Debt adviser sees profits surge as borrowing crisis worsens

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The Independent Online

Debt Free Direct, the debt adviser, increased pre-tax profits by 177 per cent to £5.13m last year, the company said yesterday, as it cashed in on Britain's £1.3 trillion debt crisis.

In the latest evidence that Britain's borrowing is spiralling out of control, Debt Free Direct said it believed the number of people facing irreversible debt problems could now be as high as 2 million. Most of these borrowers were spending at least 40 per cent of their disposable income on debt repayments each month.

The company makes most of its money from individual voluntary arrangements (IVAs), an increasingly popular way for borrowers to deal with debt that has got out of hand because it stops short of full-scale bankruptcy.

Under an IVA, which must be managed by an authorised insolvency practitioner such as Debt Free Direct, borrowers offer their creditors the maximum possible repayment they can afford. If 75 per cent of creditors accept the offer, the deal is binding on the remainder, and interest is frozen.

Paul Latham, Debt Free Direct's finance director, said the average borrower with an IVA would end up repaying 70p in the pound of their debt. The company takes an initial set-up charge for the IVA plus a monthly fee for supervising the arrangement, with creditors typically receiving 45p in the pound.

Government figures published last month showed the number of IVAs agreed during the first quarter of the year soared to 7,961, a 142 per cent increase on the same period in 2005. Meanwhile, a report from the Consumer Credit Counselling Service last week warned that, along with a general rise in over-indebtedness, there has been a sharp increase in "extreme debt" with the number of people owing more than £100,000, excluding a mortgage, doubling over the past 12 months.

Mr Latham said: "We would say the number of people with irreversible debt problems is at least 1 million and is probably closer to 2 million."

The company estimates it has a 20 per cent share of the IVA market, but also made around £1m of its £16.23m turnover last year from commissions on the remortgages it arranges for clients with less serious debt problems.

Debt Free Direct now plans to launch a similar operation in Australia before the end of the year, where debt has been rising at a similar rate to the UK.

Mr Latham said he was confident that debt agreements, the Australian equivalent of IVAs, would in time generate 20 per cent of the revenues achieved at home.