Loss of Income or Redundancy Forces 1 in 5 to Ask for Help

February 2009

Latest analysis from EuroDebt reveals that 20% of new clients sought help after being made redundant or losing income

Leading debt management provider, EuroDebt, has published its report of the reasons for clients signing up to its Debt Management Plan during 2008. Based on a sample of more 7,000 clients who signed up for a Debt Management Plan during the 12 months from 1st February 2008, EuroDebt found that just over 20% said they needed help because of a loss of income or being made redundant. Kevin Still, Director, EuroDebt believes these figures show the real impact of the downturn over the last year, in particular with many facing a cut in their income through loss of overtime or even redundancy whilst the cost of living significantly increased during the year.

"2008 was a real rollercoaster of a year for those who were already struggling with their finances" explained Kevin Still. "Many families and individuals tried to manage a very fine balancing act - but as soon as overtime or extra income was cut or, worse still, they were made redundant, this became impossible. We have found a number of our clients were in this situation before they came to us. They didn't want to put their home at risk - which could be a potential consequence of bankruptcy or an IVA - but they did need professional help and a flexible debt solution, which is what a Debt Management Plan can provide."

Loss of income or redundancy was not, however, the highest reason for individuals and families turning to EuroDebt. Nearly a third of clients who signed up to a Debt Management Plan had simply got to the end of the road in coping with a spiral of debts. And this was a situation exacerbated last year by lenders pulling back severely on extending new credit and many credit card companies putting their rates up significantly despite having the lowest Bank of England rates in recent times.

"I believe our figures reinforce other reports that suggest debt is cutting through every section of British society" continued Kevin Still. "A recent report from Grant Thornton showed an increase in the number of middle-class families being caught in the debt trap as house prices continue to fall and job prospects diminish. Dropping property prices have cut off access to additional funds for many homeowners who previously relied on remortgaging to pay off credit-card debts and personal loans."

Poor financial management - at nearly 13% - was the third top reason for turning to debt management, which Kevin Still believes is also related to the significant change in the economic conditions during 2008. "A number of clients blame themselves for the situation they face in terms of unpaid debts. But the reality is that, for many, they simply couldn't cope with the juggling act needed when using credit to pay off credit - especially as the availability of credit was so markedly reduced in the aftermath of the credit crunch. Recent Citizens Advice Bureau reports showed that self-management can be very hard with the vast majority of repayment proposals to creditors resulting in one or more rejections and collection activities being continued."

Other reasons were:

• Divorce/Separation - 12.7%
• Unemployment - 7.2%
• Illness - 2.4%
• Retirement - 0.61%

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. This involves no further borrowing and in the majority of instances lenders agree to freeze interest & charges, meaning that recovery activities stop, the debt balance will 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. Payment proposals are presented to creditors in a consistent manner and all the figures quoted in the income and expenditure analysis will have been verified through a home visit.

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, 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" continues 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."

For the most up to date debt reasons statistics, please see Top Debt Reasons

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