In Focus Risk
Finding lasting freedom from debt
New research has cast light on the sustainability of debt-advice solutions for people who have had debt problems
Dawn Stobart Director of external affairs, Christians Against Poverty
Does debt counselling empower clients to maintain their financial wellbeing in the years after becoming debt free? Are all debt-advice solutions equally sustainable? Can financial education, budgeting and a savings buffer protect people from the onslaught of repeat problem debt? These were questions we set out to answer, conducting over 200 telephone interviews with debt-free clients in a unique piece of research. The findings feature in The Freedom Report
and make an interesting read. Encouragingly, the vast majority (93%) of clients remained free of problem debt, with the majority (85%) still feeling in control of their finances.
DRO or DMP What is particularly interesting, however, is the contrast between those who were granted a debt-relief order (DRO) and those who repaid by a debt-management plan (DMP). Those granted a DRO are typically the
poorest clients we help, and, by the nature of insolvency, become debt free quickly. As a result, we were concerned that they might be disadvantaged by having less time to gain skills needed to manage their finances. The results, on the contrary, showed that those granted a DRO were as likely as the DMP sample to report still using a budget (82%). Clients in the DRO sample were more
likely to feel uncertain about their financial situation, although that being said, 78% of the DRO sample felt in control of their finances. The DRO group, however, were less financially resilient, as seen in the proportion with savings. Only 20% of the DRO sample had built up savings, compared with 69% of the DMP sample.
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Repeat problem debt was rare, however there were some interesting lessons to be gleaned from the findings
The report also showed DRO clients were
less likely to use credit since working with us, but those that had, were more likely to feel out of control of their finances as a result.
Repeat problem debt Repeat problem debt was rare, however there were some interesting lessons to be gleaned from the findings. Of those interviewed, only 7% had fallen
back into problem debt, but this was often due to wider factors. The majority proved to be financially capable; three-quarters still used a budget.
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Low income was the most common
reason for falling back into problem debt, as well as wider circumstances such as benefit changes, unemployment and relationship breakdown.
Debt advice The findings are encouraging for the industry, demonstrating that debt advice works. Financial capability had been imparted to a large proportion of the client base. It is possible, and important, to pass on the skills of budgeting and saving during debt counselling and, as a result, financial capability and resilience can be built. All in all, the report indicated that a
DRO is an equally effective debt solution. In general, clients from the DRO sample were not any less financially capable than the DMP sample; both had gained skills in budgeting and saving. The report, however, did raise the
question of whether wider support for these often vulnerable clients is needed outside of what debt counselling can provide. CCR
January 2017
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