The importance of good money advice

Scott Kennerley, Research, Training and Development Officer (Money Advice)at Citizens Advice Northern Ireland, looks at the debt situation in Northern Ireland and argues that, while the grim picture painted by the media may be an exaggeration, the development of good debt advice remains a priority.

Just how bad is the debt situation in Northern Ireland? The UK media has grabbed the topic with both hands and it is rare that a week passes without some sound bite that relates to debt and its potential consequences. Is this increased attention justified? Are we all drowning in a sea of debt?

The UK-wide picture

National Citizens Advice (England, Wales & Scotland) dealt with 1,128,000 debt enquiries last year. Over the last decade, the number of debt enquiries has increased by 118%. The number of bankruptcies in the UK for 2005 increased by 32% and figures from the Council of Mortgage Lenders show the number of properties repossessed in 2005 increased by 70% to 10,260. It has predicted further increases to 12,000 repossessions for 2006 and 2007.  Statistics published by the Credit Action Website state that Britain’s personal debt is increasing by £1 million every four minutes. Total credit card debt stands at £54.8 billion and the average interest rate on credit card lending is currently 15.72%, approximately eleven percentage points above the base rate. There are more credit cards than people in the UK.

What about Northern Ireland?

In February 2006, the Office of the First Minister and Deputy First Minister (OFMDFM) published a report on Personal Over-indebtedness in Northern Ireland.

There is no agreed definition of over-indebtedness, however, the DTI Website states: ‘The term over-indebtedness is used to describe debt which has become a major burden for the borrower.’ There have been a number of similar reports published in Britain and they have all used the same measure as the OFMDFM report, namely the ‘25% measure’ and the ‘50% measure’. Those people spending 25% or more of their monthly income to pay their debts are considered over-indebted at the 25% measure and those spending 50% or more of their monthly income to pay debts are considered to be over indebted at the 50% measure.
According to the OFMDFM report, 9% of people were using between a quarter and half of their monthly income to pay their debts (25% Measure) and 11% used more than half (50% Measure).

These figures do not sound too alarming until they are put into the context of the population of Northern Ireland. The report is based on the section of the population aged sixteen and over which currently stands at 1.3 million. This means that potentially 143,000 people in Northern Ireland are using 50% or more of their monthly income to pay their debts and therefore likely to struggle to manage their finances.  Over-indebtedness in Britain - A DTI report on the MORI Financial Services Survey 2004 highlighted a more worrying statistic. It stated that 6% were currently in arrears on at least one credit commitment or domestic bill. This means that potentially 78,000 people are actually in arrears on at least one credit commitment or domestic bill in Northern Ireland.

Citizens Advice in Northern Ireland dealt with over 46,000 debt enquiries for 2005/06, a 61% increase on the previous year. A pilot Money Advice Project for 2005/06 found that the average debt amount for a CAB client in Northern Ireland was £13,362. Figures from the Insolvency Service in Northern Ireland in 2005/06 reveal that bankruptcies rose to 892, an increase of 30.2%, and IVAs rose to 668, an increase of 39.5%. The Enforcement of Judgements Office (EJO) figures show the number of judgements passed to it for enforcement in 2001 was 9323. In 2005, this had increased by nearly 13% to 10,517. In 2001, the number of repossession judgements passed to the EJO for enforcement was 425. By 2005 this figure was 973, an increase of nearly 130%.  We are not drowning in a sea of debt. However, there is a significant section of the population who are ‘over-indebted’ and need access to good quality money advice.

The importance of good advice

Is the increased media coverage warranted? Definitely, because one statistic that is not outlined above and that cannot be measured is the impact good quality money advice can have on people’s lives. A widow from the Belfast area came to a local Citizens Advice Bureau in a distressed state due to her financial situation. The client suffered with mental health issues and was in receipt of Incapacity Benefit and Disability Living Allowance. Despite her limited fixed income, she was advanced a substantial amount of unsecured credit by a number of providers. During periods of illness, the client would use the cheques sent to her through the post for use on her credit card to obtain a temporary lift from her depression and anxiety. These cheques were never requested by the client and her credit limit on various store cards were increased automatically. The situation came to a head when the client could no longer meet the payments and could not draw any further credit to pay her monthly commitments. Creditors began to pursue the outstanding debt and charges for missed payments started to accrue.

The client’s mental health situation deteriorated and eventually she sought help from her local bureau. The adviser at the bureau was able to contact the creditors and advise them of the client’s circumstances in an attempt to stop the letters and the phone calls. The bureau was able to obtain medical evidence of the client’s mental health issues and negotiate with the creditors for the debt to be written off.

As the case study shows, debt and mental well being are intertwined. There are extreme cases that have been documented in the media of people taking their own lives because of the stress of their debt situation. Therefore, it is paramount that increased media coverage gets the message out that there are organisations who can help and assist clients in regaining control of their finances. After all, the most important piece of advice any client receives is not to ignore the problem and to seek help. There is a responsibility on advice providers to make people aware of the services we have available and how we can help.

Citizens Advice debt advice service

In March 2006 Citizens Advice was awarded an £800k contract by DETI to provide face to face money advice in Northern Ireland. The contract will provide for the equivalent of twelve full time money advisers based in a number of Citizens Advice Bureaux and Independent Advice Centres across Northern Ireland.

Hopefully, this increase in resources will go some way to addressing the need for quality money advice in Northern Ireland and help the substantial section of the population who are struggling with debt.