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."
|All||Age 18 - 34||Age 55+|
|% avoided communicating||69%||82%||59%|
|Of which, % avoided communicating many times||52%||56%||48%|
|Of which, % avoided communicating infrequently||48%||44%||52%|
|% Never avoided communicating||31%||18%||41%|
Base: borrowers in debt default
|Opportunity to come to an arrangement with my creditor(s) e.g. reducing debt, payment holiday or freezing interest||47%|
|Free debt advice||46%|
|Option to consolidate loans||28%|
|Potential to settle the debt with a one-off payment||20%|
|A dedicated customer service contact||19%|
|None of the above||7%|
|Nothing would have encouraged me to communicate with the organisation about my outstanding debt(s) rather than avoiding them||7%|
Base: borrowers in debt default
* Debt Defaulters are borrowers who have struggled to make repayments at some stage in their life
** Survey of 2,059 UK adults with debt carried out in July 2015
*** Bank of England, Money and Credit: October 2015
**** YouGov research among 2,000 British adults carried out for the Money Advice Trust.
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Arrow Global is one of Europe's largest and fastest growing providers of debt purchase and receivables management solutions. We purchase customer accounts from a range of businesses, including retail banks, credit card and telecommunications companies. The Group manages over 8.5 million customer accounts with a total face value of £13.5 billion.
Arrow Global works closely with customers whose debts we acquire to find affordable repayment plans based on their individual circumstances. Arrow Global does not charge customers interest or fees on defaulted debt, unless there is a statutory requirement, in effect freezing the amount they owe.
Through representation on industry bodies such as the Credit Services Association and SCOR (The Steering Committee on Reciprocity), the executive team plays a key role in initiating, shaping and implementing industry compliance standards and programmes.
In October 2013, Arrow Global listed on the London Stock Exchange (ARW) and is authorised and regulated by the Financial Conduct Authority (FCA).
If you are in debt, you need to take action quickly to stop the debt getting worse. The following organisations are providers of free, impartial advice: