human development, social justice and sustainable social systems
Many doors into poverty
An overview on over-indebtedness
Caritas social workers have become accustomed to intervening in situations of indebtedness, mortgage payment defaults, and forced evictions, all of which are related to housing and its increasing costs.
Caritas country reports from the Czech Republic, the UK and Austria show that a lack of financial literacy and an omission in public policies to mitigate indebtedness locks a number of young people into poverty. This can lead to energy poverty and arrears in paying utility bills, extending on to property seizures and forced evictions. Research has identified young people as being at a higher risk for this, some of whom are even held accountable and charged for their parent’s debts.
People end up in a situation of over-indebtedness often as a chain of consequences with a small arrear in rent, gas, electricity and other essential costs. These debts, relatively small and manageable at the beginning, can increase exponentially with interests on late payments, other sanctions and costs of bailiffs. This, in combination with an unexpected loss of income because family members lose their job or fall ill, is a basis for a debt situation that the family can no longer handle on its own.
Another example is the exorbitant increase in the volumes of student loans, which leave a cumbersome legacy in the life plans of many young women and men.
Over-indebtedness excludes many people from the labour market as high deductions from wages leave a too low disposable income for living. For people ending up in such a situation, undeclared work is often the only option.
Several Caritas organisations across Europe provide debt counselling in a holistic approach. Together with the affected family, the available options to address the problem are explored and an action plan is designed. Options include renegotiating the conditions and term for reimbursement of the debt, accessing or improving a person’s position on the labour market and a better management and monitoring of the family’s expenses for basic goods and services. Such support is effective in helping the individual family exit a situation of over-indebtedness.
But Caritas also considers the wider perspective. Preventing is better than curing, and structural changes are needed. Informed by the reality of over-indebtedness as experienced by many families, Caritas challenges the unfair mechanisms underlying the problem. We therefore advocate for changes to the execution of property procedures, for broader accessibility to debt relief, but also for increasing consumer protection in order to prevent lifelong debt traps, which might equally jeopardise the future of the victims’ children. Social justice is also an issue of fair debt managing measures and practices.