Can we stop a rural debt spiral?

How many rural people are in a 'debt trap'? And what can be done about it? Jessica Sellick investigates.

On 8 November 2017, the Treasury Committee announced a new inquiry into household finances. The Committee will look at the state of UK household balance sheets (including savings levels) and examine indebtedness, inter-generational issues, lifetime financial planning and the effectiveness of the market in providing finance and solutions to low income households.

The inquiry comes amid research published by the Money Advice Service (MAS) in September 2017 which found one in six people struggling to cope with the money they owe – this means they find it difficult to keep up with bills and credit commitments or have missed payments for bills or credit commitments in three or more of the last six months. 15.8% of the population in England, Scotland and Northern Ireland are over-indebted and 17.7% in Wales.

In England, the regions with the highest levels of indebtedness are the North East (at 17.7% or some 373,963 people) and London (17.2% or 1,190,557 people). The regions with the lowest levels of indebtedness include the East of England (14.3% or 693,851 people) and the South East (13.3%, 950,209 people).

When the figures are broken down further, at Local Authority level, there are a number of locations including Nottingham, Hull, Leicester, Manchester, Sandwell, Lincoln, Sunderland, Stoke-on-Trent, Merthyr Tydfil and Blanaenau Gwent where one in five adults is struggling with problem debt.

The Money Charity’s statistical bulletin for November 2017 shows the average total debt per household (including mortgages) has reached £54,490. The APR on a £5,000 personal loan has increased by 1.31% over a year; there has been an increase per adult in consumer credit lending since 2016 equating to £290.10 per person and 35% of households have no savings whatsoever.

Every day in the UK 277 people are declared insolvent or bankrupt (equivalent to one person every 5 minutes and 12 seconds); 3,274 consumer County Court Judgments (CCJs) are issued (with an average value of £1,509); Citizen Advice Bureaux (CAB) in England and Wales deal with 3,828 new debt problems; and 13 properties are repossessed (one every 1 hour and 50 minutes).

People in the UK owed £1.557 trillion at the end of September 2017, a rise from £1.505 trillion at the end of September 2016 (and an extra £1,030.47 per adult). The average adult in the UK now has personal debt of £30,096 – around 113.8% of average earnings. Total credit card debt in September 2017 was £69.4 billion – this equates to £2,562 per household and would take 26 years and 1 month to repay if the householder only made the minimum repayment each month.

Similarly, Insolvency statistics for England and Wales show applications for individual voluntary arrangements (IVAs) have reached their highest level since they were introduced in 1987. There were 25,479 individual insolvencies in Q3 2017 in England and Wales – comprising 3,682 bankruptcies, 6,274 debt relief orders and 15,523 IVAs. Individual insolvencies increased by 10.6% in Q3 compared to Q2 2017. These figures are attributed to changes to the process for people declaring themselves bankrupt and changes to Debt Relief Order (DRO) eligibility criteria.

While we all face ups and downs, this mass of figures reveal how many people are already in – or at risk of falling into – problem debt. How many people living in rural areas are in a ‘debt trap’ and what can be done about it? I offer three points.

Firstly, what is debt and how much is there in rural areas?

While we might each view the word ‘debt’ differently, at its most basic, debt is something borrowed (usually money) that has to be repaid to a person or organisation. This could be using an overdraft on your bank account, owing a friend £20, having a student or car loan and/or a mortgage. Within this definition it’s almost impossible for anyone to be ‘debt free’ over the course of their life.

This is why money charities describe ‘credit that works for you’ i.e., credit used wisely which can be paid back over a long period of time with relatively low monthly payments that enable you to keep the rest of your money free for other things; and ‘credit that works against you’ i.e., where you start to use credit to pay for things that you could do without and can’t really afford.

It is also worth noting that debt is something that some people have few choices over: if you want to go to college or university you may need to take out a student loan; if you are facing a 6+ week wait to receive a Universal Credit payment you may have to take on debt to keep a roof over your head and food on the table.

A plethora of terms cover credit that doesn’t work for you: unmanageable debt (where borrowing money has ended up taking you to an unhappy place), indebtedness, debt-to- income ratio, over-indebted (where keeping up with bills and credit commitments is a heavy burden or you are falling behind or missing payments leading to regular arrears), ‘problem debt’ (a debt or accumulation of debts that impacts on you adversely because you are unable or struggling to repay) and/or a debt trap (where debt repayments and creditors demands spiral into unmanageable situations which can devastate lives).

According to MAS and CACI, the over-indebted population is younger, more likely to rent and more likely to have children than the UK as a whole. It feels the impact of macroeconomic changes more keenly and is more exposed to changes in the welfare system.

CAB find people end up struggling with debt for a range of reasons – with two standout features. Firstly, a drop in income, with people experiencing a significant fall in income (defined as moving to a lower income quintile). People in this category were 33% more likely to fall into problem debt two years later. Secondly, some other sudden change to people’s finances. Here people take on debts for a range of reasons.

People who quickly became over-indebted typically held lower amounts of debt (£663) than those who are already struggling (£2,140). The number of people struggling with debt has remained largely stable (around 9% of all individuals in any one year). And while the majority of people who get into difficulties with debt are able to get back on track a year or two later, a significant minority struggle with their debts over a long period of time.

Applying these definitions and statistics to a rural population is not commonplace.

A CAB report on clients’ experience of debt published back in May 2003 found while total household debt among clients ranged from £132 to £11,000; a significant proportion of clients faced debts in proportion to their income which were totally unmanageable (14 times their income); with those living in rural areas, owner occupiers and non-householders having particularly high levels of debt relative to their income.

While rural clients typically owed less than the average CAB debt client, their lower average income meant their debt to income ratio was much higher: 14.8 compared to a ratio of 12.6 for urban clients. The report found rural clients are likely to be isolated and face additional expenditure (particularly on transport and food) which affected their ability to repay debt.

The Commission for Rural Communities ‘rural money matters’ report in 2009 found that while people in rural areas experienced the same financial challenges as people living in towns and cities, living in the countryside brought additional challenges – with around 200,000 rural dwellers at the time not having access to a bank account, poor public transport and long travel times making access to mainstream financial services difficult and costly for people. A dispersed client base and poor economies of scale made it challenging to deliver debt advice and credit union outreach services. According to a CAB outreach worker at the time: “it’s expensive being poor and it’s especially expensive being poor in a rural area.”

More recently, the Joseph Rowntree Foundation (JRF) spotlight on income describes how despite rural jobs being poorly paid people in rural areas need to spend 10-20% more on their everyday needs compared to their urban counterparts, and they need to earn well above the minimum wage to make ends meet. Back in 2010 JRF developed a Minimum Income Standard (MIS) for rural households. This found single working age adults needed to earn at least £15,600 a year in rural towns, £17,900 in villages and £18,600 in hamlets or remote countryside to reach a MIS, compared to £14,400 in urban areas.

The Bank of England’s analysis of monetary financial institutions lending to UK residents reveals the UK agricultural, hunting and forestry sector had an outstanding debt of £18.5 billion as of May 2017, with debt levels up 57% since 2010 (see tables, particularly C1.2). On the one hand, the figures suggest farmers have access to capital to invest in their business; on the other hand, some farmers may be getting into unmanageable debt.

Whilst problem debt is often viewed as an urban issue, it is clearly a rural issue too (connected to other issues such as income, access to services, housing, transport and energy which make debt issues more acute in a rural setting).

We need to improve our data and information collection so we better understand how many people are in problem debt, at risk of problem debt, or in a debt trap in rural areas and the challenges they face.

Secondly, what impact does debt have on people’s lives?

StepChange estimates the social cost of problem debt in the UK to be £8.3 billion. This sum is a result of additional welfare benefits, moving and eviction costs, lost productivity and demand for care, support and other services that people rely on as a result of problems linked to their debt.

CAB’s report on the debt effect highlights how unmanageable debt is closely related to wider problems in people’s live (e.g. financial exclusion, family breakdown, unemployment, low pay, poor physical or mental health).

CAB’s experience of giving debt advice to over 350,000 people a year suggests more than half of clients (54%) have a problem in at least one other area, and nearly 75% of debt clients said they felt anxious or stressed because of their debts.

They found people with unmanageable debt were 24% more likely to have a mental health score at the bottom quarter of the population. They also found debt problems meant people were less likely to be willing to take major life decisions. Another survey of 1,400 people in financial arrangements to deal with their debt found 84% felt as though their debts had an impact on their mental health.

A further report by The Children’s Society and StepChange sought to lift the lid on the devastating impact debt can have on children. Their findings show that children are suffering worry, anxiety, bullying and are going without essentials as their families are trapped in problem debt.

According to Matthew Read, the chief executive of The Children’s Society, “families are increasingly relying on debt to make ends meet – but we’re in danger of ignoring the impact this is having on children now and in the future. We cannot allow children to pay the price of debt.

With little savings to fall back on, it can take just one unexpected set back – like illness or being made redundant – to trip a family over the edge and into a debt trap that can feel impossible to escape from. This research exposes the shocking reality of parents lying awake at night worrying and unhappy children going without.”

While there are a plethora of examples of people who have paid off debt – the headlines include ‘I’ve been completely debt free for one year and here’s how my life has changed’ or ‘how I went from being £36,000 in debt to being back in black’ – and while the MAS has real life examples of how people have got out of debt; there are fewer examples of people recording their actual lived experiences of accumulating and living with problem debt.

Over the last few months I have been evaluating a project delivered by CAB which helps people to get on top of their money in the broadest sense. While the project is leading to behaviour change, with clients sorting out money problems before they become unmanageable, respond to key changes in their life, and get support to manage their money to limit wider effects (e.g. eviction, homelessness); the clients were reluctant to talk about finances with their families, friends and local community.

Clients described how “I was getting into more and more trouble, more financial difficulties, and before them [CAB] I didn’t know where to turn”; “I was living day to day, I got into a lot of debt, I thought I was going to lose my home, I couldn’t afford food. They [CAB] helped me with managing my debts and budgeting, they also helped me get food parcels and put me in touch with local charities.

“Before them [CAB] I didn’t who to turn to”; “without them I would’ve carried on struggling, there’s no doubt about it. I don’t like to ask family and friends and I try to stand on my own two feet”; and “if I hadn’t received helped from them [CAB] I think I would have had a breakdown as I really wasn’t coping.”

Thirdly, what can be done to address problem debt?

Returning to an earlier figure of one in six people in the UK being over-indebted at any one time, according to MAS less than one in five people seek advice.

Debt advice is seen as a key way of helping people ‘on the edge’ as well as those already with problem debt. In England and Wales, debt advice is provided by a range of organisations including Citizens AdviceEast Midlands Money AdviceCapitaliseMoney Advice West and Greater Merseyside Money Advice. They offer a range of services over the telephone, online, by email or face-to-face. The UK Government has also put together a range of debt help schemes to help people resolve their debt problems and become debt free.

The debt advice sector is diverse, with a range of approaches and working models. MAS research found one of the sector’s key strengths to be kindliness and compassion, combined with high levels of technical knowledge and experience. However, while the sector is set up to tackle immediate financial challenges and deal with ‘crisis’, supporting clients to make longer-term improvements to their financial situation to prevent them becoming over-indebted again has been less of a focus.

MAS also describes a need to address wider (non-debt specific) issues and improve the identification of individual levels of need to then tailor the best means of providing support.

MAS evaluates the impact of the debt advice services it funds. Initial findings published in January 2017 found debt advice resolves clients’ critical issues, with 93% of clients agreeing actions to take following advice and 68% saying the advice they received resolved the problems they asked about. Debt advice was found to give clients the knowledge they needed to deal with financial difficulties – with 83% of clients feeling more in control of their financial situation.

Debt advice was seen to improve clients’ financial capability – with 89% checking their income and expenses more regularly. Debt advice also led to improvements in clients’ wellbeing – with 73% of clients saying they were less stressed, 62% saying they were sleeping better, 63% feeling their mental health had improved, 69% feeling their relationships with friends and family had improved and 71% saying they are now performing better at work.

There is, therefore, an increasing focus on preventative money / debt advice as well as helping those already in problem debt. According to the CAB there is a preventative advice gap. One of the reasons people don’t get money advice is that it is not designed or delivered in a way that helps them avoid getting into financial difficulties.

They found: (i) advice is not offered at crucial times in people’s lives, with some 23 million people not offered advice at key moments in their lives; (ii) advice is seen as a last resort – 50% of consumers are likely to consider seeking help for a debt than for general money management; and (iii) advice is too narrow – over 1 million people who have had financial guidance did not get help with a related issue such as housing or work.

The MAS has a ‘talk money worries’ campaign which includes spotting the signs that someone is in money trouble. MAS believes money guidance should be offered to people at key momentsin their lives – to help them adjust to changes, review their financial situation to sort out any problems before they become unmanageable and encourage people already in problem debt to get help to manage it and limit its wider effects.

StepChange describes how a lack of financial resilience is tipping people into a debt trap as part of calls for Government to create ‘safety nets’ to help people cope with ups and downs.

HM Treasury recently launched its ‘breathing spaces’ call for evidence. This is exploring whether more people might be encouraged to seek advice, or seek it earlier than they would otherwise have done, if there were greater incentives for them to do so. In Scotland, for example, people in debt entering into repaying plans have a statutory right to have their fees and interest frozen under the Debt Arrangement Scheme (DAS). The evidence call is seeking to gather information and insight about whether a six-week breathing space could be designed – who should be able to access a breathing space, how should a breathing space be activated, how can it be simple and practical to implement for debtors and creditors? The call closes on 18 January 2018.

CAB has further identified a ‘referral gap’. This is where people raise money issues first with professionals such as doctors, banks or a Local Authority. When these professionals are not able to offer help directly, they need to be able to refer people onto appropriate and timely money advice. However, CAB polling found this didn’t always happen, with around 3.4 million people who have raised money issues with a trusted professional not receiving advice or a referral.

While some of the organisations offering debt advice provide outreach services in rural areas, since the closure of the Commission for Rural Communities there has been relatively little work looking at the advice and support needs of people living in rural communities suffering from money and debt problems.

What is rural coverage of debt advice services like and how can this be improved? Are Government schemes being taken up by rural dwellers?

For many people borrowing (‘credit that is bad for you’) is unsustainable. More people than ever are not able to cope with a sudden drop in income or other sudden change in their financial circumstances, not having the savings needed to mitigate this or some other rainy day.

Some people build up problem debt over time while for others it can be triggered by a single event. If it’s almost impossible for anyone to be ‘debt free’ over the course of their life, what more can be done to prevent people (in rural and urban areas) from falling into a debt spiral?


Jessica is a researcher/project manager at Rose Regeneration; an economic development business working with communities, Government and business to help them achieve their full potential. Her current work includes supporting a Lottery programme to help people into paid work; research for the NHS on rural workforce recruitment and retention issues and supporting a community rail partnership. can be contacted by email telephone 01522 521211. Website: Blog: @RoseRegen


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