marylsommers: Young people biggest users of debt relief orders, figures reveal

Saturday, December 31, 2011

Young people biggest users of debt relief orders, figures reveal

Higher levels of student debt could force many more into difficulties as statistics show one in four face insolvency

Young people struggling to repay their debts have been urged to get help as official figures reveal that 25- to 34-year-olds are the biggest users of debt relief orders (DROs), a form of insolvency introduced two years ago.

The Insolvency Service said 44,000 DROs had been granted in England and Wales in the two years following their launch in April 2009, and that one in four people with a DRO was aged between 25 and 34.

The orders allow those struggling with debts of up to �15,000 to write them off, subject to a number of conditions. The borrower must have a disposable income of no more than �50 a month, savings and assets worth less than �300, and cannot be a homeowner.

Although those seeking them do not have to go through the courts and they cost just �90 to set up, they are a still a formal arrangement and appear on an individual's credit record.

Debt counselling charities said the statistics highlighted the financial pressures faced by the younger generation, and warned that higher levels of student debt could force many more into difficulties in the future.

Although student loans are not covered by DROs, Una Farrell, spokesperson for the Consumer Credit Counselling Service (CCCS), said they were a factor in the number of young people becoming insolvent.

Farrell said: "Student debt does play a large part in getting people used to taking on large debts early on and it limits their ability to manage their finances. The CCCS is very worried about future generations who are going to end up taking on higher levels of debt."

Joanna Elson, chief executive of Money Advice Trust, said many struggling 25- to 34-year-olds "might have expected to be further up the financial ladder" by that stage in their life.

"At the same age their parents would most likely have bought their first home, have a comfortable pension lined up, and be saving for the future. For today's 25-34 year-olds the picture is much bleaker," she said.

Elson added: "The good news is that help is available and free advice services can make a big difference. It is vital anyone struggling with their finances is aware of charities like National Debtline, CCCS and Citizens Advice."

Stephen Speed, chief executive of the Insolvency Service, echoed Elson's call for struggling borrowers to get help.

"Owing more money than you can afford to repay is a daunting prospect, especially when you're young, but there are a number of options you can take and there is help available.

"I would encourage people struggling with debt to read our publication, In Debt? Dealing with your creditors (pdf), and to access free advice from debt charities at an early stage."

The Insolvency Service's figures show that over the last two years one in three people under 25 who were given a DRO owed less than �5,000, whereas all other age groups typically owed more. Among the over 25s, 40% owed between �10,000 and the maximum allowable debt of �15,000.

Despite the fairly modest levels of debt being written off by some, Farrell said DROs were not being used lightly.

"Once you have had a DRO you are going to have problems getting credit for a long time. You have to be in pretty dire straits to qualify," she said.

Hilary Osborne