Main cause of debt problems is drop in income, while 'Middle England' suffers debt spiral

April 2011

Consumer debt in the UK is being exacerbated by the changing job market according to analysis from Atlantic Financial Management, the debt solutions provider and DEMSA member. According to Atlantic, loss of income is the biggest single factor for people entering a Debt Management Plan (DMP). If redundancy and unemployment is included then almost half of its clients (47.42%) entered a DMP in the past tax year for this reason. These clients are facing debt woes due to a change in their job status and income – factors that are in most events out of their control.

"We are seeing a new profile of client..."

Although this week's report from the ONS showed that overall employment is up, the number of people in employment is still 331,000 lower than the pre-recession peak of 29.56 million. The statistics also revealed that the number of people unemployed for over 12 months increased by 11,000 to reach 847,000.

While loss of income is the key reason for entering a Debt Management Plan (DMP), a debt spiral and poor financial management follow closely behind with 21.22% and 7.65% respectively as the issues behind 28.87% of all Debt Management Plans.

"...we conduct a thorough review of a client's income and expenditure to ensure that all debts are taken into account..."

Kevin Still, Director comments, "We are witnessing a number of trends as a very protracted recession continues to erode consumer confidence and disposable income. We are seeing a new profile of client, often referred to as 'Middle England', who have historically not been regarded as uncreditworthy and certainly not used to being chased by debt collectors when they have exhausted all their lines of credit. These typically fit into the 'debt spiral' category. Meanwhile the people that have battened down the hatches and stopped using credit some while ago are being seriously effected by the rising costs of living, notably where it is rising well above inflation and income in many instance has reduced through loss of overtime, bonuses or shorter working weeks.

"...continue to maintain a reasonable quality of living..."

"At Atlantic our priority is to protect a client's home and ensure that a realistic repayment arrangement is negotiated with creditors, prioritising secured loans along with council tax, utilities and critical insurance. We are licensed to use the Common Financial Statement (CFS), with allowances changed at the start of the new tax year to take account of rising household expenditure. Using the CFS, we conduct a thorough review of a client's income and expenditure to ensure that all debts are taken into account and a fair assessment of their living expenses is determined so that they can continue to maintain a reasonable quality of living. We can also look at where they can cut costs on banking and energy bills for example."

"Our findings should certainly ring warning bells for those families already struggling. We would strongly advise people already facing debt problems to seek help in tackling them without delay."