Scaling Up for Affordable Credit

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The true cost of personal debt cannot be calculated in financial terms alone. A link exists between unaffordable debt and health problems, some types of crime and relationship break ups. This has a knock-on effect on public expenditure in the areas of the courts and the criminal justice system, social service departments and primary health care trusts. Rent arrears and non-payment of council tax are often the first item of debt that low-income households accumulate (Bridges and Disney 2004). This has an added administrative cost for local authorities and housing associations. It can also be demonstrated that unaffordable debt and lack of access to affordable credit disproportionately affects low-income families, especially single parent households and women. Research indicates that the lack of access to affordable credit is one of the factors leading to over indebtedness amongst low-income households which are then often forced to use extortionate forms of credit. Many of these households are unable to take advantage of low interest rates as they have no solid employment history, no collateral security and no credit rating. The following report examines the social and economic consequences of debt by using recent research carried out by academic institutions and government departments. It is also informed by the first-hand experience of individuals and organisations that are members of the campaigning network Debt on our Doorstep.
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    Scaling up for affordable credit Jenny Rossiter May 2004    Scaling up for affordable credit Jenny Rossiter May 2004 Debt on our Doorstep c/o CAP Central Buildings Oldham Street Manchester M1 1JT www.debt-on-our-doorstep.com  Acknowledgement This report was produced with generous funding from Oxfam’s UK Poverty Programme.    Section1: Social consequences of lacking access to affordable credit Introduction The true cost of personal debt cannot be calculated in financial terms alone. A link exists between unaffordable debt and health problems, some types of crime and relationship break ups. This has a knock-on effect on public expenditure in the areas of the courts and the criminal justice system, social service departments and primary health care trusts. Rent arrears and non-payment of council tax are often the first item of debt that low-income households accumulate (Bridges and Disney 2004). This has an added administrative cost for local authorities and housing associations. It can also be demonstrated that unaffordable debt and lack of access to affordable credit disproportionately affects low-income families, especially single parent households and women. Research indicates that the lack of access to affordable credit is one of the factors leading to over indebtedness amongst low-income households which are then often forced to use extortionate forms of credit. Many of these households are unable to take advantage of low interest rates as they have no solid employment history, no collateral security and no credit rating. The following report examines the social and economic consequences of debt by using recent research carried out by academic institutions and government departments. It is also informed by the first-hand experience of individuals and organisations that are members of the campaigning network Debt on our Doorstep. Debt and Health The growing problem of debt both mainstream and sub prime i.e. has an impact on health as an increasing proportion of household income goes on servicing loan repayments. Debt is both a cause and effect of stress and mental health problems. Debt causes stress, and mental health service users are particularly at risk of debt and its consequences (Sharpe and Bostock 2002). Debt leading to health problems In an action research project initiated by the Northumberland Health Action Zone and the Community Psychology Team in 2002 examined the problem of debt and mental health in Northumberland. This research concluded that there was a clear link between debt and mental health. Debts had a detrimental affect on people’s mental and physical well-being due to stress, stigma and fewer associated life opportunities. Recommendations of this research included: to promote socially responsible investing and lending, and ensure adequate access to household grants and loans. The National Association of Citizen’s Advice Bureaux’s figures (NACAB 2003) showed that around one in eight clients seeking debt advice had started treatment for stress, depression or anxiety since their debt problem had started. Credit Action, a money advice agency based in Lincoln, states that a quarter of those in debt are receiving treatment from their GPs for stress, anxiety and depression (Credit Action 2004). According to the Financial Services Authority (2004) 6.1 million families reported some difficulties meeting their debt repayments. Simple extrapolation of the data would mean that anything between 750,000 and 1.5 million in any year would be Scaling up affordable credit Page 1    suffering from stress or depression related to debt. This is a very rough estimate as no specific data is available, but it does provide an indication of a wide-spread problem related to debt. Clearly doctors, health visitors and other front line staff do not have the time or specialist skills to deal with patients’ debt problems. But some GP surgeries are providing access to debt advice services so as to ease the pressure on them. One example of such an initiative is being funded by Bradford South and West Primary Health Care Trust, which supported three debt advice services to which around 300 patients were referred in 2003. Another such example is run by the Wolverhampton Health Action Zone. Wolverhampton Health Action Zone  Advice sessions, funded by the Health Action Zone, are provided in 18 GP surgeries across the city of Wolverhampton Over 700 people have attended the sessions with queries about benefits and housing and problems of personal debt totalled £320,000. Patients consult their GPs for many reasons including stress and feeling unwell. Often the causes of these problems are non-medical and better addressed by advice services. The sessions aim to deliver free and impartial advice to patients at their GP surgeries. This is based on the known improvement in health where patients are able to address their social problems at a local, easily accessible site. Sessions in GP surgeries are also more anonymous. If you say you are going to the doctors, you could be going for any number of reasons, but if you say you are going to an advice centre people will assume you are going because you have a problem. The project was evaluated by the University of Wolverhampton and their conclusions were – “the impact on service users has been immense. The amount of benefits obtained and the alleviation of debt has been enormous and must have had an impact on the lives of many.’ This project demonstrates how much time GPs can spend with patients with debt problems and provides a model for freeing up medical personnel Drentea (2000) using a sample of more than 1,000 adults found that anxiety increased with the ratio of credit card debt to income. Additionally, anxiety correlated with the number of months of being in debt. Anxiety attacks around court and other debt related proceedings are not uncommon (Kempson et al, 1994). An increase in consultations with general practitioners on the part of debtors has also been reported. (Drentea, 2000; Nettleton, 1998a) The stress of owing money combined with the knowledge that one is forced into paying high interest rates are identified as a negative psychological factors associated with debt (Drentea 2000) as well as harassment by creditors and uncertainty and lack of control (Nettleton 1988a). Scaling up affordable credit Page 2
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