Counting the cost of consumer credit

Hefty credit payments are forcing thousands of people to fall even further into debt, so says a report out today from the New Economics Foundation.

Debt can be horrible. I am currently paying off 3 debts. David, UK

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Modern-day pawnbrokers - cheque cashers and cash converters - offer instant credit but make their customers pay a high price in return.

Experts say it's often too high a price and want the government to rein in these lenders. But are there other answers to what has become the country's growing debt problem?

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We spoke to Neil Cooper from Debt on your Doorstep, and John Lamidey from the Consumer Credit Association.

Click here to watch our discussion on debt.

John Lamidey says:

Government sponsored research carried out by Mori and out last week shows that availability of credit doesn't impact on debt. The causes are: loss of income, family breakdown and having a baby - anything that's a fundamental disruption to people's lives. The majority of people with money problems have them through paying for utility bills or council tax. More than 95% of consumers handle credit well, most owe less than £500, only a few have difficulties. Credit is useful in smoothing out the peaks and troughs in finances. Demonising the credit industry doesn't help solve the problem. Commercial credit companies provide a service and most people use credit sensibly. They're used by 75% of the adult population and less than 1% are in arrears.

Neil Cooper says:

Debt among low income families is a major issue the government hasn't seriously addressed. It undermines their commitment to tackling child poverty. Up to 6 million families have no access to credit and half end up going to extortionate lenders, where they quickly find themselves with huge debts. The Government needs to come up with a co-ordinated strategy towards cracking down on extortionate lending. Affordable credit should be made available to low income families either through the government directly or together with banks - they need to make credit available and offer better money advice. Most people think the social fund isn't working because they offer small grants, and loans to people with low incomes, but it's a limited amount of money and many are turned down because they're too poor to pay the money back.

Our Business reporter Marcia Hughes has been looking at the issue of debt:

Salford Moneyline started up two years ago to give people on low incomes budgeting advice and low cost loans. It now gets upward of 100 people coming each week for financial help. Many of them would otherwise have to borrow at extortionate rates from other lenders.

In East Manchester - the high levels of unemployment and debt has meant there's a huge demand for low cost credit. Their credit union based in the shopping centre has been a lifeline to many members.

The credit union works like a bank and staff firmly believe its strong presence on the high street is the key to its success.

But East Manchester's credit union is the exception. Without extra funding many credit unions in the UK find it difficult to cope with the demand, leaving many consumers no choice but to go to another lender they can little afford.

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