Easy credit 'has put poor people at risk of unmanageable debts'

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The Independent Online

The poorest people in society are in danger of being plunged into massive debt thanks to the boom in easy credit, according to a harrowing report from Citizens Advice Bureaux (CAB).

It said there had been a 47 per cent jump in the number of people with debt problems over the past five years. Nearly half of CAB's clients - who include lone parents, council tenants and those living solely on benefits - say they cannot cope with the debt. A quarter are on prescription medication for stress, depression and anxiety.

CAB analysis of the 900 people who came for help in May 2001 showed their average debt of £10,700 was almost 14 times the average after-tax income of £800 that month. The size of the debt ranged from £132 to £111,000.

Consumer credit debt was the largest problem area, accounting for almost three quarters of all problem loans.

David Harker, chief executive of CAB, said: "We are at a critical stage where personal debt problems threaten to overwhelm large numbers of people in this country.

"This would have potentially devastating personal and social consequences, including a hugely detrimental impact on people's health, homes, family life and ability to work."

He warned that because of the relatively low income levels among these debtors, it took a fall in income of just 10 per cent to turn manageable debt payments into a full-blown crisis. This meant they were vulnerable to shocks such as job loss, ill health or a breakdown in a relationship.

CAB said there had been a shift in the profile of debt over the past decade. In 1991, 11 per cent of debts were for a bank loan while one in 10 were for the now-defunct Poll Tax. In the 2001 survey, one in five debts had been racked up on credit cards, with 11 per cent were to catalogue mail-order companies. "The credit boom of recent years has brought great advantages to many individuals but it is also taking a huge toll on the lives of those who find themselves on the wrong side of the very narrow dividing line between managing credit and plunging into serious debt," Mr Harker said.

The 130-page report, In Too Deep, published today, is based on the 2001 survey findings and an analysis of more than 8,000 other case studies over two years. It contains some harrowing examples of the misery that debt problems can wreak.

A jobless man in East Yorkshire fell into ill health after a £12 overspend on his credit card led to his debt rising by £41 a month in default interest and late payment charges.

A Sussex man was threatened with debt collectors by his bank after he had to give up work to look after his wife, who was terminally ill with cancer.

Mr Harker called on the Government to increase protection against harsh debt collection practices, increased access to free financial advice and higher levels of benefits.

The Department of Trade and Industry said it was very concerned about the 7 or 8 per cent of people it estimates are vulnerable to debt problems. A spokesman said the DTI had launched a review of the 1974 Consumer Credit Act.