I was giving a talk to some CAB generalist advisor trainees yesterday. They had just finished the debt section so in theory they knew all about it, which is a great time to talk about some of the practicalities of giving debt advice. As part of that I used a case study and it was interesting how often the three criteria that the FCA talked about recently – that suitable debt advice should be appropriate, affordable and sustainable – came up in our discussions.
Mrs InTheRed – a simplistic case
- £1,500 income
- £1,400 expenditure (excluding non priority debt repayments)
- so £ 100 surplus
- Debt total £8,000 – usual monthly debt payments would be £225. No priority debts
- Renting, no car, no savings
This case wasn’t meant to be realistic or comprehensive, indeed the area I was most keen to get them talking about was what was missing from the summary, what questions they would want to ask the client. I started off with the obvious question: From that information, what option(s) might you suggest?
What about a DRO?
We talked through the Debt Relief Order criteria: the client apparently meets the ‘less than £20,000 total debts’ and ‘assets less than £300’ tests, but doesn’t meet met the ‘less than £50 per month surplus’ test. I was pleased when one of the trainees asked if we should look again at the client’s expenditures to see if the £100 surplus was realistic. If the client is too optimistic about how little they can manage on, a debt solution that replies on that surplus being available every month won’t prove affordable in the medium term.
Most of the trainees had tried to draw up their own Income & Expenditure sheet and so knew how hard it was to answer questions such as “how much do you spend on groceries” if you don’t already budget to that level of detail. We discussed things clients can leave off their expenses lists such as clothes (“I’ve got a lot”) and areas where they can often underestimate, such as the long-term costs associated with disabilities.
Could the client reduce their expenses or increase their income?
The next suggestion was that if I let them ‘move the goalposts’ by changing the figures in the case, perhaps the client could make a few economies and manage their £225 monthly debt repayments? We don’t know anything about the client’s household or circumstances, there could be adults in the household who weren’t making a proper contribution, or there could be some benefits that might be claimed too – cue a discussion about encouraging clients to access the turn2us benefits checker themselves.
But if the numbers are accurate…
That leaves a Debt Management Plan as the most likely solution. So how long do you think a DMP might take? One of the trainees made the good point that it would depend on whether all interest was frozen – so I rephrased to ask what the minimum length would be. The answer was 80 months (£8,000 debt divided by £100 a month payment.) So six and a half years – some people thought this was fine, others that it was a really long time. This led into a brief discussion about IVAs and bankruptcy. We would really want to know a lot more about the client to tell if these were likely to be appropriate, but they could be options to discuss with the client.
What could happen in six years? We talked about the clear case where the client would be retiring in the next year or so – a DMP would be unlikely to be a sustainable solution in that case. Everyone worried about fuel bills going up and rent and commuting cost rises – the everyday experience of Londoners over the last few years.
How to set up a DMP
So supposing you have talked through the pros and cons and the client thinks a DMP sounds good, how do you suggest it is set up? Everyone was very keen to give our client a money specialist appointment… I pointed out we were going to run out of specialist appointments very quickly and it was probably best to keep them for those clients with priority debts or welfare benefits problems, or who seemed very vulnerable. StepChange, several people suggested, which was good.
Interestingly no-one mentioned the option of a self-administered DMP. No-one had come across the CABmoney self-administered DMP facility, so I added that to their homework list :)
They all knew the Money Advice Trust “Dealing With Your Debts” booklet but hadn’t thought about when they would actually give it to clients. A couple of people thought it was too long to give to a client, but I said in my experience clients like being given it – you can always ring the sections that they need to read and you can write on the ‘template letters’ at the back what the client could put as their reason for being in financial difficulties e.g. “because my hours at work have been reduced”.
A useful approach to debt advice training
Overall the really simple case study proved a very useful tool for exploring a lot of possible real-life debt advice situations.