According to research published by TDX Group, “problem” unsecured consumer debt is currently at approximately £25billion in the UK.

The company further reports that one million people have problem unsecured debt in the country, each of whom owes an average of £25,000. They stress that the current changing economic conditions will continue to result in more people facing debt.

“Sadly, our research shows that 90% of people taking out a debt solution sign-up with the first organisation they contact,” said Mark Onyett, CEO, TDX Group.
“Given that many of these companies only offer one type of solution or are ‘biased’ towards those options such as IVAs, which offer higher margins for them, many people are choosing the wrong solution for their debts.”

Onyett adds that this data sheds light on why TDX Group has estimated that up to 45% of individuals entering into an IVA don’t complete them, and that up to 15% of these fail in the first year. As fees paid to an IVA company can range vastly between £5,000 and £9,000, Onyett reports that this can result in worse situations for clients. This is mainly due to the fact that these fees are derived from the debtor’s repayments.

In their report, UK Problem Debt – consumer crisis or efficient market?, TDX highlights how the dramatic decrease in UK house prices and an increase in personal inflation is translating as a consistent increase in numbers of people suffering from debt-related crises. Congruent with the global impact of the credit crunch, tougher lending structures and policies among many companies may not yield any time soon, leaving many individuals stranded for solutions to their debt dilemmas.

The report warns that there will be fewer refinancing solutions, such as remortgaging and homeowner loans, available due to banks and building societies tightening-up their lending criteria.  This may lead to a doubling in the number of people taking out repayment plans in the form of IVAs and debt management plans.

Stressing that service and advice offered by some organizations that provide these services – in comparison to what they charge for such services – can be significantly mismatched, TDX Group suggests that this discrepancy can result in “many consumers choosing the wrong debt solutions.”

“These issues need to be addressed urgently as we expect strong growth for the debt management market during 2008,” said Onyett. “Thankfully, a number of initiatives such as  the Straightforward Consumer IVA (SCIVA), which will improve standardisation and efficiency in the market and the Simple IVA (SIVA), which is likely to be introduced towards the end of this year promising a simpler, lower cost environment for insolvency practitioners, will make a huge difference in terms of the quality of service provided. ”

The group’s report indicates that 400,000 people took out new debt solutions for their unsecured debt in 2007 alone, and that the global credit crisis could mean that IVAs and debt management plans will double throughout this year. The debt solution market should focus on advances in service quality and reduced fees, according to TDX.

Further suggestions, in accordance with their research, are automation of information exchange and standardisation of data. The group reports that a savings of up to £10 in resources and administrative costs could be achieved by these means.

In summary, the group reports that “as financial difficulty in the UK becomes a wider problem and the debt management industry continues to evolve, there are opportunities for all parties to create a better landscape for the consumer.  Education and the provision of practical advice are key, and creditors and the insolvency industry need to address several concerns including standardisation, fee levels and improving product options.”