THOUSANDS of hard-up households are facing a "debt time bomb"as the cost of living continues to bite.
More people than ever are facing severe debts, fresh data shows.
bankruptcies and debt relief orders (DROs) have risen in recent months.
The number of people taking out a debt relief order (DRO) across the England and Wales soared to a record in the past three months.
A total of 8,438 DROs were taken out between July and September this year, according to the latest figures from the Insolvency Service.
This marks a 49% jump compared with the same quarter in 2022, and the highest quarterly number since they were introduced in 2009.
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A DRO is a formal way for people to deal with their debts.
You don't have to repay debts for an agreed period of time, usually a year, and creditors can't take action against you.
This only includes debt piles of up to £30,000.
The number of bankruptcies also increased by around 8% from the previous quarter, and 18% from the same period last year.
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If you’re in severe financial difficulty you can consider going bankrupt, which will clear your debts.
You can apply for bankruptcy, or a company or person you owe money to may petition on your behalf (if you owe them at least £5,000).
Alice Haine, personal finance analyst at Bestinvest, warned the increase in both of these forms of insolvency represent a "looming debt timebomb".
She said: "The rise in bankruptcies and DROs in England and Wales in the third quarter of this year highlights the increasing financial strains people are facing as they grapple with continued cost-of-living pressures and sky-high borrowing costs.
"It also suggests more individuals consider the bankruptcy or DRO route the only solution to remedy their debt woes as rising living costs prevent them making any contribution towards paying off their liabilities."
The number of people needing "breathing space" from their debts also jumped, according to the figures.
This is a government scheme which gives you the right to legal protection from creditors for up to 60 days.
There were 23,089 breathing space registrations in the third quarter of 2023, which was a 26% increase compared with the third quarter of 2022.
Within this total, 22,722 were standard breathing space registrations and 367 were due to mental health reasons.
A mental health crisis breathing space is for someone who is receiving mental health crisis treatment.
It lasts as long as the person’s mental health crisis treatment, plus 30 days.
The breathing space scheme isn't just for those with mental health issues though.
As mortgages, rents and borrowing costs continue to rise, many are seeing their incomes eaten up by every day living costs, Ms Haine added.
UK households are estimated to owe a record £22million in unpaid essential bills, according to Citizens Advice.
Half of those the organisation helps are grappling with a negative budget – where their income isn't enough to cover household bills and essential expenses.
Ms Haine said: "With Christmas – traditionally the most expensive period of the year for households – just around the corner, there are warning signals of a looming debt time bomb as more people take
on riskier forms of credit to balance the books."
The latest debt data also comes as fresh figures from the financial regulator reveal that more people are turning to Buy Now, Pay Later (BNPL).
An estimated 14million people made use of the unregulated borrowing at least once in the six months to January 2023, according to the Financial Conduct Authority.
It found that frequent users of BNPL are more likely to be in financial difficulty, such as having rising debts or missed bill payments.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Our research shows a significant increase in the use of BNPL over the past year.
BNPL is not regulated by the FCA and borrowers are not protected in the same way as other borrowing such as loans and credit cards.
Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “On paper, the fact there’s no interest to pay on money borrowed this way makes it a very sensible option to help us manage our budgets.
"There’s no doubt that millions of people are taking advantage of BNPL in a way that works for them.
“However, for others it becomes a dangerous habit – encouraging them to buy things they don’t really need and can’t afford.”
How can I get debt help?
If you're concerned about debt, don't bury your head in the sand.
Citizens Advice says it's important to work out a budget and keep an eye on your bank balance.
Try and pay off more than the minimum on credit cards each month, and pay your most expensive credit card first.
If you've got several debts and can't pay them all, it's important to prioritise.
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don't pay.
Groups like Citizens Advice, StepChange and National Debtline can help you manage your debt and negotiate with your creditors.
You should always have a look at what free options are available for managing debt before you turn to a private firm for support.
There's also a specific government scheme to help manage debt called Breathing Space, which gives you the right to legal protection from creditors for up to 60 days.
The FCA said consumers can get free and impartial advice from the MoneyHelper website or by telephone on 0800 138 7777.
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Meanwhile, experts have revealed four ways you can clear your debt and those you should avoid.
Plus, here are the six most common questions a debt expert is asked – including what to always pay first.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
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