gov.uk debt advice is dangerously simplistic

The gov.uk website has a new section on debt advice. It asks four simple-sounding questions:

1. where in the UK do you live?
2. do you owe more than £20,000?
3. do you have assets (things you own) worth more than £1,000 in total?
4. do you have at least £50 left over every month after paying your household bills and living expenses?

Based on your answers, it then suggests which of a DMP, an IVA, a DRO or bankru/ptcy might be your possible debt options.

Now I like advice to be in clear, easy to understand English.  So you might think I would like this new page… but it is so over-simplistic that it is actually dangerous.

It doesn’t ask a lot of important questions

• do you agree that you owe the money for each of the debts?
• are these debts enforceable/recoverable?
• can you afford the current monthly debt repayments?
• is your financial situation likely to improve or get worse in the next few months? next few years? will you retire, have a baby, expect older children to leave home, need to move house?
• are any of these debts joint debts?
• do you have dependents? a partner with income and/or debts?

The four questions sound easy but aren’t!

• priority and non-priority debts need to be considered separately.
• so do secured and unsecured debts.
• without prompting, many people will not consider overdrafts, catalogue debts, “rent to buy” or benefit overpayments as debts at all!
• “Don’t include any vehicles you’re still paying for (eg through hire purchase or a loan from a dealership).” – many people may think this means don’t include a car they bought with a bank loan.
• few people will have any idea what their disposable income (income after paying bills and essential expenses is).  Someone who is paying £100 a month to a DMP at the moment may still qualify for a DRO as their assessed disposable income could well be under £50 a month.

It misses off many possible “debt solutions”

• the possibility of increasing your income is ignored – claim benefits you are entitled to, rent out a room, ask family members living with you to contribute more, get a second job etc?
• considering reducing expenses is often important.
• some people will be asset rich and cash poor – at the moment a pensioner with little spare income, large debts and a mortgage-free house is being told that either a DMP or bankruptcy may be suitable solutions!
• debt refinancing is ignored: 0% balance transfer, a consolidation loan, remortgage etc
• pensions are ignored.
• what about an administration order?
• no reference to full and final settlement offers.

Some major over-simplifications about debt solutions

• in bankruptcy “some of your assets may be sold to pay towards your debts, but only if you and your family don’t need them”.  I am all in favour of not scaring people into thinking anyone will come round and take an inventory of their belongings and cart off their furniture etc, but this statement seems to go too far in the opposite direction, suggesting that someone will be able to keep a house with equity say.
•  if you get an IVA you “won’t pay more than you can afford towards your debts”, “pay the same amount every month”, no mention of equity release.
• no mention that a DRO can be cancelled if your financial situation improves.
• no mention about the problems involved with very long DMPs.

What is the point of this tool?

It seems to have been designed by an IT person who has no experience of debt advice. A DRO has some handy-sounding criteria with hard-sounding numbers in them, just the sort of thing you can ask neat Yes/No questions about … and as a result the whole tool seems to have been orientated round working out if someone qualifies for a DRO.

But debt advice doesn’t work like that. It’s not all about the four major debt solutions this page mentions, it’s about real people with complex problems.

“Robo advice” is the term often given to a computer tool that generates possible suggestions. There is a lot of work going on to see if it can help people make better investment decisions, or decide on their pension options etc. I’m not saying robo-advice is impossible in the debt field, but this wildly simplistic robo-advice is pointless and dangerous.