DEBT: The Money Trap

Mark Newbury recently advised a young man who had debts totalling 23,000. He had multiple credit cards and had used one card to pay off others. He had probably borrowed 10,000 at the most. The rest was made up of interest and default charges. He was 21.

Such massive debts are rare. But Newbury, a money advice worker with Newcastle City Council, reports a steady increase in young people with debt problems.

Some are students struggling to meet the payments on their overdrafts.

They may have credit card debt too. "They don't want to tell their parents how much debt they've run up," explains Newbury. Some are young workers in their late teens and early twenties who have run up credit card or store card debt. They tend not to have bank loans because they are not earning enough.

Lone parents in their early twenties come seeking help for accumulated debt. They might have taken out a 100 loan with a home credit company that specialises in loans to low-income families. With high rates of interest, that 100 will be a debt of 150 in six months' time, says Newbury.

"They pay back the 100 but they still owe 50. So they take out another loan for 100, of which they will only get 50. But they still owe 150.

That debt will build up over years and once begun it is very hard to get off the treadmill."

Young parents also often have catalogue debt. The money tends to go not on luxuries or high spending, but shoes and clothes, presents and bedding.

Sue May is project manager of NCH Rotherham Bridges project, providing statutory leaving care services on behalf of Rotherham Social Services.

She finds that responses to debt among young people vary, but it remains a massive issue.

"A debt of 10-20 will become a major source of anxiety, and is very difficult to pay back when you are on a Jobseeker's Allowance of 42.70 a week," she points out. "Young people are prey to unauthorised credit sharks that float around. Some of our young people get into debt through their bank accounts. But most get into debt simply by non-payment of bills."

Heather Lewis, a Connexions personal adviser based in Crewe, agrees that young people will respond in varied ways: "Some young people act as if they haven't got a care in the world. They'll take a crisis loan and spend it on booze. That's the nature of being 17 or 18. Other young people worry about it."

Defaulted crisis loans figure largely in her debt workload. So, unexpectedly, do water rates. Young people in council accommodation are responsible for their own water rates. Many neglect the charge of around 3 a week.

"It's only a few years later when they want to move that they discover they owe three or four hundred pounds and the council won't rehouse them until the arrears are cleared," Lewis says.

A typical scenario seen by Janise Narayan, money advice worker at NCH dealing with a debt project in Lowestoft, is the build-up of catalogue and telephone debts and rent arrears, exacerbated by patchy employment or surviving on benefits.

"There have been cases where young people have owed a few thousand pounds," she says. "Others have isolated, small debts of a hundred pounds or so.

But in either case, it can cause a great deal of worry."

What happens when a young person cannot meet his or her debts depends on the policy of the creditor. There may be frequent letters and telephone calls demanding payment. Then a default notice will call in the whole debt at once. The debt might then be sold on to a collections agency. Endless letters will begin again, increasingly nasty and persistent. It may even be sold to another collections agency.

Somewhere along the line, a county court summons will be sought. That gives companies the means of enforcing the judgment. If the young person breaches it by missing a payment, a bailiff's warrant can be issued. That can mean eviction or property seized and sold at auction.

There is a myth that companies will write off debts if a young person obviously has no money. They do not. Circumstances change, and a young person may have 30 years of working life left. Collection agencies do not give up. Even when a situation is hopeless, companies will take property.

One adviser saw bailiffs take a woman's carpet. It had no value and ended up dumped, but the act sent a message to others on her estate.

Lesley Whittaker, young person's money adviser at Mancroft Advice Project in Norwich, was contacted by a young woman with rent arrears. The housing association had agreed not to evict her if she paid 60 a week towards her arrears. Under pressure, she agreed. But she was living on just 25 a week from a student loan, says Whittaker. She could not afford it and defaulted.

She was in crisis when she was told bailiffs would evict her in seven days. Whittaker went to court and renegotiated the instalments. But without that highly specialist support, the young woman would have been evicted.

One problem is that no one likes to seek advice for debt. Many people are in denial. It is easy to bin and forget demands and reminders. Partners and friends sometimes encourage reckless behaviour. Young people may have other issues, such as health, drugs, gambling, mental health and learning difficulties, that complicate the situation.

There are recognised debt procedures. An experienced adviser, generally contactable through a Citizens Advice Bureau or local council, will assess and prioritise debts. They will gather financial information for creditors and negotiate time to pay. They can help with budgeting and planning.

"Young people in debt need these recognised procedures," says Narayan.

"But they need to be tailored to them." Their lifestyle patterns mean that just keeping appointments can be a challenge. They can be vulnerable and face many hurdles and conflicting priorities.

That is why Whittaker stresses the need to look at the whole picture: "Some young people would come in and their health was deteriorating. My aim would be to get their health back on track: to get them eating. You have to look at it holistically."

That is where the relationships built by youth workers can help. They may be the first to realise something is wrong. And they can offer what Whittaker calls "a cross between encouragement and reminding", to keep the momentum going and not to lose heart.

MONEY MANAGEMENT TIPS

A balance sheet for youth workers

- Wise up about money, interest and debt. Be prepared to help young people draw up a budget. Find out how prepayment and easy-payment schemes work. Know which are priority debts and which can wait.

- Know your way around the system. What sources of income, grants and benefits are open to young people?

- Accompany young people to banks, councils, benefit offices and advice centres, which often give young people the brush-off. A bit of hand-holding can help them get what they need.

- Some young people may be in denial about debt. Even those who want help may feel too isolated to know where to go: listen and be available.

- Creditors sometimes harass clients with repeated late-night phone calls and threats. Do not let young people get bullied into unrealistic repayment plans. They have a right to eat and keep warm.

- Know when to refer on. If debts are big or pressing, you need specialist help from a money advice worker or debt counsellor.

- Never promise a quick fix. Getting out of debt is long, slow work.

Be around to remind and encourage them.

ME AND MY DEBT

Young people from the Bridges project in Rotherham talk about getting help with their debt

- Michelle Hilton, 18

I've been in debt. Still am. It's not a lot of money, but it is to me because I'm only on 42.70 a week for food, rent and everything. It's not easy; I'm still struggling. I owe a 52 mobile phone bill. I'm scared because I don't want a debt collector coming round. I bottled it up, but then came to Bridges quite upset about it. A worker talked me through it and told me what I could do, phoned the company and made an arrangement to pay 8 a week. It's helped a lot. I wouldn't have known what to do otherwise.

- Caroline Hinchliffe, 20

When I moved into my house I claimed housing benefit, but I got into 200 rent arrears because my claim wasn't processed. I got letters wanting to take me to court and it really upset me. I had to pay rent to stop them taking me to court until my benefit was sorted out. I was paying it out of my statutory sick pay, which was only 60 a week. I got into debt with friends and family. I'm paying it back at 5 a week.

My project worker came with me to meetings at the council to try to sort it all out. They wouldn't listen to me. They were acting like I didn't have a clue what I was talking about. I felt discriminated against because I'm young, but most of the time I didn't have a clue what they were saying.

- Sally Heald, 23

When I was 19 I was working, but I lost my job and had to go on Job-seeker's Allowance. I went from 80 a week to 60-odd a fortnight.

I had 15 a week for food. If I wanted clothes I wouldn't pay so much on bills or food.

I did have a loan last year for my son's second birthday party because he hadn't had one for his first. I'll never, ever have a loan again. You have a loan for 100 and end up paying back 200. They say it takes so many weeks, but it turns out a lot longer. It's not a loan shark; it's a proper place in town. If I need anything I'd rather just save up and pay for it myself.

Bridges is good. You can go and have some toast if you're short of food.

On Wednesdays, they cook or have a takeaway so that they know you're having at least one decent meal a week. They can't go around giving people money because a lot of people would just spend it on cigarettes or booze.