With the nation's personal debt now at �1.5 trillion, a study shows families cutting food and heating to keep creditors at bay
"I've stopped opening the letters," says 22-year-old Raja Hussain, bouncing his month-old daughter on his knee. "I don't want to see what's inside."
Winter sunlight streams into Hussain's one-room flat on the 15th floor of the Trident tower block, providing an impressive view of Birmingham glittering below. New baby clothes cover the radiators and the smell of powdered baby milk mingles with the heat and damp.
Since baby Eliza arrived, Hussain's family of three have struggled to make ends meet. Now that the letters from his creditors are piling up, the young father says he has lost track of how much he owes. "It's �1,600," says his partner, Shaista Parveen, who moved in with him a year ago. "But that doesn't include electricity."
Theirs is not an isolated case. Households around the country are struggling to make ends meet, squeezed by a variety of measures being introduced simultaneously. Unemployment reached 2.5 million last year, a level of 7.9%, and new redundancies are being announced every day. Combine that with the rise in fuel costs and VAT and many are at breaking point. In the event of an interest-rate rise, many households' debts could be pushed to unmanageable levels.
Figures were released on Friday showing that 135,089 people were declared insolvent last year ? more than in any year since records began in 1960.
The debt with which Hussain is saddled might not sound like a large amount to many, but for a family with both parents out of work it feels insurmountable. It's taken him over a year to get his electricity debts down from �400 to �200, and he has not even thought about trying to pay back the money he owes the council in rent arrears, which he claims built up after his housing benefit was unfairly stopped without warning. With the new costs of the baby, he has resorted to reducing his food bill by eating only two meals a day. "As long as she's got her milk, I'm OK," he says, without taking his eyes off his daughter.
Residents of Trident House are all too familiar with his dilemma. Research commissioned by the centre-left pressure group Compass and carried out by M-E-L Research, has found that 47% of the indebted residents say they are forgoing necessities such as food and heating to meet their debt repayments. When asked how much out of every pound of income they spent on repayments each week, the average was 14p, ranked third after food (28p) and fuel (20p).
Interviews with more than 250 Trident residents revealed that 36% were in some form of debt, with one third of those describing their repayments as unmanageable. Although the median debt was �1,200, the high levels of poverty on the estate meant this amounted to 24% of average annual incomes.
"Unfortunately the figures don't shock me," says Damon Gibbons, chief executive at the Centre for Responsible Credit. "And let's be clear, these figures are going to get worse. The government says dealing with state debts is a priority, but the austerity measures they are bringing in will mark a massive shift of debt from the state to households. For many in vulnerable circumstances, there will be little choice but to shift to high-cost credit."
Personal debt in Britain currently stands at almost �1,500bn, one of the highest rates in the developed world. However, on the Trident estate, where more than half of the residents are unemployed and 70% get housing benefit, mainstream lending options are not available to many because they are considered too risky. While 25% of Trident residents said they had run up debts through authorised overdrafts, 15% said they had used pawnbrokers in the last six months. Some 14% said they had run up debts from mail-order catalogues, 8% from "local money lenders" and 7% from unauthorised overdrafts.
Sylvia (not her real name), a single parent, owes �13,000 to a variety of high-cost lenders. Eleven years ago, she took out a bank loan to pay for home repairs and a holiday to Greece with her nine-year-old daughter. She had budgeted to pay it back, but after she was unexpectedly made redundant the pressure mounted. When a letter arrived from Eos Credit Opportunities offering her another loan, she took it to pay off the debt, but because she did not fully understand the APR she ended up having to pay back double the �7,000 that she borrowed.
"Even with all the loans, we still couldn't make ends meet," she says. "You end up having to borrow more just for basics. I haven't bought any new clothes for myself in three years, but I do need to buy my daughter new shoes for school.
"We couldn't cut any more than we were. We couldn't even afford proper food ? we were living off potatoes and beans. I knew my daughter needed the internet for school, but we couldn't afford it. Even when I tried to cut that off, they told me there would be a �200 disconnection charge."
Sylvia turned to more and more high-cost lenders. Today she owes money to two high street banks, to Secure Homes, to two credit-card companies and to Provident. But she says it's the catalogue companies that have treated her worst.
"I had to get my number changed because they were calling me every day," she says. "Every time the door bell rang I was scared to open it. I felt like a prisoner in my own home ? and all because I needed to get a washing machine and some school clothes for my daughter."
At its worst, Sylvia says she was paying back �140 a week, often taking out loans from new companies to cover debts from another. Since contacting Citizens' Advice, she has reduced the repayments to �40 a month, but one catalogue company is still charging her an "administrative fee" of �36 every time they write to ask if she can increase her repayments.
The government is set to launch a credit review in the spring, but many fear it will not go far enough. "The high-cost credit industry is an incredibly big and powerful lobby," says Stella Creasy, Labour MP for Walthamstow, north-east London, who has been leading a campaign to cap annual lending. "The fear is that the government will push the industry line of just giving people 'more information', but most families know what they are getting into is dangerous ? they just don't have any choice."
That is certainly true for Hussain and baby Eliza. "We've been trying to get out for over a year and sometimes it just drives you crazy," he says.
"If anyone offered to lend me enough money to get out of here, I'd take it, no questions asked."
Source: http://www.guardian.co.uk/society/2011/feb/06/debt-misery-survey-loans
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