need some help with your debt problems. If you continue to rob Peter to pay Paul, you will end up owing more and more, so you need to take stock and talk to a debt charity about all your options.

The double-whammy of the legal bills combined with the incredible cost of establishing two separate households is enough to make divorce or separation the fourth most common reason for going into debt - according to the Debt Support Trust.

There's no easy solution, but if you are going through this, it can be helpful to talk through your financial situation with someone you trust or a debt charity, who can help you balance a stretched budget.

Problem debts aren’t necessarily caused by a sudden shock to the system. According to the Money Advice Service, 20% of their clients are simply trying to live on an unsustainably low income.

If you are in this category, it’s important to seek help on the benefits and tax credits you may be able to receive. It’s not always easy to navigate the system, but charities like StepChange have experts on the benefits system who can talk you through what’s available.

The combination of rising costs and stagnating wages over the last few years has meant increasingly people saw their monthly wage cover less and less of their monthly outgoings. This position has started to ease more recently, but has left many people far worse off than before the financial crisis. The Money Advice Trust said a combination of this and unexpected costs was responsible for almost one in ten problem debts.

If you consistently spend more than you are expecting, it's well worth keeping a spending diary. That way you can establish the real cost of living, and start to identify where you can cut costs.

The Money Advice Service says it commonly deals with individuals who have struggled to get to grips with budgeting and debts, and have got into debt because they don’t have the skills and knowledge to manage their money effectively.


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