Understanding Debt Solutions: Insights from Interviews with Individuals in Debt, Lecture notes of Communication

Download Understanding Debt Solutions: Insights from Interviews with Individuals in Debt and more Lecture notes Communication in PDF only on Docsity! 08/01/2018 Page 1 Becky Rowe Catriona Hay Adelaide Vinay The Effectiveness of Current Debt Solutions 08/01/2018Page 2 ▪ BACKGROUND: Objectives and Methodology ▪ SUMMARY: Findings, Challenges and Opportunities ▪ SECTION 1: Pre-solution: Setting the Scene ▪ SECTION 2: Obtaining a Debt Solution ▪ SECTION 3: Being in a Debt Solution ▪ SECTION 4: Post-solution PRESENTATION STRUCTURE 08/01/2018Page 5 Provide insight on the experiences of over-indebted people in relation to debt solutions Map clients’ journeys through debt solutions - from the circumstances which create a need for a solution, through to sourcing, securing, implementing and eventual outcome (and beyond) Investigate the extent to which solutions meet the needs and expectations of the client Identify barriers & problems experienced by clients at different points of their journey, and investigate the underlying causes of these QUALITATIVE RESEARCH OBJECTIVES Provide evidence-based findings to support the development of a series of recommendations regarding the debt solutions marketplace: in terms of potential changes and additions to the solutions themselves as well as how they are being communicated and implemented 08/01/2018Page 6 ▪ 47* in depth interviews carried out with individuals who had experienced or were in the process of experiencing six different debt solutions o Bankruptcy o Debt Relief Orders (DROs) o Individual Voluntary Arrangements (IVAs) o Debt Management Plans (DMPs) o Trust Deeds o Debt Arrangement Scheme (DAS) ▪ Broad geographical spread, covering six main geographical regions, with: ▪ 26 interviews in England – to understand experiences of bankruptcy, DROs, IVAs, DMPs ▪ 21 interviews in Scotland – to understand experiences of DAS, Trust Deeds and Scottish bankruptcy (sequestration) ▪ Interviews included debt solution journey mapping; discussion of financial documents and their hopes and ambitions for the future *Plus two additional interviews with respondents who had made informal arrangements with creditors but wrongly believed they had a DAS – taking the total to 49 METHODOLOGICAL OVERVIEW 08/01/2018Page 7 Broad geographical spread, covering six main geographical regions (London, Birmingham, Manchester, Bradford, Glasgow and Edinburgh) All respondents aged between 27 and 68 21 respondents in Scotland and 26 in England Included a range of incomes with a skew towards those with annual income of >£15,000 36 respondents were women and 11 were men Six respondents classified as BAME METHODOLOGY: DEMOGRAPHICS 08/01/2018 Page 10 SUMMARY: Findings, Challenges and Opportunities 08/01/2018Page 11 KEY FINDINGS Insolvency options were effective in clearing a debt for people. However, with limited help given with building financial capability, some built up new debts whist in solution, whilst others worried about how they would manage ‘post-solution’. In some cases, the immediate relief of the solution masked future problems – such as an inability to meet repayments or unexpectedly high fees. A small number of respondents amassed further debt while on their solutions and subsequently needed another. This meant that in some cases debt solutions had become part of a cycle of indebtedness Where positive experiences were recorded this was largely the result of a thorough upfront affordability assessment, ongoing provider communication and a level of customer control – as well as a positive attitude and motivation to remain debt-free Most respondents perceived their solution to have delivered against expectations; however people tended to have limited expectations other than immediate relief. This was often because people left seeking help until their debts had become completely unmanageable. It was not uncommon for people to seek advice from only one provider or to know very little about the range of debt solutions available. Consequently, many relied on the recommendation of a single provider (or adviser). Respondents largely sought help when they were under considerable duress and only when their debt problems had reached a ‘critical point’. Many needed continued, repeated triggers to take action. Whilst many found being on their debt solution difficult, the default was to ‘just keep going’ rather than contact their providers for help. Many felt bound by the ‘formal’ nature of debt solution contracts and felt they had to suffer in silence. A number of respondents ‘didn’t complete’ their solution. Whilst often this was due to affordability issues, it could also be due to finding a solution that they perceived to be more appropriate 08/01/2018Page 12 PRE-SOLUTION OBTAINING SOLUTION POST SOLUTIONIN SOLUTION ADJUSTMENTEARLY DAYSSEEKING HELP CLOSURE WHAT HAPPENED NEXT? DECISION MAKING NEEDING HELP GROWING DEBTS CHALLENGES ACROSS THE JOURNEY ▪ Low expectations leads to a false sense of satisfaction ▪ Impersonal and inconsistent communications ▪ Little reflection on suitability within annual reviews – including long-term affordability ▪ Additional debts accumulated ▪ Displaced debts on family members ▪ Lack of control leads to disempowerment ▪ Little to no awareness of solutions ▪ Limited ‘shopping around’ ▪ Lack of informed decision-making ▪ High anxiety ▪ Inconsistent affordability assessment procedures ▪ Many left seeking help too late, often due to shame and embarrassment ▪ Little awareness of debt advice ▪ Some felt alone and unsupported ▪ Hadn’t learnt better money management strategies ▪ Some had learned how to ‘work the system’ 08/01/2018Page 15 SOLUTION SPECIFIC RECOMMENDATIONS BANKRUPTCY AND DRO ▪ Ensure providers communicate the risks associated with breaking solution sanctions (e.g. continued credit use) ▪ Ensure providers engage in thorough discussion with clients about the impact the solution will have on their whole household ▪ Provide support or after-care at the end of the term for those who feel they are ‘being thrown back into the world’ DMP ▪ Ensure that providers communicate T&Cs (e.g. fees & length) in a way that means clients fully understand them ▪ Ensure that clients attracted by the ‘informality’ of DMPs fully understand their implications ▪ Better support clients to disclose details of all their creditors during the set-up phase ▪ Ensure that all creditors receive (and acknowledge) communications when DMPs are set up ▪ Ensure DMPs are not too lengthy as this can lead to demotivation IVA AND TRUST DEED ▪ Ensure thorough income and expenditure assessments are delivered, across the whole sector ▪ Ensure users understand they are entitled to have a break from the solution ▪ Provide post-solution advice on financial management without a structured repayment plan DAS ▪ Increase awareness and understanding of DAS in Scotland 08/01/2018 Page 16 SECTION 1: ‘Pre-solution’ - Setting the scene 08/01/2018Page 17 PRE-SOLUTION OBTAINING SOLUTION POST SOLUTIONIN SOLUTION ADJUSTMENTEARLY DAYSSEEKING HELP CLOSURE WHAT HAPPENED NEXT? DECISION MAKING NEEDING HELP GROWING DEBTS NOT COPING PRE-SOLUTION: Growing Debts and Needing Help N.B. An individual’s journey into and through a debt solution is a complex and often an un-linear process – with individuals moving in and out of the journey at numerous points. The above journey is therefore to aid presentation. 08/01/2018Page 20 Location: Bradford Income: £6.5k Employment: Stay at home mother Household: Two children, unemployed partner Solution and status: DRO, completed, currently taking out another solution (DMP) Debt amount pre-solution: £15k (credit cards, store cards, personal loans, unpaid bills) Provider: Step Change Debt now: £5k in debt (credit cards, water bills, council tax, CWP, contraventions) “ I’ve got two kids and a partner who’s been sanctioned for support. We haven’t got anything ” JACKY, 36 STRUGGLING 08/01/2018Page 21 Location: Glasgow Income: £12-15k Employment: Receptionist at events company Household: Single Solution and status: Trust Deed, completed Debt amount pre-solution: £21k(personal loans, credit cards) Arrangement: £100 per month for 3 years Provider: French Duncan Associates (fee) Debt now: No longer in debt “ I was making minimum repayments of £185 per month for 10 years. I had to give up acting. It was exhausting” MARTIN, 46 LEGACY DEBT 08/01/2018Page 22 Location: Glasgow Income: £20k Employment: Part-time cleaner Household: Married, six children (two live at home) Solution and status: Bankruptcy, completed Debt amount pre-solution: £21k (Credit cards, catalogue loans, store cards, gas and electricity bills) Provider: Step Change Debt now: approx. £10k in provident loans, council tax, credit union, government scheme “Every year I take out a £3500 loan for Christmas. I’m also going to get another one from the provvy to send my kids to Florida.” MAGGIE, 52 LIFESTYLE DEBT 08/01/2018Page 25 INCOME SHOCK Unexpectedly indebted LIFESTYLE DEBTS Debts accumulated over time LEGACY DEBT Stuck in minimum repayment trap ▪ More likely to be in networks where debt is ‘normalised’ and there is more open discussion on solutions ▪ More likely to be ‘first timers’ to debt solutions ▪ Less likely to share experiences of debt or discuss solutions with peers – often because of shame and embarrassment STRUGGLING Arrears and credit ‘only’ way to cope ▪ More likely to have been on a debt solution before More likely to give and receive advice about debt solutions ▪ ‘Knowledge sharing’ often restricted to specific solutions – largely based on personal experience ▪ Debt is more secretive so less open discussion on debt solutions Experience and knowledge of solutions varied by group 08/01/2018Page 26 BANKRUPTCY ▪ Most widely known about ‘solution’ – but also carries most stigma ▪ In some ways, feels most easy & straightforward – debts are cleared DRO ▪ Little awareness of solution across the board ▪ Limited understanding of the process and individual responsibilities IVA ▪ Many had heard of it, but few understood the key characteristics ▪ Felt to be one of the more complex debt solutions DMP ▪ Many understood the concept of a DMP, but didn’t necessarily know this is what it is called ▪ Lots of confusion between DMPs and other informal arrangements with creditors TRUST DEED ▪ Advertising had helped drive awareness in Scotland ▪ Detailed understanding of the solution was rare DAS ▪ Limited awareness across board ▪ Name very confusing, especially for those with limited understanding of DAS PRE-SOLUTION: Differences by solution 08/01/2018 Page 27 SECTION 2: Obtaining a Debt Solution ‘The debt was all too much. After my suicide attempt, my daughter pushed me to get help’ Lillian, Bankruptcy “The credit card company was so nice in the letter. They just said if I was experiencing financial difficulties I had options… it made me feel like I wasn’t the only one.” Karen, DMP PURSUAL BY CREDITORS BEING SERVED WITH A COUNTY COURT JUDGEMENT FEELING OVER- BURDENED ENCOURAGEMENT FROM FRIENDS AND FAMILY APPROACHED BY SOLUTION PROVIDER Specific ‘tipping points’ are difficult to pin down FEELING LIKE A FAILURE WANTING A FRESH START SEEING ADVERTISEMENTS REFERRED BY GP/HCP/ CREDITOR Continual and repeated ‘triggers’ to take action were often required for an individual to take decisive action ▪ Wanting life back / to be able to move on (them and their family) ▪ Getting rid of phone-calls and home visits from creditors/bailiffs ▪ Being able to sleep at night/reduce stress ▪ The legal consequences were too great not to (e.g. CCJ) ▪ Impact on job/livelihood ▪ Fear of losing assets ▪ Fear about other people finding out ▪ Embarrassment asking for help/fear of being judged ▪ Worry about not being able to get credit in future ▪ Practical cost of getting a solution BENEFITS OF TAKING ACTION FEAR OF SEEKING SUPPORT Often fears were not overcome, they simply started to become reality… The tipping point for many was when the benefits of taking action outweighed the fear of seeking support The circumstance a person found themselves in could impact on when they sought advice & whether it was entirely their decision More likely to delay seeking helpLess likely to delay seeking help More likely to be own decision to seek support (e.g. after actively researching providers) Less likely to be own decision seek support (e.g. required to access support after court order) INCOME SHOCK Tend to require fewer ‘repeated triggers’ as they are keen to return to normality as quickly as possible (though this is only possible if the situation has been resolved) STRUGGLING More likely to be required to seek support e.g. after receiving CCJ LIFESTYLE DEBTS Likely to seek help after direct contact from provider or through own research on how to build credit LEGACY DEBTS Keen to have a ‘fresh start’ but could take years and multiple contacts from creditors and/or direct contact from solution provider Location: Birmingham Income: £10-15k Employment: Part- time accountant Household: Two children Solution and status: IVA, currently in this solution Debt amount pre-solution: £26k(credit cards and overdrafts) Arrangement: £300 per month for 5 years Provider: PayPlan Debt now: Currently repaying and has been able to save ‘They did such as good assessment while I had cancer, they even thought about stuff I never thought of like pads and taxis to the hospital.’ SERENA, 36 INCOME SHOCK Whilst the thoroughness of income and expenditure assessments varied, the most detailed (and personalised) led to greater affordability, support and control ‘I get so stressed and upset that I normally throw everything away so I didn’t know what to give them or say really. When it came to what I had coming in and going out, I had no idea.’ Sam, Bankruptcy Whilst some were practically and psychologically unprepared for the detailed nature of affordability assessments, many found obtaining a solution surprisingly easy ‘They set it up and were very helpful…but I had no idea they were taking such high fees!’ Julia, DMP In general, third sector providers were associated with thoroughness (but also were more ‘judgmental’); private sector were more ‘sympathetic’ and ‘less invasive’ with their questions and comments. Many expected this as they were deemed to be ‘working for the customer’ and not the creditor The solution a person chose was dependent on both the recommendation of a provider and the motivations & prior knowledge of the person seeking help ‘My neighbour told me about bankruptcies. She said it was a good way to clear debt so I knew that was what would work best for me. I requested that when I went for advice.’ Lillian, 53 ‘I’d never heard of it before and I didn’t ask many questions. I think they just asked me what I owed and then they sorted it out for me.’ Ben, DMP For those with limited knowledge, deciding on a solution was often a ‘cloudy’ process, sometimes dictated by the recommendations of a single provider 08/01/2018Page 40 BANKRUPTCY ▪ Many were surprised they didn’t have to go to court ▪ Costs of bankruptcy can be off- putting ▪ Some stories of individuals planning a ‘second bankruptcy’ (and encouraging others to do the same) DRO ▪ Some evidence that individuals were manipulating their financial situation to become eligible for a DRO (sometimes encouraged by advisors) ▪ Difficulty of paying upfront fee could derail process ▪ Individuals weren't always told they could pay the fee in instalments IVA ▪ Felt to be one of the more complex debt solutions ▪ Respondents were least clear about fees for IVAs ▪ Viewed as a structured and serious process of repayment DMP ▪ Informality of a DMP can come across in the interactions – can feel temporary or less serious ▪ Some felt the process was less thorough (with some missed debts mentioned) TRUST DEED ▪ Interaction with provider is highly formal ▪ Respondents on Trust Deeds took them very seriously and were keen to ensure they complied with the rules DAS ▪ Poor labelling left some people unware they were on a DAS ▪ Little awareness of who provider actually was – whole process can verge on informal OBTAINING THE SOLUTION: Differences by Solution 08/01/2018 Page 41 SECTION 3: Being in a Debt Solution PRE-SOLUTION OBTAINING SOLUTION POST SOLUTIONIN SOLUTION ADJUSTMENTEARLY DAYSSEEKING HELP CLOSURE WHAT HAPPENED NEXT? DECISION MAKING NEEDING HELP GROWING DEBTS NOT COPING IN SOLUTION: Early days, Adjustment and Closure N.B. An individual’s journey into and through a debt solution is a complex and often an un-linear process – with individuals moving in and out of the journey at numerous points. The above journey is therefore to aid presentation. ‘I could have changed to a cheaper one but I was afraid of jumping into the unknown. I also didn’t know what that would do to my credit score. I just ended up borrowing from friends and family.’ Michelle, Trust Deed Many felt bound by the ‘formal’ nature of debt solution contracts and felt they had to suffer in silence Whilst many found being on their debt solution difficult, the default was to ‘just keep going’ rather than contact their providers for help ‘I felt like I was on a conveyor belt, being handed from one person to the next. Just form filling, no real questions about how I was or how I was planning to manage.’ Marion, Bankruptcy “There was no way I was going to be able to make those £300 repayments, my wife is disabled and I’m her only carer.” Patrick, IVA No end in sight Couldn’t afford repayments Had built up other debts/arears Became aware of provider fees Feel there might be a more suitable solution Get bored of repaying A number of respondents ‘didn’t complete’ their solutions Factors behind non-completion: ‘I used to cross out my payments in my diary each month. And now there’s no structure, I feel a bit lost.. And I’m scared it will happen again.” Martin, Trust Deed “I’m worried about being thrown back into the world.” Mario, IVA The end of debt solutions are perhaps a missed opportunity to help people “begin their new life” The ‘closure’ phase brought a similar experience across all solutions, with many worried about how they would manage ‘post- solution’ INCOME SHOCK Unexpectedly indebted STRUGGLING Arrears and credit ‘only’ way to cope LIFESTYLE DEBTS Debts accumulated over time LEGACY DEBT Stuck in minimum repayment trap ‘Fingers burned, lesson learned! And never getting a credit card again!” Miruna, DAS ‘I want to get my credit score back up. I need to buy a new couch ’ Karen, DMP Future intentions differed according to groups – with struggling and lifestyle debt respondents more likely to intend to use credit again INCOME SHOCK Unexpectedly indebted STRUGGLING Arrears and credit ‘only’ way to cope LIFESTYLE DEBTS Debts accumulated over time LEGACY DEBT Stuck in minimum repayment trap Many felt they weren’t in a position to be able to do anything differently post-solution (and that history was likely to, or already had repeated itself). Alternatively, they may have also begun to understand how the ‘system works’ and feel relatively comfortable with the idea of obtaining another solution For those who saw their situation as a ‘one off ’, the experience of being on a debt solution had been difficult. On the whole they expressed more commitment to avoiding repeating the situation. NB. These groups were more likely to have shown higher financial capability pre-solution. Confidence in ability to avoid entering into another solution varied by group Have a regular income/regular work Struggling to make ends meet Have a clear plan for household budgets Want a lifestyle that is unaffordable to them Already saving/had a plan to save Have already built up other debts Have encouragement from friends and family Could be negatively influenced by friends and family Have ‘money management’ role models Debt is normalised amongst peers See their debt solution as a one-off See debt solutions as inevitable Found solution hard going Wanted ‘easy’ way out Took the solution seriously Didn’t really engage with the seriousness of the debt solution H IG H C O N F ID E N C E L O W C O N F ID E N C E Factors that seemed to impact an individual’s confidence about avoiding future debt included: ROUTES INTO DEBT SOLUTIONS Respondents tended to find a provider first – often without shopping around, and then entered into the solution which was recommended to them Routes in included: word of mouth; contacting the provider themselves after seeing an advertisement online; being approached directly by the provider after entering their details into an online broke/debt information service; being referred by a charity or being referred by another professional or local advisor (e.g. GP, social worker) Very few ‘first timers’ to debt solutions did any shopping around – more just trusted the recommendation (and they didn’t really know how they would make a choice – what characteristics make different providers better or worse, or how they might find out about these…) Many of those who had more than one solution, also went back to the same provider to take out repeated products. For some, the first experience with a provider meant that they felt more able to shop around or do the process themselves ROUTES INTO SOLUTIONS: CASE STUDY Mario, 53 Declared bankruptcy after failing to complete his IVA. He explained that he was unable to afford his IVA after he had miscalculated how much income he had at the end of each month. Mario’s journey into this solution began when he went to see his accountant after being rejected for a credit card application. His accountant informed him that he was in over £100k worth of debt and that as a result he would be referring him to a debt management provider. It was this fee- paying provider who carried out an affordability assessment and entered Mario into an IVA. However, after Mario was unable to keep up with his repayments he returned to his provider who explained to him that he would need to declare bankruptcy instead. At neither point did Mario shop around for a provider or a solution. AFFORDABILITY ASSESSMENTS Poor affordability assessments were often the result of both miscommunication from debtors and lack of detail/accuracy from the provider in response By and large respondents had little knowledge of what ‘good’ looked like. Instead, a focus on the immediate relief afforded to them by the solution clouded their judgement regarding the initial affordability assessment. In fact, very few went into a process with any clear idea what they spent – both as an individual & household Those who did articulate that they had a ‘poor assessment’ were amongst those who had not completed their solution because they felt they were unaffordable (In some cases, this could be to do with the individuals lack of willingness to live on the agreed budget per se) A common problem cited was not taking into account ‘sundry costs’ – all the little things that accumulatively cost a lot. Or not accounting for unexpected costs such as breakdowns, bills, MOTs etc. The providers who seemed to do affordability assessments well were extremely active in prompting respondents to think through lots of these more detailed expenses. Such as medical costs, taxis to hospital appointments, school trips etc. However, this level of detail was not always common. ACCESSING CREDIT: CASE STUDY Carl, 37 Had accumulated debt on a number of credit cards, un-paid bills and high- interest loans. Eventually he entered into a DRO in 2014. In that same year, he took out a credit card with Capital One which he didn’t think he was eligible for given that a number of his debts were for unpaid Capital One credit cards. He explained; “they definitely knew I was on the DRO. They didn’t seem to think it was a problem.’’ At the same time, he asked his partner Sherry to take out her own Capital One credit card to support the family during this period of time. This was the first credit card Sherry had ever taken out. EXPERIENCES OF THOSE ON ‘INFORMAL SOLUTIONS’ Some had ‘spoken to’ their creditors, but it was often at a stressful/pressured time and they didn’t feel able to communicate effectively or assert themselves clearly For those who had complex debts with multiple providers, they found these conversations quite overwhelming (e.g. dealing with many different providers or keeping track of what different people were saying) During these conversations with creditors (prior to entering into a formal debt solution), many respondents did not really understand how to negotiate with the provider or what it might be possible to achieve through discussion. Some felt guilty and ashamed (believing that they should be able to pay or didn’t want to accept they had failed), others just saw the creditor as an adversary who was unlikely to give any ground. The only respondents in our samples who had set up ‘informal arrangements’ with creditors, had done so post-formal solution. These respondents were often surprised at how straightforward it had been to do The two respondents who had entered into a Token Payment Plan (provided by Step Change) prior to entering into their DMPs valued the ‘breathing space’ which it had provided them – despite not fully understanding their purpose or how they worked INFORMAL SOLUTION: CASE STUDY Karen, 37 Became indebted after taking out a number of unmanageable high cost credit products, catalogue loans and falling behind on rent and council tax. After receiving a number of communications from her creditors she contacted Step Change who put her on a Token Payment Plan for six months - prior to entering into her DMP. While not fully understanding what it was, she spoke positively of this TPP, and of Step Change, because it offered her some breathing space and some ‘time’ to assess what had happened.