Debt advice has been back in the news this week. Barclaycard reported that its early assistance scheme for customers experiencing financial difficulties was a huge success. The credit card company says that the scheme has helped 11,500 Barclaycard customers since being launched in March.
The way it works is as follows: the company identifies people who appear to be struggling with their debts. It then invites these hard-up borrowers to discuss their situation with one of Barclaycard's debt advisers. Where a customer is in trouble, Barclaycard says it will offer practical help, such as suggesting the person in debt reduces the minimum payment.
While paying off less each month may seem to help, doing so will actually make things worse for people struggling under a mountain of debt. Lower monthly payments will mean it will take them much longer to pay off their debt and end up costing them much more. In other words, Barclaycard will make more money out of their poor customers. I'm not suggesting that's why Barclaycard has launched the scheme. In fact, the company's action is much more transparent. It is offering the advice because it is worried about people becoming insolvent and then being unable to pay the credit card company any of its money back.
It's for the same reason that many mortgage lenders offer their customers access to a debt-counselling service, but, shamefully, at a price. Britain's biggest lender, the Halifax, charges £100 to put struggling borrowers in touch with a debt adviser who may be able to help them with financial woes. The Halifax says it is simply passing on the cost of the debt adviser to customers and not making a profit on the deal, but it strikes me that the £100 cost could prove fatal to some people's finances. It would clearly be far better for lenders to direct struggling people to one of the free debt advisers, such as Citizens Advice.
Hannah Skenfield of moneysupermarket.com says the charge is "callous" and accuses lenders of "taking advantage of their most vulnerable customers". I couldn't agree more. Faye Jordan of Citizens Advice says: "We recommend that people seek free and independent debt advice as soon as possible, and encourage lenders to make sure that their collection practices are suitable for the needs of their customers". In other words, scrap the dodgy in-house debt-advice schemes and put people in touch with organisations that really will work to help them.
It's a shame that Barclaycard, Halifax or any other lender isn't really committed to helping those struggling with debt. If they were, there is one simple thing they could do to make a real difference. They could freeze interest charges, which, at a stroke, would help the millions facing debt misery. Many more people could afford to repay their debts if interest charges didn't keep adding to the amount. And for those on the edge, the interest is often enough to push them over. Freezing interest charges, even for a couple of months, could really make a difference to struggling families. Giving them half-baked advice will not.