With borrowing by UK consumers on the rise, new research from Arrow Global reveals that consumers struggling with debt are unwilling to confront the problem by talking to their lender.
69% of debt defaulters* admit to avoiding contact with their lenders even though it could ease their debt burden. The findings come from a UK-wide survey of over 2,000 borrowers commissioned by FTSE-listed Arrow Global,** a leading European purchaser and manager of debt portfolios.
According to The Bank of England, consumer credit rose by £1.2 billion in October 2015, an 8.2% increase compared to a year ago***. At the same time, a study carried out for the Money Advice Trust showed that consumers are currently loading up on debt to pay for Christmas, with a third of Britons borrowing to pay for presents and one in five buying food on credit****.
The Arrow Global research shows that the type of loan most debt defaulters struggle to repay is credit card debt (60%), suggesting that Christmas spends fuelled by credit card spending could lead to many British consumers struggling with repayments in the New Year.
The extra borrowing by consumers is worrying when taking into consideration that debt defaulters avoid discussing their debt with lenders even when they are told it may help them to ease their repayments. Of the 69% of debt defaulters that have deliberately avoided talking to their lenders, over half (52%) have avoided communicating 'many times'. Only 31% are fully communicating with their lenders. (See table 1)
For the young (18-34 years old), a staggering 81% of defaulters have avoided talking to their lenders. Only one in five (19%) never avoid talking to their lenders. However, when questioned about what would encourage them to talk to their lenders, only 47% of young defaulting borrowers said that the possibility of restructuring the loan would encourage more communication and less avoidance. (See table 2)
Advising defaulters that by talking to their lenders they could receive 'free and impartial debt advice' would only encourage 46% to communicate more. There are a number of debt charities who offer free and impartial advice to customers struggling with debt, such as the Citizens Advice, National Debtline, StepChange and PayPlan.
7% of defaulters say absolutely nothing would ever make them communicate with their lenders, whatever the enticement. However, interestingly, 63% of defaulters said that they would communicate more with their lenders if it would improve their access to credit in the future. (See table 3)
Borrowers struggling to repay their debts may benefit from direct communication with their creditor by negotiating new repayment terms, such as payment holidays or freezing interest.
Tom Drury, Chief Executive Officer of Arrow Global, comments:
"For many people struggling to manage their debt, it can be a difficult time and in some cases lead to people avoiding the situation in the hope that it goes away. Research shows that being in unmanageable debt can lead to mental health issues, alcohol and drug abuse and breakdown in relationships, so addressing the problem can make a significant difference.
"There are a number of debt charities, such as Citizens Advice, National Debtline, StepChange and PayPlan, who provide free and impartial advice, however, we believe that there is more that can be done to help prevent people getting into unmanageable debt in the first place."
Table 1: Whether debt defaulters have ever avoided communicating with an organisation they have an outstanding debt with.
