The Key Causes of Debt
Over the last six months Apex Credit Management has been analysing the core causes of bad debt as part of its ongoing efforts to both help people to clear themselves of past debt problems and to inform clients in the financial services and public sectors of the issues that have caused debt to help them to develop their own processes and procedures.
Whilst the availability of credit and a capacity to over-extend themselves accounted for almost half of the reasons for bad debt, the single greatest factor was a change in circumstances which accounted for 39% of the 1335 responses received.
Changes in circumstance encompassed:
- Reduction in earnings/overtime
- Personal circumstances – health/family issues
Commenting on the findings Apex Credit Management CEO Neil Clyne reflects “Sometimes, it is completely impossible for an individual to avoid debt. There are times when people have unexpectedly lost their job and have suddenly found themselves having to find a way to meet what were previously manageable expenses with a new, lower paid job, or whilst seeking a job and supporting themselves on benefit. Typically at Apex when we have been able to engage such customers successfully we have often been able to agree repayment schedules that mean the customer can spread the repayment over a longer period of time; or until they get back on their feet. Customers genuinely appreciate this gentle approach and in the long term we are able to collect more money without resorting to further legal action and the anxiety this can create – everyone benefits.”
Redundancy and medical problems which were included under the ‘change in circumstances’ heading are areas that in financial circumstances can be covered by Payment Protection Insurance (PPI). However, the negative publicity surrounding PPI over recent years may have negatively influenced the sale of such products at the very time when the recession and the rise in unemployment levels made them particularly valuable.
“PPI insurance which could have helped some customers has seen sales fall over recent years”. Notes Clyne, “By the time we become involved it is too late to purchase such protection. Whilst PPI insurance has received negative press coverage, it may be wholly appropriate to some people’s circumstances and we would urge anyone borrowing money to explore the purchase of such protection from an appropriately authorised body.”
The capacity to over-extend and availability of credit have both come under close scrutiny over the last two years. It is clear that both lenders and borrowers are exercising increasing restraint in part because of a shortage of wholesale funds and a wider consumer focus upon debt reduction and in part because of regulation such as the Irresponsible Lending Guidance issued by the OFT and Consumer Credit Regulations which will become law on February 1st 2011.