Context

Nearly half of StepChange Debt Charity clients worry about their debt problems for more than a year before seeking advice. The charity has also seen a significant rise in the number of clients using high cost credit to help manage financial difficulties before seeking advice. It is aware that people may use a variety of strategies to cope with pressure on their household budgets, some of which may subsequently make their debt problems harder to deal with. Many StepChange Debt Charity clients typify working households with median incomes who are struggling to make ends meet due to declining household incomes and stagnant income from wages.

The study

The research is based on qualitative depth interviews with 20 StepChange Debt Charity clients in three different locations: the South (Reading/Slough); the Midlands (Birmingham); and the North (Manchester). The clients were living in working households at the time they turned to the charity for help and had significant levels of unsecured debt, in many cases amounting to well over £40,000.

The research explored:

• the processes by which working households accumulate consumer credit.
• the ways in which working households respond to increasing levels of consumer credit debt.
• the reasons why working households seek help when they do, and not earlier.
• experiences of getting help and feelings about financial futures.
• what can be learnt from experiences in order to improve support

Key findings

• ‘Accelerators’ which influenced the accumulation of consumer credit included: (unrealistic) expectations about future earning power; desire to become self-employed; self-image as professional people. This accumulation of credit was made possible by the ready availability of consumer credit to working people in the decade before the financial crisis.
• When people got into difficulty (for example due to loss of earnings from employment or self-employment), they kept borrowing: using credit to repay credit, borrowing to consolidate debt, and borrowing from friends and family, rather than reducing credit use
• Catalysts or ‘flashpoints’ for seeking help include: eventually realising ability to repay debts was unlikely to improve; drop in income such as loss of ‘second’ job or cut in tax credits; being confronted by material loss such as the prospect of imminent eviction, or realisation that soon they would not be able to pay for basics like petrol and food
• Reasons why working people did not get professional help sooner included: realising only belatedly they were in financial trouble; unwilling to face up to the reality of the situation despite anxiety about it; stigma or pride; over-optimism about ability to get on top of debts; not knowing who to turn to.
• Steps to improve support for working people facing debt problems include: -
  • Consumer education campaign to raise debt awareness among the general public including on ‘accelerators’ and ‘flashpoints’;
  • Advertising of free-to-client advice services;
  • Availability of pre-arrears help and support;
  • Ensure that lenders communicate with customers effectively and consistently about the help and support that is available, from lenders themselves and from advice services;
  • Improve how creditors and advice services respond to people who proactively try to get help early, before they fall into arrears.

Points to consider

• The qualitative interviews are not intended to be representative of all StepChange Debt Charity clients, or of all working households in debt but aim to provide a depth of understanding of working people’s views, attitudes and experiences of credit and debt.
• Highly relevant given increasing likelihood of welfare reforms and reduced security of employment
• UK based and so highly applicable not withstanding small sample size of 20 interviews.

Full report

Working households’ experiences of debt problems - full report