Citizens Advice is used to helping people who haven’t paid their bills. But in summer 2021, its data pointed to a spike in ‘negative budgets’.

This is where someone’s income doesn’t meet their essential outgoings, with data showing this had increased from 36% to 41% before climbing to 51% today “with no sign of stopping”.

While this shows the trend at Citizens Advice, according to Matthew Upton, director of policy at the charity, “if it was even remotely mirrored across the wider population then the simple maths dictates a debt crisis should follow”.

In his blog, he reveals how the cost-of-living crisis is “morphing into a household debt crisis”, as if income is lower than fixed outgoings, “debt should logically follow”.

Further, this isn’t a case about ‘personal responsibility’ or the usual conversations about ‘can’t pays’ or ‘won’t pays’ when it comes to debt.

He noted that Government support schemes such as the energy bills help “clearly had an impact”, with the number of people referred to food banks seeing a temporary fall in July 2022.

However, the biggest reason why the charity wasn’t flooded by people seeking debt advice then is because “people tend to be good at delaying their problems”.

Upton wrote: “Whether helping themselves, or helped by experts like our front-line debt advisors, people juggle around payments, prioritising payments with the most significant impacts. There is a natural time lag here — someone starts to struggle and begins by seeking help for the root cause — coming to organisations like Citizens Advice for help topping up their prepayment meter. The debt comes later, when tactics and interventions can no longer stem the tide.”

Debt time-bomb set to explode

And it appears the debt time-bomb is about to go off. Unsecured credit use is rising and has reached a four-year high. Meanwhile, credit card borrowing has surged 13.5%. Energy debt it also rising, and its disproportionately affecting disabled people and those with long-term health conditions.

For many, simply put, “the numbers still don’t stack up” and he said there’s a “wild west” approach when it comes to mitigating the impact of the crisis.

“Search online for options to pay off debts, and you’ll be bombarded by profit-seeking firms offering misleading advice about debt solutions which won’t help. Fall behind on bills and you could find unregulated bailiffs knocking at the door.

“This is solvable. All of these are well trodden policy debates”, Upton said.

Four key changes to help the most in need

Upton highlighted four points that need to change to stop debt time-bomb from going off:

1. Missing a monthly payment

With council tax in England, a missed payment results in a demand automatically generated for the whole annual bill by the Department for Levelling up, Communities and Housing. “They could follow the lead of colleagues in Wales, and end things like this”.

2. Regulation of bailiffs

Bailiffs are currently unregulated but Upton said “it’s time to bring third-party debt collectors under a proper statutory regulatory framework – one with teeth”.

 3. Viable options to wipe the slate clean

There are three main options when it comes to personal insolvency: Debt Relief Orders (DROs), Individual Voluntary Arrangements (IVAs) which is the most common, and bankruptcy.

“Every day, we’re seeing people misled by profit-seeking firms into IVAs which they can’t afford. When they inevitably fail to make their monthly payments, the individual is back at square one, while the firm has often pocketed £1,000s in front-loaded fees,” Upton wrote.

He added that there are parallels here with the growth of the payday loan industry a decade ago.

“A lot of money to be made, and lax or absent regulation. If people had FCA-regulated advice before deciding which debt solution was best for them, things could be a lot better. HMT are in the process of reviewing the personal insolvency regime — now is the time to act,” Upton wrote.

4. No overview of all the debt

Different Government departments, regulators and the Bank of England have different eyes on arrears and debt but Upton said that no one has an overview.

“This helps to explain the fragmented policy response, with everyone interested but no-one taking responsibility. What is tracked, isn’t necessarily dealt with, but it would be a good start,” he wrote.

He concluded that much more is needed to help households as a debt crisis is coming.

“We have a choice about whether to prepare”, he said.