Debt and depression: Twin evils that need to be fought together

Mental illness and money problems very often go together but the link is still unclear.

Nearly nine out of 10 people with significant debt problems also appear to be suffering from mental health disorders, particularly depression and debilitating anxiety. This alarming statistic, which comes from the Consumer Credit Counselling Service (CCCS), helps to explain why so many banks are now setting up special mental capacity and health units in their debt collection teams, and why the Office of Fair Trading (OFT) has just issued guidance in the area.

CCCS – which advised more than 400,000 consumer debtors in 2010 – employs a questionnaire as the first step in its online debt counselling service. Users of this facility are not told at the outset that the questionnaire also tests for possible mental health issues. When compiling the statistics over a month, CCCS found that 86 per cent of people indicated positively for potential mental health problems, ranging from mild to serious. CCCS then recommends to these people that they take further tests or see their GP.

What is unclear is the cause and effect link between debt and mental health problems. On its "debt and mental health" home page, the Royal College of Psychiatrists (RCP) states: "Debt may be a cause and a consequence of mental health problems." Talking of potential correlations between debt and mental health issues, Frances Walker of CCCS says: "There is definitely a link but it's quite hard to see which comes first." Maggie Kirkpatrick, managing counsellor of CCCS South East, says that the 86 per cent figure "seems incredible but it's probably true". A mental health issue "is almost synonymous" with a debt problem among her clientele.

The statistics add a strange new gloss to the world economic crisis which was partly triggered by the mis-selling of loans to people who could not afford to repay them. When banks packaged up these loans and began selling them to one another, panic spread as bankers began realising that many such packages could be near worthless. If many problem debtors are also struggling with mental health concerns, then the financial value of these packages is even more questionable.

The current economic crisis marks a turning point. In September the OFT published guidance for institutions which might lend to people with mental capacity issues such as manic depressives. Only this week the RCP issued an e-learning training package for debt collection staff.

"More and more creditors and debt collecting companies are becoming aware of mental health and are taking a more serious and mature approach," says Anthony Sharp, chair of the Money Advice Liaison Group. He welcomes the OFT guidance and also feels that rules on "treating customers fairly" from the Financial Services Authority have made a big contribution.

"A lot more work is being done," says Maggie Kirkpatrick. "Most creditors are putting together special departments." As advice agencies can go straight through to these units, they are immediately dealing with people trained in the law and other issues.

Research from the RCP, which pre-dates that of the CCCS, will be published this month in the Mental Health Review Journal, saying that 50 per cent of people with debt arrears of more than a month have mental health problems. This would mean, according to Chris Fitch, a research fellow at the RCP who specialises in debt, that people with debt issues are twice as likely to suffer from depression and anxiety problems as the population overall. Although the RCP research does not tally with that of the CCCS, it shows that there is a consensus on the gravity of the problem.

Only five years ago statistics were hard to come by. But the issue has risen up the agenda. With UK household debt (excluding mortgages) averaging £8,000, according to the charity Credit Action, many individuals could be plunged into repayment problems if they lost their income.

Some of these statistics may suggest that a rethink is needed on the causes of debt problems. It may be an oversimplification to try to correlate debt to poverty. A neglected link may be that between mental state and debt. One particularly controversial group are the "narcissists", which are sometimes estimated to make up 1 per cent of the population. Narcissism, while listed as a mental health illness by the World Health Organisation, has been little studied. Compulsive spending is a common feature of this form of megalomania. If someone admitted to compulsive spending, the CCCS "would refer them to a GP", says Maggie Kirkpatrick.

Another 1 per cent of people are thought to suffer from schizophrenia. The Sheffield Mental Health Citizens Advice Bureau (CAB) is based in Sheffield's Michael Carlisle Centre, a psychiatric hospital. A "large proportion" of patients have debt problems, says the volunteer adviser David Miles. Debt "almost certainly" makes mental health problems worse, he says. But some of the money issues are, potentially, easy to solve."One of the big problems is that they haven't necessarily got their [social security] benefits in place when they are released," he says.

The CCCS does help people with schizophrenia but rarely during the acute stages. "We prefer not to deal with people in mental health establishments," says Maggie Kirkpatrick. "We do encourage them to contact us as soon as they are discharged."

People with bipolar disorder are regularly seen by the CCCS. The mental health laws in England and Wales, as restated in the OFT guidance, make it hard for creditors to press for repayment of a debt if someone accrues debts in a manic phase, has no assets with which to repay them and there is some medical evidence of the problem (from a GP, for example).

"Creditors are looking very sympathetically at these cases, provided they have full evidence, medical and financial," says Maggie Kirkpatrick.

Another route for people with bipolar disorder is to ask credit rating agencies to attach a note to their file saying they should not be given extra credit. "It is something we do from time to time," says James Jones, spokesman for the credit rating agency Experian.

But it is important to strike a balance. Chris Fitch of the RCP says: "If people have the mental capacity to understand the terms of a loan and the financial means to repay it, then they should be able to take out that loan. Mental capacity – the ability to make a decision – is not the same as mental health. Many people with mental health conditions have the mental capacity to make an informed decision about taking out a loan."

Advice agencies are used to setting up arrangements (such as direct debits or the involvement of a friend) for depressives and others which will be stand up well even if the person goes into an acute stage.

Case study: Sam's story

Now in his sixties, Sam (not his real name) has suffered from depression for decades. Although he is good at maths, he was never taught budgeting. His life was turned upside a few years ago when he ended up being threatened with bankruptcy, had to sell his house to pay the debts and then downsized to rent a flat and try to live within his means.

His story ends happily. "Life is better," he says now. But he wasted much of his life in the debt/depression cycle and he had to abandon a career as a highly regarded freelance writer.

"Debt stress is particularly bad," he says. " You are frightened you could end up in the street or in a mental hospital. They are awful places."

What got him into trouble was a very precise part of his condition. "I panic and freeze," he explains. So, even though he was earning well (at twice the level of the average salary), he got into difficulty as he became too frightened to open his bills. This simple unfortunate response turned him from being a self-sufficient freelancer with money to spare into someone who spent all his income as it came in (particularly on expensive books) and let his debts build up, over five years, to the point that he could not pay them off.

What brought issues to a resolution was his getting so frightened that he took his unopened pile of bills to the local Citizens Advice. "I said: 'Would you open it for me?' They did that for about six weeks. They wrote to my creditors."

The killer debt was his unpaid income tax, but he also had outstanding utility bills and council tax. HM Revenue & Customs began bankruptcy proceedings and he was saved from that, in the day before the hearing, when his friends clubbed together to lend him the five-digit sum he needed to satisfy the tax debt. He paid back his friends shortly afterwards when he sold his house.

Nowadays, he lives simply on social security, including disability benefits. Receiving money weekly is far easier for him (a potential book spendaholic) to manage than getting it monthly or sporadically. He also pays his utilities in advance. And he is very relieved that he never took out a credit card.

He thinks that steps can be taken to spare others the anguish he went through. "Teaching schoolchildren to budget and manage their finances is one of the cleverest ideas I have heard of," he says. For instance, he learnt late in life to go into supermarkets with a shopping list. "It makes an amazing difference. You spend far less."

Blue and in the red? contact points

Financial Services Ombudsman http://www.financial-ombudsman.org.ukand 0800 023 4567

Malignant Self Love (on narcissism) http://samvak.tripod.com/

Mind (mental health charity) http://www.mind.org.uk/and 0300 123 3393

Rethink Mental Illness (schizophrenia charity): http://www.rethink.org/and 0300 5000 927

Royal College of Psychiatrists (debt pages): www.rcpsych.ac.uk/debt

Debt advice

Most ordinary people oflimited means will want free debt advice (while wealthier people with a good chance of getting out of difficulty might prefer to go to lawyers, accountants and other professionals and pay).

The organisations below provide free advice.

Consumer Credit Counselling Service: www.cccs.co.ukand 0800 138 1111

Citizens Advice: www.citizensadvice.org.ukand via local advice centres

National Debtline: www.nationaldebtline.co.uk0808 808 4000