Risky debt on the rise; borrowing favoured over spending cuts
Many households will not accept having to cut costs, favoring borrowing, and consequently debts, instead. By piling on the credit, these households are slowly slipping into the abyss of debt counseling. The number of risky debts grew with almost 20 percent in seven years' time.
Research group Experian explains the scenario using a fictitious family. Wesley and Melissa are 27-years old and have a 1-year old son. Melissa works as a cleaner, and Wesley is unemployed. Clothes and toys for their child are mostly hand-me-downs from neighbors. Diapers are from supermarket home brands. It goes well this way, but the itch to spend more gets louder. They borrow money for a trip to an amusement park.
Suddenly the washer and dryer break. They have to cancel their trip and buy new machines. Hereby, the house of cards collapses and they can no longer make ends meet.
Experian uses this family as a model for the average low-income family between 25 and 45 years of age, who also have low levels of education. According to the research group, these families run a higher risk of needless debts. Experian describes this risk for 50 different types of households. The information is for sale for telecom- and energy companies who can use it to weigh up their customers for potential risk more efficiently.
Most of these high-risk families live in cities, but not only in poor, collapsing neighborhoods. Newly built areas such as in the Flevopolder is also considered a risk-area.
Research shows that Turkish, Surinamese and Eastern-European families living in Rotterdam and The Hague have a difficult time adjusting their spending and borrowing habits in financially tight times.
According to the Association for Debt Counseling and Social Banking (NVVK), 90,000 people with an average debt of €38,000 have registered themselves with aid agencies. This has doubled since a few years ago. The group of borrowers has become more complex as well. NVVK-spokesperson Kosta Skliris says that beyond those with rights to benefits, renting freelancers and homeowners with a medium income are also in debt counseling.
According to Annemarie Koop of the National Institute for Budget Information (Nibud), there is a worrying trend, people are not shying away from borrowing money multiple times. Looking for help is often a late decision.
Nibud is also seeing more money being borrowed from friends or family. "The drawback is that good relations often come under unnecessary strain. If it can't be different, then do put something on paper to avoid problems", Koop says.