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We need a new approach to debt

by Myles Fitt, CAS Strategic Lead on Financial Health policy.

This column first appeared in the Herald on 17 February 2021.

Personal debt is about more than a financial sum that needs paid back. It’s about people. And the impact of debt goes way beyond the transaction of making repayments. It can seriously disrupt, and damage the lives of individuals, families and households. Citizens Advice Scotland believes that the management of personal debt should be designed around the needs of the debtor.

The economic fallout of Covid-19 will last for at least a couple of years, and once the furlough scheme and other payment support measures stop, levels of personal debt are expected to soar.

We will see the financial situation worsen for those already in debt; meanwhile many people will be pushed into debt for the first time - particularly those who were just getting by before; and many others will sail perilously close to getting into debt, with some likely to go without essentials in order to avoid it.

Once debt becomes unmanageable, it is a dreadful, spiralling thing. It brings a real misery to your life, hits your mental health, and can destroy families. And even for those who get help it can take many months, if not years, to recover from it.

However, the experience of this pandemic has taught us that there is a different way of doing things; that government, service providers, lenders and creditors can completely change the way they manage debt, and focus on the needs and circumstances of the individual who is struggling.

Amidst all the gloom of the pandemic, the response in terms of helping people cope with the extraordinary economic pressures was truly refreshing. Furloughs, payment breaks, better communication, greater empathy and flexibility, and softer collection practices have been put in place across the commercial, government and public sector.

Last spring, it was truly heartening to watch everyone pull together, recognise that people were being exposed to a financial risk with serious consequences, and quickly take steps to help out. Lenders introduced payment breaks; Councils suspended the collection of Council Tax for those unable to pay; and the Scottish Government put help for debtors in its emergency coronavirus legislation - to name just a few.

The whole experience should lead us all to wonder: why can’t we embrace this spirit and these behaviours and apply them permanently? They should constitute a ‘new normal’ for the management of personal debt. This is why we supported the Scottish Government’s post-pandemic social renewal taskforce, and secured recommendations in its report to Ministers that a personalised approach to debt should be central to how we do things in the future.

At CAS, our vision is of a Scotland where peoples’ needs and circumstances are at the centre of debt policy and practice, where a person’s ability to pay is taken into consideration when repayment plans are agreed, with an in-built assumption that the person will be left with enough money to live on. Debts should be repaid – because a strong economy depends on a credit sector that functions efficiently for both borrower and lender - but this should be organised in a way that the debtor can manage. Debt collection practices should not push people into more financial harm. And finally, debt advice agencies should be properly funded so that people in debt can have access to the best possible free help and support, should they need it.

Last year the CAB network in Scotland gave around 120,000 pieces of debt advice to nearly 20,000 clients with debt problems. Our help secured a total saving for those clients of close to £25million.

We also developed an online tool - - for people feeling the financial pressure of Covid-19, which signposts them to the best sources of help for maximising income, reducing bills and easing the cost of living.

And that first-hand experience of actually seeing what debt does to people, how it destroys lives and families, and how we can help them, means we know what we are talking about

We should look to the principles that underpin the Scottish Social Security System – dignity, fairness and respect – and apply these to the design and practice of debt policy. Too often, debtors are treated like they deserve what happens to them; that getting into debt is their fault because they are financially feckless. The last year has shown us that anyone’s financial security can vanish in a second. Many households are experiencing hardship that they used to believe only happened to other people.

We think the public mood is ready for a more empathetic approach to the way debt is handled. Because personal debt will always be with us. Covid-19 is just the current crisis affecting our economy  – there will be others. And whatever the prevailing economic winds, individuals are always vulnerable to the financial shocks that come with life experiences like job loss, divorce or bereavement. Even something as mundane as a fridge that stops working or a car breakdown can tip a family over the edge into debt. 

Of course it will take time, but if we can develop a system of dealing with debt that is truly person-centred, then Scotland can claim to be a country that protects the dignity of those living with debt, that protects their mental wellbeing and supports them to move out of debt and get back on their feet. Isn’t that a perfect example of ‘build back better’?

If I’d said all this a year ago, it would have been called naïve. Typical third sector wishful thinking. But not now. We know we can do this, because we’ve already done it in this past year. All we need to do now is build upon it.