Income squeeze ‘making debt repayment impossible for some’

The squeeze on incomes being experienced by consumers has been making it increasingly difficult for those in debt to manage their repayments, an expert has said.

Managing director of The Debt Advice Foundation David Rodger said many people are already paying everyday costs with credit – such as shopping and phone bills – and the situation could get worse.

He commented: “As prices go up and wages remain static and worse still, people find themselves unemployed through no fault of their own, the problem of repaying borrowings becomes increasingly difficult for families.

“Loans, credit and store cards that once seemed manageable can all too quickly escalate out of control in the current financial climate.”

Such a situation could leave some needing to consider taking out individual voluntary arrangements (IVAs), should their debt increase to as much as £15,000 and become unpayable.

An IVA works through a deal by which interest on debts is frozen and lower repayments made, over a period of up to five years, with any remaining debt written off at the end of this period.

Such a deal requires the consent of at least 75 per cent of creditors, at which point it becomes binding on all of them, even if some of the rest are unhappy with it.

The number of IVAs used in England and Wales has been higher than the tally of individual bankruptcies in two of the last three quarters, according to the Insolvency Service.

Over the last nine months as a whole for which figures are available the tallies were very similar, with 35,446 IVAs compared with 35,680 bankruptcies.

By James Francis