Just as the darkest hour is said to come before the dawn, this weekend is going to be a tough one for many people struggling with debt. The free debt-advice agency Christians Against Poverty (CAP) expects this Monday to be its busiest day of the year.
Most other debt advisers also notice a peak at this time as families who have managed to scrape through Christmas get their credit card and other bills and realise they cannot make ends meet much longer.
This year's callers are different in many ways to those in previous years. Unemployment is becoming a major and growing source of debt problems, according to the Money Advice Trust. The trust is also seeing many private renters – and even some landlords – in jeopardy. Many callers now have payday loans, perhaps three or four of them, while they used to have just one. More single people are finding themselves with problems. And, according to the Prudential, nearly one in five 18 per cent) of pensioners retirewith debts.
CAP has just reviewed its callers and says a typical caller now is a 42-year-old single mother of two, renting a property on an average income of £934 a month, down 3 per cent on 2011.
Many of the people who pick up the phone to seek help on Monday – or indeed at any other stage – will look back on the occasion as a red letter day. However bad the situation seems to the individual involved, debt advisers can usually find some way of improving it – such as sorting out a compromise with creditors – and ultimately moving on.
"There is always something we can do," says Sabira Jaffer, a counsellor at National Debtline.
However, while 39 per cent of people are worried over their current debt levels, statistics given exclusively to Your Money by R3, the association of business recovery professionals, show that only 3 per cent are planning to actively seek help in the next six months.
Taking advice early can reduce the scale of the problem. "In every single case, the minute you know that you are struggling you should be seeking help," says Liz Pywowarczuk of Liberta Financialin Newark, Nottinghamshire.
Sabira Jaffer of National Debtline illustrates the importance of this advice with the growing number of people she is seeing who "have been made redundant and are coming to the end of their redundancy package". She sees two distinct groups: those who "might have two to three months left of savings" and those who have come "right to the end".
She says the second type of caller faces a far bigger challenge. "They tend to panic a lot more," she says. "If they had approached us earlier we would have suggested they put money aside to pay the essentials."
Many people with debts feel ashamed that they have got into that position. But much of the evidence suggests that they should not be too harsh on themselves.
Caroline Hamilton at the Consumer Credit Counselling Service (CCCS) recalls a time six to seven years ago when "it was all a bit carefree" and simple overspending was a major problem. Nowadays, many debtors are well up on financial issues.
"Many people we see are subscribing to the Martin Lewis [Money Saving Expert] emails," she says. "Seven years ago they didn't even know of him."
Many of today's troubled households are already working hard to economise. A great influence here, Hamilton says, was the "absolutely unbelievable" Sainsbury's campaign with the chef Jamie Oliver (pictured) to "feed your family for a fiver". It started in 2008, and "immediately there was a shift", she says.
But people can be quite unaware of the specific implications of the way they deal with particular creditors. Council tax, for instance, is one of the most common problem areas, according to National Debtline.
"For a lot of people who are struggling, the first bill that goes is the council tax," says Jaffer. This is a big mistake. Many councils will, on two months' arrears, seek permission from a magistrates' court to pass such debts over to bailiffs. Dealing with bailiffs is far more difficult and frightening than dealing with a local authority which, if you approach them early, will often help you to reschedule your debt and help you to budget.
National Debtline is seeing "big changes" in the kind of debts that people have. Overdrafts, loans and credit cards are still the most widespread, but other types are becoming more common. These include gas, electricity and water ("presumably due to price increases", according to a Debtline spokesman), payday loans, council tax arrears and phone bills, particularly smartphones.
And when people get into trouble, they often fail to distinguish between higher-priority debts such as council tax, rent and income tax (which can swiftly lead to outcomes including court appearances, eviction or bankruptcy) and lower-priority debts where compromises can be reached with creditors.
A common occurrence now is that people keep up payments on lower-priority debts such as payday loans while priority debts are neglected. When taking out a payday loan, the borrower usually gives the loan company access to their bank account so that repayments can be taken out automatically on the due date. It is vital for people with priority debts to end this arrangement, says Jaffer. "It's a matter of taking control and not giving them that right any more."
She advises people to get help doing this. They should write to the payday loan company withdrawing its right to access their account, inform the bank, open a new account (in case the payday loan company continues to access the old account) and agree a new repayments schedule with the loan company.
Many debtors do not realise that they can make offers which should be accepted if they are reasonable.
This is going to be a very difficult year for many groups of society. Debt is one of the top two problem areas at Citizens Advice (along with benefits advice), and its debt policy officer, Peter Tutton, believes that changes due to come through in the Welfare Reform Bill could also have an effect in restricting state help and benefits.
The Money Advice Trust expects nearly 13 per cent of people who become unemployed to have "severe debt problems" this year. And the 18 per cent of pensioners who go into retirement owing money will have average debts of £38,200, according to the Prudential.
CAP is reaching out to some very specialist groups who need help – including church ministers and people living in Jersey and Guernsey where there is no recourse to bankruptcy. National Debtline expects to see a 10 per cent rise in calls to its helplines this year.
Perhaps the strength that these people have is that there are so many of them that they cannot be ignored or written off. Those individuals who seek help may be surprised at how much assistance there is.
Why do people have debt problems?
Reduced income 23.3%
Over committed on credit 9.9%
Lack of budgeting 5.4%
Used credit for living expenses 2.7%
Increased priority expenditure 2.7%
Irregular income 3.2%
Failed business 2.1%
Change of employment 1.1%
One-off expense 1.0%
Caring for relatives/friends 0.6%
Reduced benefits 0.6%
Source: Consumer Credit Counselling Service
'We are seeing a lot more older people'
Lynn Butcher, an Eastbourne-based debt counsellor, spends most of her days dealing with frightened people. She takes about nine phone calls a day from people calling the free Consumer Credit Counselling Service (CCCS), and speaks to them for an average of 40 minutes each.
"It can be anyone calling," she says. "It could be someone who has just left school, right the way up to someone who had a really good government job – police officers and teachers. We're also seeing a lot more older people these days."
But what most of them have in common is the fear. For instance, these days many of them have three or four payday loans, averaging £300 each and totally about £1,000.
"A lot of them are quite frightened," she says. "They are quite worried about making reduced payments." But she says they usually can reduce payments to non-priority creditors such as payday loan companies, which often comes as a huge relief.
Although she has to remain detached from her clients as individuals, Ms Butcher is clearly attached to them as a whole. "They are worried about not being able to pay the money back," she says, wanting to dispel the idea of debtors being feckless.
She gives the example of pensioners with no hope of ever repaying their creditors in full. The right advice could be for them to go bankrupt, leaving their debts behind. But she describes the response of some: "A lot of them don't want to do that. They say: 'I borrowed the money. I want to pay it off'."
She admits that her job can be "very stressful", but there are rewards. She describes a common scenario in a consultation: "They start off very nervous. But often, if you come up with a solution for them, they cry with relief at the end. You know then that you have actually done something."
Money Saving Expert www.moneysavingexpert.com
CAP free debt advice www.capdebthelp.orgor via local advice centres and 0800 328 0006
Consumer Credit Counselling Service www.cccs.co.uk and 0800 138 1111
Citizens Advice www.citizensadvice.org.uk and via local advice centres
National Debtline www.nationaldebtline.co.uk and 0808 808 4000
Business Debtline www.bdl.org.uk and 0800 197 6026