How illness and vulnerability can lead to debt

People in debt who have an additional vulnerability such as an illness, disability, or mental health issue, are often worse off than other clients, a major debt charity has warned.

In 2017, one in five clients of StepChange Debt Charity had an additional vulnerability such as illness on top of their problem debt. New analysis from the charity now shows that they tend to be in a notably worse financial position than other clients.

In “Breaking the link: a closer look at vulnerable people in debt”, the charity reveals that mental health difficulty (43%), physical disability (4.7%), cancer (4.6%), and poor health (4.1%) all contributed to debt issues.

Debt problems are closely associated with certain forms of vulnerability, especially illness. StepChange says 77% of clients with a terminal illness, and 68% of clients with cancer, cited illness as the main cause of their debt problems.

Among those with mental health issues, 40% said illness was the main reason for their debt. Two in five vulnerable clients overall said that the main reason for them falling into debt was illness.

Common triggers of debt

Vulnerability can derive from situations, as well as personal characteristics. Bereavement, relationship breakdown, poor treatment by firms and many other features could all make someone vulnerable at certain times, StepChange says.

Its analysis shows 45% of vulnerable clients had a deficit budget (with less money coming in than going out), even after budgeting advice, compared with 30% of clients as a whole.

Over two thirds of vulnerable clients were receiving benefits, compared with half of those clients without a vulnerability. Vulnerable clients were more likely than other clients to be in arrears on household bills such as rent, utilities, or council tax.

StepChange chief executive Phil Andrew called on the finance sector, regulators and the debt advice sector to do more to help break the link between being vulnerable and being significantly worse off.

How to build your financial resilience

Mental health

Among 25-54 year-olds, 28% of those with a longstanding health problem, and 40% of those with a mental health problem, are in relative poverty (i.e. they have an income below 60% of the median income after deducting housing costs). This compares to around 18% for those without longstanding health problems.

The findings come from the IFS’s report, “Living standards, poverty and inequality in the UK: 2018”, funded by the Joseph Rowntree Foundation.

If you know that your mental health condition is contributing to your financial difficulties, you can discuss this with your bank.

Under the Lending Code, which banks must adhere to, any mental health information you tell your bank should only be recorded with the account holder’s consent.

If, for example, you have bipolar disorder, and there are times when you are more likely to overspend or sign up for extra credit cards, you can ask your bank to add a note to your file.

You could also ask your credit card company to contact you if they spot unusual or large purchases, or ask them to put a cap on what you can spend to help you manage impulse spending.

Sudden illness

Being diagnosed with a serious illness can have a devastating effect on your finances. You may need to take time off for treatment and recovery from surgery, or adapt your home to help you cope with your new condition.

Cancer charities have lots of information on managing your finances (see below). Macmillan Cancer Support says the financial impact of having cancer means the majority of cancer patients are £570 a month worse off.

It is calling on the government to make it a legal obligation for banks to have a duty of care for vulnerable customers, such as people living with the disease, before they reach crisis point.

This could include flexibility on mortgage payments, interest freezes on credit cards and loans or ensuring customers are signposted to financial help as early as possible.

Poor health and disability

If you are living with a long term health condition, or are disabled, you may also need help managing your finances now and for the future.

Budgeting and debt advice from charities can help you adjust to different financial circumstances. You don’t need to wait until you are in debt before you contact a counsellor. Seeking help before things get to crisis point is a much better option and early intervention can be invaluable in helping to sort things out.

The Money Advice Service, which has been set up by the government to provide independent money advice, says it is “never too early or too late to seek advice”.

If you are not in debt, but need help with your finances, you can ask a Money Adviser to give an overview of your money situation and provide helpful suggestions.

If they think you need more specialist help they can then refer you on to a debt adviser, or someone who can help you with benefit applications.

More information about debt and vulnerability

• The MoneySavingExpert guide to Debt and Mental Health is a free 44-page PDF booklet supported by Mind, Rethink, CAPUK and others, for people with mental health problems and those caring for them. It covers how to handle debts when unwell, work with banks, free debt counselling, specific tips for bipolar disorder or depression sufferers, whether to declare a condition and more.
• StepChange can provide extra support to vulnerable people: visit the website or call them on 0800 138 1111.
• The Royal College of Psychiatrists has a short animated film about Bipolar Disorder and how it can affect you.
• If you are struggling with debt and depression and need someone to talk to, you could begin by talking to your GP, case worker, consultant, psychiatrist, friend or family member. Alternatively, call the Samaritans on 116 123.
• Macmillan Cancer Support has a useful budgeting guide. It also explains how to check whether you are eligible for benefits.
• Citizens Advice staff get specialist training on how to deal with clients with mental health problem. Visit www.citizensadvice.org.uk or your local Citizens Advice Bureau.
• The Money Advice Service provides money guidance online and over the phone and can be contacted on 0800 138 7777, Monday to Friday 8am to 6pm and Saturdays 9am to 1pm. Information and guidance is also available on their website or via a webchat.
• “Breaking the link: a closer look at vulnerable people in debt” is available on the StepChange Debt Charity website.
• “Living standards, poverty and inequality in the UK: 2018” by Jonathan Cribb, Agnes Norris Keiller and Tom Waters can be found at the Institute for Fiscal Studies.

Last updated: 31 May, 2019