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  • Writer's pictureCarolyn Röhm

Problem Debt and Financial Well-being: The Role of Organisations and Governments

Problem debt is an issue that extends beyond mere financial strain; it has profound implications for mental health and social stability. Understanding the gravity of this issue and implementing effective measures to mitigate its impact is crucial for the well-being of vulnerable populations. This article explores the interconnectedness of problem debt, mental health, and the roles that organisations and governments can play in fostering a safer financial environment.

Understanding Problem Debt

Problem debt occurs when individuals cannot manage their debt repayments, leading to financial stress and broader socio-economic consequences. The nature of problem debt, including its effects and the demographic it impacts, tends to be consistent across regions. The increasing ratio of unsecured debt to household income underscores the escalating financial pressure many families face.

An estimated 8.3 million people are over-indebted in the UK, with 22% of UK adults having less than £100 in savings. These figures highlight a critical vulnerability to financial shocks such as job loss or unexpected expenses.

A recent report highlighted the escalation of problem debt in New Zealand due to the cost of living crisis. Financial mentors have seen a 40% increase in people seeking help, with the median debt amount rising to $14,096. This crisis has particularly affected Māori and Samoan communities, women, and young people. Many individuals now face significant debts to banks and telecommunications companies, exacerbating their financial woes​ (RNZ)​​ (RNZ).

A person sitting at a cluttered desk filled with unpaid bills, surrounded by red overdue notices, calculators, and a laptop showing declining bank balances. The person's expression is one of deep stress and despair, with their head in their hands. Dark, oppressive shadows loom over them, symbolizing the heavy burden of debt. The background is chaotic, reflecting the overwhelming nature of financial stress.
Problem Debt - Image Credit Carolyn Röhm

While organisations offer hardship assistance, a recent ASIC Report highlights significant shortcomings in how lenders support customers experiencing financial hardship. The key criticism is that lenders often fail to make the hardship process accessible and supportive for those in need.

The report found that many lenders did not adequately inform customers about the availability of hardship assistance or how to request it. Additionally, assessment processes were frequently cumbersome and stressful, requiring excessive documentation and multiple explanations of personal circumstances, which deterred customers from seeking help.

Communication from lenders was often inconsistent and ineffective, leading to confusion and further financial distress for customers. Vulnerable customers, in particular, were not well supported, with many facing additional barriers to accessing the necessary assistance. This inadequate focus on customer support, coupled with a tendency to prioritise financial risk and operational efficiency over customer well-being, exacerbates the challenges faced by those in financial hardship. Ultimately, these practices result in heightened levels of stress and anxiety for customers who are already struggling, making it harder for them to recover financially.

The Impact of Problem Debt on Mental Health

The link between financial hardship and mental health problems is well-documented. Individuals struggling with problem debt are significantly more likely to experience anxiety, depression, and suicidal thoughts. The statistics are stark: people in problem debt are three times more likely to have considered suicide in the past year compared to those not in debt, with 3% of those in problem debt having attempted suicide within the same period.

Multiple debts exacerbate this issue. Those with two or more problem debts are at a higher risk of severe mental health consequences. This situation creates a vicious cycle where financial stress leads to mental health issues, which in turn impair one's ability to manage finances, further deepening debt.

The Role of Government and Organisations

Government Initiatives

Governments have a critical role in mitigating the impacts of problem debt. They can implement policies and regulations that protect consumers from predatory lending practices and ensure financial products are safe and affordable.

  1. Legislative Change (BNPL Regulation): The Australian Federal Government’s recent legislation to regulate Buy Now, Pay Later (BNPL) services is a pivotal move towards mitigating problem debt. BNPL providers like AfterPay, Klarna, and Zip Pay will now be subject to the National Consumer Credit Act. This regulation requires these providers to hold an Australian credit licence, comply with existing credit laws, and assess the suitability and affordability of their products for consumers. This legislation balances increased consumer protection with maintaining innovation and competition in the credit market. By holding BNPL providers to the same standards as other credit providers, the government seeks to prevent consumers from falling into debt traps while still allowing access to flexible payment options​ (RNZ).

  2. Financial Literacy Programs: Enhancing financial literacy is crucial in empowering individuals to make informed financial decisions. Governments can support comprehensive financial education programs that teach budgeting, saving, and responsible borrowing.

  3. Support for Debt Advice Services: Ensuring access to free and confidential debt advice services is essential in helping individuals manage their finances effectively. Governments can fund these services to provide the necessary support for those struggling with debt.

Organisational Responsibilities

Organisations, particularly in the financial sector, have a responsibility to adopt ethical lending practices and support customers who may be struggling with debt.

  1. Responsible Lending Practices: Financial institutions must ensure that they are lending responsibly. This includes conducting thorough assessments of a borrower’s ability to repay and providing clear information about the terms and conditions of financial products.

  2. Proactive Identification: Identifying customers who may enter arrears before they miss payments is essential. Financial institutions can use data analytics to predict and identify at-risk individuals and offer timely support. This proactive approach can prevent minor financial issues from escalating into severe debt problems.

  3. Transparent Communication: Clear and transparent communication about financial products and services is crucial. Organisations must ensure that customers fully understand the terms and conditions of any financial agreements they enter into.

  4. Provide Financial Hardship Support: Organisations should simplify the hardship assistance process, improve communication, and proactively support vulnerable customers to ensure timely and effective help for those experiencing financial distress.

The Importance of Early Intervention

Early intervention is crucial in preventing minor financial issues from escalating into severe problem debt. Financial institutions can offer support and assistance that may prevent financial distress by identifying customers at risk of entering arrears before they miss payments.

Data analytics can play a significant role in this process. By analysing customer data, financial institutions can identify patterns and predict which customers risk falling behind on their payments. This allows for timely interventions, such as flexible repayment options or financial counselling, to help customers manage their finances more effectively and avoid severe debt issues.

Supporting All Individuals, Especially Vulnerable Customers

Support should not only be limited to traditionally vulnerable groups; everyone can benefit from better financial practices and protections. However, it is essential to recognise that certain groups, such as low-income families, single parents, and those with pre-existing mental health issues, may require additional support.

Organisations like DebtFix provide tailored debt management solutions and financial advice to help individuals regain control of their finances. These services can be invaluable in helping people navigate their financial challenges and find sustainable solutions.


Addressing problem debt requires a coordinated effort from both governments and organisations. By implementing robust regulations, promoting ethical financial practices, and providing comprehensive support, we can mitigate the impact of problem debt and enhance financial well-being.

A bright, open space with a person standing confidently in the center, surrounded by symbols of financial freedom such as paid-off bills, a balanced checkbook, and a growing savings account. The person's expression is one of relief and joy, with sunlight streaming in through large windows. The background is calm and orderly, filled with greenery and elements of nature, symbolizing peace and stability.
Financially Thriving - Image Credit Carolyn Röhm

Financial stability is not just about managing money; it's about ensuring individuals can live without the constant fear of financial collapse. Through concerted efforts and a compassionate approach, we can help those struggling with debt regain control of their finances and lives, contributing to a healthier, more productive society where financial well-being is accessible and achievable.

By addressing the root causes of problem debt and providing the necessary support, we can create a more equitable and resilient financial system that benefits everyone. This, in turn, fosters a society where financial well-being is within reach for all, ensuring a brighter and more secure future.


1. A Silent Killer - Money and Mental Health Policy Institute

2. Tackling Problem Debt - Money and Mental Health Policy Institute

3. More People 'Drowning in Debt' as Cost of Living Crisis Bites - RNZ

4. Households Still in Grip of High Food Costs - RNZ


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