The debt advice system needs to be streamlined to make it easier for consumers to understand and to offer people help at an early stage, a report suggested today.
People struggling with debts should have a clear range of options, while there should also be greater consistency in the way debt advice is provided and how creditors deal with people who are in financial difficulties, according to the British Bankers' Association.
The group said people struggling to keep up with their debts currently faced a confusing range of options, including both informal and formal solutions, while some groups offered free advice and others charged for it.
It is calling for the existing range of solutions, which include informal plans under which people repay what they can each month, to bankruptcy as a last resort, to be made simpler to understand.
The report, which was carried out with management consultancy firm Accenture, suggested introducing a range of options which would be based on the consumers' financial circumstances.
These would include forbearance for people in temporary financial difficulties, as well as Debt Repayment Plans, under which interest and charges would be frozen in exchange for people making partial repayments each month.
In other cases, creditors could use people's assets as a security against their debt to give them breathing space at a time when their income had fallen.
In the most extreme cases, debts could still be written off, such as through going bankrupt, if consumers had no income, no assets and little prospect of ever repaying what they owed.
There would also be an increased emphasis on early intervention, to try to help people before their situation had got out of control and their debts had increased.
The report also calls for the creation of a single body to regulate the debt advice sector, which would be responsible for granting a debt management licence, replacing the current system under which advisers can hold either an insolvency practitioner's licence or a consumer credit one, and firms are regulated by either the Ministry of Justice or the Office of Fair Trading.
Personal debt in the UK has reached nearly £1.5 trillion, and during the second quarter of 2010 banks wrote off £3.5 billion of consumer borrowing, up from £2 billion during the first three months of the year.
Paul Ross, BBA policy director and co-author of the report, said: "Our vision is to provide a clear and coherent process to help people facing debt difficulties, to intervene early where possible and to provide a simple debt resolution solution if those early attempts do not succeed.
"We want to unravel the red tape to bring about a more financially responsible solution for customers.
"Customers are currently faced with too many confusing options for resolving their debt, and may set out too early on expensive legal procedures when a more common sense approach would be better for everyone."