Friends and family are offering debt help to people struggling with their debt problems during the recession, research has shown.
Findings by Future Foundation, found that families and friends are assisting people through the recession and helping them to overcome their debt management issues.
They identified a “financial family” – a collaborative unit of friends and family – who were financially interdependent, that act as a financial family and provide debt advice and support for each other.
As living expenses rise, they anticipate that the dependency on these financial networks will increase, and that they will play an increasingly important role in people’s lives.
Their research, carried out for National Savings and Investments, found that over half (54 per cent) of those questioned said they felt financially responsible for other family members.
Barry Clark, director at Future Foundation, said: “We feel we’ve revealed a new way for people to look at British family life and one that will become increasingly common.
“We can expect the financial family to be a very important feature in the future. The financial family is here to stay.”
But debt advice organisations have added that in trying to help some people could possibly be developing debt problems for themselves.
Ivan Cooper, Chairman at leading debt management company Chiltern, said:
“Whilst it’s a nice gesture to provide debt advice and support for friends and family, I wouldn’t advise anyone to put themselves at risk financially by taking on excessive debt.
“By offering to help somebody out – if they can’t get credit – you may be putting yourself in danger of developing serious debt problems for yourself, as any loan or credit card debt will be in your name.
“In many instances, informing them to seek some impartial debt advice from a professional would be the better option, as they will be able to speak with specialists who can recommend the best solution to their current needs.”
Reputable debt advice organisations, like The Debt People, Hamilton Locke and Chiltern, provide a number of ways for people who are struggling with their finances to tackle any debt problems.
After assessing your situation, this could involve anything from offering useful budgeting tips and simple debt advice, to providing a professional debt management solution.
Professional solutions include programmes such as Debt Management Plans (DMPs), Individual Voluntary Arrangements (IVAs) and Trust Deeds.
Debt Management Plans are a flexible and informal way of repaying multiple unsecured balances – like loans and credit card debts – with a single affordable monthly payment. This makes managing finances simpler. The amount you pay is based on how much you realistically can afford, once priority payments (rent/mortgage, food, utility bills council tax etc) have been accounted for.
The amount that is available following the deduction of priority payments is called the “disposable income”, which is then distributed to your creditors on your behalf on a pro rata basis by the debt advice company.
An IVA works in a similar way to a Debt Management Plan but it is repaid over a fixed period of time – usually within five years. Once the IVA term is complete and payments have been maintained, all remaining unsecured balances are written off and you can walk away debt free.
Trust Deeds are also offered by reputable debt help organisations. These are similar to IVAs, although they are usually repaid within three years and are only for people living in Scotland.
For immediate debt advice or for more information on Debt Management Plans, IVAs and other debt help solutions, please call the number at the top of this page.
