As family budgets are squeezed due to rising costs, people who are already paying off existing debts find it hard to keep up with their repayments.
Dealing with debt is difficult enough, but the economy takes a hit when you think you have things back on track as you start to take control of finances and are making regular payments on your debt plan. The cost of food, petrol, and energy costs squeeze your already tight budget.
Debt charities have warned that they are seeing a rise in people struggling to pay their current debt arrangements each month and have suggested that the situation will worsen.
The government have offered extra help for people who are struggling, but they are suggesting this is not enough for people who are already experiencing financial difficulty.
They have advised that if people are struggling, they contact their debt solution provider and ask to amend their existing plan.
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Why has there been a significant increase in people unable to pay their debt plans?
When people get into debt, they often turn to Debt Management Plans (DMP) or Individual Arrangement Schemes (IVA) to help them control their debt situation.
These arrangements are put in place to pool their existing debt into one manageable payment. The schemes are assessed, and a payment plan is agreed upon based on how much a person can afford after deducting essential bills.
However, what happens when essential living costs are on the rise? Petrol prices are heading into double figures compared to what people paid a few months ago. Food prices are increasing, with the cost of essential items such as oil increasing by 400%. Lastly, energy prices have already risen, with talks already in place that prices are set to increase again in October.
Consequently, whatever payment arrangement that was set to pay their debt is not feasible, as people in debt can’t afford to keep up with their repayments anymore.
Let’s take a look at the stats
As prices are measured by inflation, figures taken from the Office of National Statistics show that inflation is rising at a high-speed rate. In March, inflation rose to 7% and is due to rise even further if the domestic and political situation doesn’t improve.
Families are the seeing the struggle the most. Unlike other social groups, families find it harder to reduce costs as they have dependants who will be less willing to make reductions. Foodbank charities are already seeing a resurgence of families turning to food banks for help in putting food on their families’ tables.
What should people who are on debt plans do?
Instead of breaking your debt agreement which could land people in more trouble and court action, it is essential to get early help.
It has already been reported that people are using their credit cards to cover their essential living costs like food and petrol; however, this type of debt, when you can’t afford the payments, makes it harder to sustain.
Instead, if you are currently on a debt payment plan and you are noticing that you are reaching for the credit card then it is time to rethink your strategy. Be open and honest with yourself that you are struggling with debt and contact your creditors and ask for a reduction on your monthly payments.
If you have a personal monthly budget in place (download our budget planner if you don’t), update your figures to reflect how much the cost of living has risen.
Find out which supermarket is the cheapest for your food shop.
If you have this information in hand, you will be better equipped to contact your creditors that you have systematically looked at your budget. Creditors will be more willing to offer you a temporary reduction on your payments until the situation has improved.