Top Debt Reasons

July 2009

Loss of Income Remains Number One Reason for Asking for Debt Management Help. Analysis from EuroDebt reveals that nearly 1 in 3 need urgent help as a result of 'loss of income'.

Leading debt management provider, EuroDebt Financial Services, has published its report of the reasons for clients signing up to a Debt Management Plan (DMP) for the period May - July 2009. The analysis has revealed that 'loss of income' continued as the main reason for them asking for help at 29.33% - reflecting the continued pattern of job losses and cuts in working hours being seen right across the country.

"For a number of years the main reason for people coming to us for help has been a spiralling of multiple debts, making it impossible for them to keep their head above water", confirmed Kevin Still, Director, EuroDebt. "However, what we have seen for the first time in our latest analysis is 'loss of income' or redundancy being the primary reason for clients coming to us. This excludes those clients that are already unemployed, which is categorised separately.

"This reflects the latest official figures from the National Office of Statistics (July 2009) which show that in the past year more than 250,000 extra people who would like to be in full-time employment have found themselves working four days a week or fewer.

"Many families and individuals have tried to manage a very fine balancing act paying off debts over the last few years. But the combination of the reduced access to credit, higher credit card interest rates and then a cut to overtime or second income or, worse still, job loss, has meant that the level of debt becomes too much to cope with. Interestingly we have also seen 'poor financial management' increase as a reason for families and individuals coming to us for help, further reinforcing the impact of the economic downturn.

"We have found a large number of new clients with reduced disposable income who are now unable to meet all their contractual commitments even at minimum payment levels. We have seen the average unsecured debt level rise to over £29,000 with over 8 creditors. With this level of debt self-management is virtually impossible and a structured debt solution is probably the best route to take."

Other reasons include 'debt spiral' at 21.29%, followed by 'poor financial management' at 14.79% - an increase over the last period of 1.3%. The percentage of clients who have come to EuroDebt for help as a result of 'Divorce or Separation' has continued to drop from 11.1% to 10.1% although the number a a result of 'Illness' has stayed almost the same at 7.14%.

"The fact that 'debt spiral' is still in the top three of reasons also, I believe, demonstrates the impact of enormously restricted lending practices over the last year or so. Revolving credit was certainly the fallback for many families and individuals over the last few years. But with so many lenders pulling back on new credit applications this hasn't been an option more recently."

EuroDebt - Primary reasons for starting a Debt Management Plan

May 2009- July 2009 Reason % Loss of Income/Redundancy 29.33 Debt Spiral 21.29 Poor Financial Management 14.79 Divorce/Separation 10.10 Illness (Physical/Mental) 7.14 Other 6.24 Unemployment 5.59 Birth 3.09 Accident 1.29 Retirement 1.16

Dec. 2008 - May 2009 Reason % Loss of Income/Redundancy 28.5 Debt Spiral 21.9 Poor Financial Management 13.4 Divorce/Separation 11.1 Illness (Physical/Mental) 7.3 Other 6.6 Unemployment 6.5 Birth 2.5 Retirement 1.2 Accident 1

June 2008 - Nov. 2008 Reason % Debt Spiral 34.7 Loss of Income/Redundancy 17.8 Other 12.5 Divorce/Separation 12.2 Poor Financial Management 10.8 Unemployment 7 Illness (Physical/Mental) 2.4 Birth 1.8 Retirement 0.6 Accident 0.2

EuroDebt aims to help consumers take a responsible position with their creditors, especially where they have multiple credit cards and loans, by notifying the unsecured lenders that they have entered a Debt Management Plan (DMP). Generally this means there's no further borrowing and the majority of lenders agree to freeze interest & charges with the result that recovery activities stop. The debt balance will then begin to reduce at a rate based upon the negotiated reduced payments to creditors and the consumer can begin to take control of their finances again.

EuroDebt, unlike any other fee charging Debt Management Company, is the only debt management business that makes home visits a core component of its 'fact find' process, ensuring a complete picture of each individual's situation is gained. "This is crucial" concludes Kevin Still. "At this visit, the debt advisor is able to assess not only priority expenditure, like mortgage or rent, council tax and utilities, but any arrears on these payments. Repayment arrangements to clear arrears are a priority to protect a client's home and family."

There are also instances where critical insurances have been dropped, like life insurance and home insurance, which may need to be re-prioritised. And to help support its clients even further, EuroDebt provides Energy Switching Services, enabling families and individuals to save money on their energy bills in order to accelerate the rate at which they become debt free.

A Debt Management Plan may be for a relatively short period ranging from 12 months to 3 years or a long-term plan that enables them to become debt free, potentially with some equity release for home owners in the future. The flexibility of a Debt Management Plan sometimes allows clients to resume contractual payments where creditors accept EuroDebt's proposals of a reasonable offer for a transitional period until the client's circumstances change. For example; find new employment, return to work from long-term illness or maternity leave. EuroDebt also offers Individual Voluntary Arrangements (IVAs) and a Bankruptcy Assistance service, where appropriate and based upon the client's own preferences.

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