Evaluation Scotland Wales
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insight

Sustaining debt repayments: Experiences of people in informal repayment arrangements

Evidence type: Insight i

Context

There are currently a range of debt management options on offer for individuals, the availability of which is dependent on a number of factors, including the type of debt, whether the person in debt has sufficient income to afford repayments and as well as personal circumstances. If an individual has no money to pay off debts and their circumstances are unlikely to change in the short-term, they have limited options for dealing with their debts. If an individual does have sufficient income to repay their debts, then the number of options is wider.

The focus of this study is on informally negotiated debt repayment arrangements including debt management plans and self-negotiated arrangements (either using a self-help model or via a third party agency), and the Debt Arrangement Scheme (a formal scheme) that is only available in Scotland.

This research sought to provide new evidence on peoples’ use and experiences of debt management plans (DMP), self-negotiated repayment arrangements (SNA) and the Debt Arrangement Scheme (DAS) in Scotland, and the sustainability of repayments made while in these arrangements.

The study

The aim of the research was to understand the consumer experience of being in a debt repayment arrangement.

More specifically the research sought to understand:

  • the reasons why some people are successful in maintaining their debt repayments, whilst others fail to keep up their repayment arrangements; and
  • whether there are any differences between people’s experiences of being in an informal debt repayment arrangement, such as DMP or SNA, compared to the Scottish formal DAS.

The results of the research are intended to inform the policies and behaviour of creditors, debt management companies and the debt advice sector in how best to support their customers through debt repayments to help prevent repayment arrangements from failing. The research also seeks to provide evidence for Government policy in relation to a protocol on best practice and the need for a statutory debt management scheme in England and Wales.

The research had both qualitative and quantitative elements, including an online survey and follow-up interviews with a selected group of survey participants.

Key findings

Affordability: Drawing on all of the evidence from this research study, the key factor determining whether debt repayments were sustainable or not was affordability.

Debt size, repayment amount and work status:

Analysis of the survey data shows that ease of repayment was linked to:

  • The size of debt - respondents with the lowest debts levels found managing their repayments easiest.
  • Repayment amount - where repayment amounts were more than £30 per month the difficulty of managing repayments increased.
  • Work status - households with two adults in full-time work were less likely to find repayments difficult to manage compared to households where there was just one or no adults in full-time work.

Unexpected circumstances: Unexpected changes in circumstances made debt repayment arrangements more or less affordable. Positive changes in individuals’ circumstances enabled them to increase their regular repayment amount, or to pay off a lump sum and complete their debt arrangement sooner. Detrimental changes in individuals’ circumstances, such as a job loss, relationship breakdown, or household bills going up, made repayment amounts less affordable.

Affordable repayments: Qualitative evidence highlighted the importance of careful budgeting to ensure that repayment amounts are set at an affordable level. Where repayment amounts were set at an affordable level at the outset, on-going repayments were easier to sustain.

Creditor behaviour: The behaviour of creditors and debt management companies influenced the success of repayment arrangements. Survey respondents who found it easy to manage their debt repayments were significantly more likely to say their creditors had been helpful than those who found repayments difficult.

Motivation: The motivation of individuals was not a key factor in whether repayment arrangements were sustained. Interviewees had a strong desire to pay off their debts and see their arrangements through. Even interviewees who were struggling or had failed to sustain their repayments still wanted to pay off their debts.

Points to consider

Methodological limitations:

  • The survey used a relatively small online sample of just over 1,000 people, and an interview panel of 24 people. Accordingly results should be treated with some caution.
  • The evaluation and conclusions drawn from the available evidence appear robust and worthy of consideration. Evidence is tested for statistical significance.

Relevance:

  • The study is relevant to those undertaking the study or consideration of informal debt repayment arrangements. It provides insight into the experiences of people in informal debt repayment arrangements and the Scottish Debt Arrangement Scheme, and the factors influencing the sustainability of debt repayments.

Generalisability/ transferability:

  • The study is transferable to those investigating debt repayment in similar contexts to the UK. It is of value to researchers and practitioners working with informal debt repayment clients. Its conclusions may have value to similar research elsewhere in the world.

Key info

Year of publication
2012
Country/Countries
England, Scotland and Wales
Contact information

Graham Lindsay - Group Director for Responsible Business, Lloyds Banking Group / Joanna Elson - Chief Executive Money Advice Trust