Chiltern Debt Monitor September 07
Average level of debt: £26,608
Average age of debtor: 43
Yearly gross income: £23,535
Male: 42%
Female: 58%
Average number of creditors: 8
Affordable payments as a % of contractual payments: 26%
Monthly living costs: £1,083
Monthly disposable income: £231
No of months to be debt free: 145
The first Chiltern Debt Monitor reveals that, on average, debtors who enter into an informal debt management plan can only afford to pay 26 per cent of their contractual payments to creditors.
It also shows that by the time debtors seek help with their credit commitments they have built up unsecured debts equal to 113 per cent of their gross yearly income, which will take more than 12 years to repay at an affordable level for the debtor.
Chiltern Debt Management, head of marketing, Joanne Gill says: “People who enter into an informal debt management plan can only afford to pay 18 per cent of their net income to service their unsecured debts but are contractually obliged to pay out 69 per cent of take home pay – a completely untenable situation whichever way you look at it.
“Creditors are generally seen as the bad guys when a person cannot afford their debts. But our experience is that they treat customers with genuine difficulties sympathetically and positively and recognise that by engaging an informal debt management service the debtor wants to repay their debt.”
Nick Pearson, national money advice co-ordinator, for advice UK says: “The statistics published by Chiltern clearly show their customers are generally people who earn more, and have a greater level of debt, than those who normally seek advice from the not for profit or charitable organisations, like our members.
“It also demonstrates that there is a clear need for choice and a mixed economy of free and fee charging debt advice providers, particularly with all indicators suggesting the numbers of people struggling with their debts is going to grow substantially.”
The average age of someone who enters an informal debt management plan is 43 and there is a slight bias towards women in the figures. This is largely down to family breakdown where women remain the primary carers for any dependents who were reliant on the former family partnership.
Essential expenditure, which includes mortgage or rent payments, utility bills, council tax, travel to and from work and food, accounts for 82 per cent of the net income of a debtor on an informal debt management plan.
The Chiltern Debt Monitor is a regular analysis of Chiltern Debt Management’s database of live customers to determine the profile of debt and debtors in the UK.
Key indicators of debt stress
- 25 per cent or more of income paid to service unsecured debt repayments
- Four or more credit commitments
- Using credit to pay for the necessities in life, like food or travel
- Paying only minimum balances on credit and store cards
- History of consolidation and further credit spending
What to do if you believe you are at risk of debt stress
- Draw a line down the middle of a piece of A4 paper
- Head one side income the other expenditure.
- On the income side put monthly salary, benefits, maintenance payments and any other regular payments you receive.
- On the expenditure side put your monthly rent or mortgage payments, any secured loan costs, car and household insurance payments, council tax and car tax payments, utility bills, food bills, travel costs and any maintenance payment – ignore any credit repayments at this stage
- Add up both columns and take your total expenditure from your total income to give you your disposable income.
- Towards the bottom of your expenditure column list all of your monthly unsecured credit commitments, personal loans, store cards, credit cards and catalogue bills and add up the total cost of these
- Deduct the total of your unsecured credit commitments from your disposable income.
- If you have a positive balance you can afford your credit commitments.
- If you have a negative balance you cannot afford to pay your unsecured credit bills and should seek help.
The informal debt management process
Chiltern Debt Management provides a bespoke service to people who are unable to meet the contractual repayments on their unsecured debts.
It works with the client to produce income and expenditure details based on the guidelines devised by the Money Advice Trust, which are accepted by creditors.
If the financial statement shows the debtor does not have enough income to pay their priority debts, living costs and unsecured debt repayments, Chiltern will share that information with creditors and offer a proportion of the disposable income, which equates to their proportion of the total debt, in regular payment.
The client makes one monthly payment to Chiltern which distributes the money to the creditors.
