Creditors involved in individual voluntary arrangements (IVAs) are increasingly cracking down on the amount of money set aside for emergencies, it has been claimed, which could encourage some people to take out additional loans from other sources.
According to figures from debt counselling organisation Thomas Charles & Co, one-in-five adults has unsecured debts that amount to more than Â£10,000.
Meanwhile, the banking industry has seen a sustained growth in uptake of IVAs, which involve a repayment plan agreed between creditors and the debtor.
However, James Fall, director of Thomas Charles & Co, has claimed that there is a growing trend towards reducing the amount of contingency money made available.
“When we propose an IVA now, often the creditors will look at the income and expenditure of the individual and they will really tighten down on the amount that they will allow people for housekeeping,” he said.
Earlier this month, the Bank of England’s monetary policy committee voted to raise interest rates by a quarter of a percentage point, in a move that is expected to increase pressure on many borrowers.
One possible consequence of this move is that some people may choose to take out a new loan to assist with the repayment of existing debts.
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