A Year-long ‘Breathing Space’ for People struggling with Debt?

The debt charity StepChange, along with several others, urged the government earlier this month to extend the proposed debt ‘breathing space’ from six weeks to a whole year. The idea of a ‘grace period’ was proposed in the Conservatives’ 2017 manifesto, with the aim of giving people who are struggling with debt the time they need to seek advice and make a plan for getting back on track. During this six week period, interest and fees on the person’s debts would be frozen, and creditors would be unable to contact or take legal action against them. A similar scheme is already in place in Scotland, and the policy is set to be implemented in England and Wales some time in 2018. The bill will build on regulations already implemented by the Financial Conduct Authority (FCA), which encourages creditors to allow their struggling customers a 30 day ‘grace period’ to arrange an alternative repayment scheme. Although the plans have been enthusiastically embraced by Citizens Advice, for many commentators the measures proposed are not enough.

Limits to the ‘Breathing Space’ Proposal

One basic problem with the proposed ‘grace period’ is that it could simply be too short. According to the debt charity, StepChange, it takes an average of 10 weeks for someone struggling with debt to seek advice and take appropriate measures to get their finances back on track. By only allowing six weeks, someone’s problems could become far worse. Trying to arrange a repayment solution, whilst simultaneously dealing with creditor harassment and mounting fees and interest, is likely to take much longer, as stress and distraction stalls the process. Sara Williams, author of the debt advice blog Debt Camel, agrees that the process of arranging repayments can in reality take months rather than weeks. Because of the time-consuming nature of sorting out debt problems, Williams predicts that only the most basic cases of problem debt will be eased by the proposed breathing space. Because many debt problems are triggered by a drop in income – through events like job loss, reduced hours, pay cuts, or illness – the person struggling with debt needs time to get all of their financial affairs in order rather than simply seeking debt advice. For example, someone allowed time to seek a new job, or more hours, might be able to pick up their debt payments again without the help of a formal scheme, if given a long enough payment break. This is likely to be better for creditors too, as they would not have to accept reduced payments as they would if the individual used a DMP or IVA.

Despite disagreements over the appropriate length of the ‘breathing space’, many groups have praised the idea of offering a mandatory ‘grace period’ as a step in the right direction for tackling the growing problem of consumer debt in the UK, which has been on the rise since the last recession.

‘Breathing Space’ and Mental Health

The proposed policy could also have huge benefits for people who are struggling with mental health issues alongside their debts. Sadly, problems with debt and poor mental health tend to go hand in hand – a Creditfix survey found that 86% of people seeking debt help experienced a deterioration in their mental health because of these debts. The most common symptoms included anxiety and depression, along with insomnia. Because of this link, Creditfix continues to work closely with our charity partner, the Mental Health Foundation, to help support people through mental health issues. Poor mental health can exacerbate financial problems, rendering people distracted, hence less able to deal with their debts. In fact, a coalition of debt charities recently found that a quarter of people admitted to hospital with mental health crises were also experiencing financial problems.

More worrying, many of those admitted to hospital continued to receive contact from creditors demanding payment. According to research by the Money and Mental Health Policy Institute (MMHPI), 23,000 people hospitalised for mental illness were pursued for their debts whilst they were still in hospital in 2017 alone. The MMHPI’s founder, Martin Lewis of Money Saving Expert, wants to see the government’s proposed ‘breathing space’ automatically extended to anyone who is in hospital for their mental health, or in the care of a mental health crisis team in their community. He argues that being hassled in the midst of a crisis can not only make recovery more difficult and lengthy, but also reduce the person’s ability to repay their creditors. “It’s time to stop people in mental health crisis being hassled over debt, which risks making recovery harder and means they’ll be even less likely to repay creditors in future”, said Lewis. He added that such a scheme could literally “save lives”, emphasising the severe impact that struggling with debt can have on a person’s mental health, leading to suicidal thoughts and actions in extreme cases.

The ‘breathing space’ policy is set to come into effect later this year, and will hopefully provide some much-needed respite for the thousands of UK households trying to tackle problem debt.

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