When you drift into debt, it’s not easy to get out of it. Many end up in financial trouble for years because, instead of confronting their problems, they meander on paying a little bit back here and there.
For many it becomes a way of life. I interviewed a lot of different people about their finances for a television programme this year and one of the first questions I asked was 'what debt do you have?'. I was staggered by the number who said they didn’t have any debt and later admitted they owed a couple of thousand on credit cards.
It wasn’t that they were lying or even trying to ignore the debt. It was simply that it had become such a regular part of their lives – often for many, many years – that they didn’t think of it as debt any longer. It had become another of their regular payments, along with the monthly energy, broadband and mobile bills.
When I pointed out that maintaining the debt was costing them a lot of money each month in interest charges, it made them think again. With the average annual credit card charge just a shade under 20 per cent, anyone maintaining a £2,000 credit card balance will be paying around £400 a year for the privilege.
And when people are struggling with their finances – as many who maintain a credit card debt are - £400 can be a lot of money. The notion of having an extra £400 to spend encourages them to deal with their debt and start planning to pay off their credit card balance.
But their best intentions can count for nothing when they have to battle lenders who add to their financial woes with excessive interest and charges.
A survey by debt charity StepChange published this week warned that high interest and charges makes it difficult for those struggling with debt to start on the road to recovery.
Worse, anyone who has difficulty making a repayment or even dares to miss one is hit hard by their creditors. The charity accused lenders of forcing some folk into a vicious cycle of deepening debt and greater hardship by using needlessly aggressive enforcement techniques and repayment demands.
'The current options available to people struggling with debt aren’t working,' warned StepChange chief executive Mike O’Connor. 'If people do the right thing and seek debt advice in order to tackle their debts, they should get the support that they need to recover.”
I’m astounded this even needs to be said. I accept that lenders sometimes need to get tough with people who refuse to repay. But those struggling to survive need help, not further punishment. At the very least I would expect a lender to freeze interest and help a borrower to set up a repayment plan they can afford.
It’s not just a moral issue (although I do believe lenders have a moral responsibility to help their customers), it makes sound business sense. Helping people to make regular repayments – no matter how small – must be a better option than resorting to strong arm tactics that are certainly going to upset and alienate customers and probably lead to lenders getting a much smaller return.
This week's figures from StepChange are shocking. It reckons almost two-thirds of creditors and debt collectors continue to add fees and charges despite knowing a borrower is in financial difficulty.
Its research also suggests that more than half of creditors and debt collectors continue to add fees and charges even after they know a person is seeking debt advice.
Such practices are unacceptable. The debt charity wants the Government to press ahead with proposals for a statutory ‘breathing space’ scheme for people in temporary financial difficulty.
A ‘breathing space’ scheme would see people who seek advice for debt problems given a period of six months to a year in which interest and charges are frozen and enforcement action halted, giving them time to get debt advice to start to rebuild their finances.
'The Treasury and Insolvency Service’s ongoing review of the legal framework for debt administration represents a genuine opportunity to make a difference to the treatment of people in financial difficulty,' said O’Connor.
Hopefully they’ll listen but I reckon we should all be encouraging the Government to act. As O’Connor points out: 'Helping people get back on their feet is good for the individual, their families and their communities.'
And that, let’s face it, is good for us all.
Simon Read is a writer and broadcaster and former Personal Finance Editor of The Independent