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The financial crisis is trapping people in debt

by Jemiel Benison, Senior policy officer, CAS Financial Health team.

This article was first published in the Herald on 28 November 2022.

In the cost of living crisis, much of the attention understandably focuses on the immediate issue of how people are struggling to pay their day-to-day bills. But many of those who are in this position also have debt situations to deal with.

People in financial difficulties often take out loans to help them with their daily costs. However, if your income isn’t keeping up with those costs, then credit is a temporary fix. If you can’t pay your daily bills, you’re not going to be able to pay off your arrears. It’s like a diet with reverse effect: if you don’t feed your debt it just grows and grows. We’re finding that many people are trapped in that situation.

How bad is the problem? We’ve looked at the numbers in respect of 3,000 people with multiple debts who were advised at a Scottish CAB between spring 2021 and spring 2022. The findings make for grim reading.

After paying their essential bills (housing, food and fuel), 50% of these CAB clients had no money left at the end of the month to pay off their debts.

We also found a clear link between people with no disposable income and the receipt of Universal Credit (UC). One example is the proportion of people in receipt of salaries and benefits, including UC, who had nothing left to pay their debts at the month end: this increased by 28% over the year, whereas there was a decrease of 18% in the number of people with no money left whose salaries and other benefits did NOT include UC.

Of those who did have some disposable income, the average amount fell from £228 to £148 per month over the period. That’s a £960 drop in just one year. There was also a clear trend showing that people expected to be in debt for longer periods than before. And remember, all of this data was gathered before the significant rises in inflation and energy bills since this April.

And, set against the Joseph Roundtree Foundation’s Minimum Income Standard, our data shows at least 94% of CAB clients with families have an income below what’s needed for a reasonable standard of living.

These findings are shocking and should have policy-makers considering what more support can be made available for people in debt.

We suggest two actions to address the situation. First the UK government should change UC from a debt-inducing benefit to an income-supporting one. Thankfully at least the recent Budget will lift most of the inflationary pressure, but not the years of real-term reductions.

Secondly, the Scottish government’s third stage review of statutory debt solutions should bring forward a new landscape of debt payment management that is fit for the 21st century, based on helping debtors pay their arrears rather than penalising them for being unable to.

Meanwhile, people who are feeling worried about their finances can of course turn to the Citizens Advice network for help. Our advice is free, confidential and impartial. We help people with debt every day, finding benefits or grants they’re entitled to, or negotiating with their creditors and get their repayments down.

But the scale and nature of the debt problem is worse in a cost-of-living crisis than it is at any other time. And it needs action from governments too.