Monday, Mar 15, 2010
Extreme Debt
Thisismoney: Number in 'extreme debt' doubles in two years
A person has 'extreme debt' if their debt to income ratio is greater than 66:1.
For example, if they earn £10,000 and their debts are more than £660,000.
Posted by smugdog @ 09:08 AM (441 views) Add Comment
2 Comments
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1. goweresque said...
66:1? Why that figure? And its far to high a ratio IMO. I would say if your debts outnumbered your income by a factor of 10 you are in extreme debt, especially at the lower income levels. If you earn £10K and owe £100K, there's precious little saving to be done to pay it off at that income level. If you earned £100K and owed £1M you'd stand a better chance.
2. 51ck-6-51x said...
Misunderstood statistics here (fault lies with both CCCS & ThisIsMoney)
This number of 8000 @ 66:1 is taken from CCCS's Stats yearbook 2009 where there is no reference to it's actual meaning. Reading in contexts would imply 66 times annual income (without any indication of it being gross or net):
"In 2009 there was a sharp rise in the number of clients with a debt-to-income ratio of greater than 66:1. The number of clients counselled with this type of extreme debt has almost doubled in last two years. There was also a rise in the number of clients with more than £100,000 worth of debt, but as the increase is most marked for clients with high debt to income ratios – over 8,000 clients had debts of more than 66 times their income last year – it seems likely that these increases are linked to significant drops in household income caused by the recession."
However, in the previous yearbook one can see that the number is actually referencing net monthly income, and is therefore 5.5 times net annual income. Furthermore it's all regarding unsecured debts:
"In 2008 the percentage of CCCS clients who have lower debt to income ratios increased with the largest rise in the under 10:1 and 10:1 to 20:1 ranges, traditionally the most populous areas. There is also a concurrent drop in those owing 30 times and over their net monthly income of around three percent. Therefore, almost two-thirds (62.8 percent) of clients now have unsecured debt levels that are under 20 times their income; this means the average CCCS client now owes less in relation to income."
That is, in more normal terms:
A person has 'extreme debt' if their outstanding debt to net income ratio is 11:2
For example, if they earn £10,000 and their debts are more than £55,000