Debtors owe 17 times their monthly income

Debtors owe 17 times their monthly income

People seeking debt help from Citizens Advice owe so much money it would take more than 75 years to clear their borrowings at an affordable rate, the charity said today.

Citizens Advice said the number of people seeking help with credit card and loans debts had doubled during the past eight years and accounted for three-quarters of the 1.25m new debt cases its bureaux dealt with last year.

In a report based on 567 of its debt clients in England and Wales, it said the average debt was £13,153, nearly one-third higher than three years ago.

Most of the clients had incomes that were less than half the national average, with two-thirds dependent on benefits.

As a result they owed 17.5 times their total monthly household income. The charity estimated it would take them almost eight decades to repay at an affordable rate.

With the cost of going bankrupt in England and Wales set at £475, the charity said these clients were unable to afford what is increasingly becoming a favoured option for people struggling with debts.

Neither could many of them pay the costs associated with taking out an individual voluntary arrangement, under which interest on debt is frozen in exchange for a set amount being repaid each month.

Citizens Advice is calling on the government to introduce the debt relief order - a new low-cost, out-of-court insolvency remedy.

The order would be aimed at people on low incomes who owed up to.....continued below

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£15,000, had less than £300 of assets and less than £50 a month spare after meeting all their essential outgoings. Like bankruptcy, people would be discharged within a year.

The group said it would offer hope to people who were too poor to take advantage of other debt solutions.

David Harker, chief executive of Citizens Advice, said: "Low income combined with badly informed and poorly understood financial decisions are at the root of many of our clients' debt problems.

"For many there is little prospect of their income increasing or their circumstances changing. The reality is that they are condemned to a lifetime of poverty overshadowed by an inescapable burden of unpayable debt.

"They need to be given some hope that they can turn things around, with a solution that offers them a fresh start, lifts them out of the poverty trap, and gives them a chance to build better financial skills for the future."

Plans for the debt relief order are before Parliament.

A report published earlier this week by debt consultancy Thomas Charles suggested 1.7 million Britons often struggled to make repayments and that 1 million could be on the verge of bankruptcy.

The research showed that one in five adults had unsecured debt of more than £10,000 and that 44% of people on low incomes were facing debt problems.

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