The debt relief company ClearDebt yesterday reported a near doubling in demand for individual voluntary arrangements (IVAs) during the second quarter, claiming its business was benefiting from a "phenomenal" rise in the number of people struggling to pay off their personal loans and credit card debts.
The company said it believed the number of people taking out IVAs - which allow over-indebted consumers to write off up to 75 per cent of their debts - would continue to increase over the coming months, after the rise in interest rates in August.
The chief executive, David Mond, said many people who had originally turned to debt management houses - which merely help reduce borrowers' interest payments - were now realising they needed even more help, and were turning to IVAs.
"When credit is ostensibly free and people get very easy access to it, they inevitably go out and spend," said Mr Mond. "When my son went to university, he came back with £40,000 of [credit limits on his] credit cards, and he didn't even have an income.
"When interest rates begin to rise, the problems begin to bite - especially with energy costs rising as well."
ClearDebt, which reversed into the AIM-listed rival Carrwood at the end of last year, reported an operating loss of £429,267 for the 18 months to 30 June. Mr Mond said much of the loss was caused by one-off development costs andhe was confident the business would be in profit by next year.
Mr Mond's warnings about the debt market come days after Citizens Advice saidalmost 800,000 people have missed a mortgage payment over the past year.
Shares in ClearDebt rose more than 7 per cent to 3.75p, giving it a market value of £9.6m.Reuse content