FrankfurtJob away, partner away, sick: The majority of the almost seven million people in the country, who can no longer pay their bills, is experiencing a stroke of fate. By far the most common such a financial downward spiral begins with the loss of a job. Separation and disease also play an important role. In addition, an income that is too low and bad consumer behavior are increasingly the reason for a financial trap.
Nevertheless, fewer and fewer people are being advised in financial difficulties. This is fatal, because who gets involved, has a good chance to get rid of his debts. This is stated by the Hamburg Institute for Financial Services IFF in its "IFF Over-indebtedness Report 2019".
The association, which specializes in consumer finance issues, has presented it together with the foundation "Germany in Plus" in Hamburg. Anonymously, more than 120,000 cases in 44 German debt counseling agencies were evaluated for the report.
"Many people have had nothing of the economic recovery of the past ten years," says Dirk Ulbricht, IFF Managing Director. By far the most important reason for over-indebtedness is still the loss of employment, as the IFF experts infer from the data of 5,500 new participants in debt counseling. Just under a quarter calls the job loss and a concomitant lower income as a reason for a financial overload.
Why people live beyond their own circumstances
Compared to the Report 2018, however, the proportion has decreased slightly. Other strokes of fate such as the separation from the partner and disease call those affected as the second and third most important reason for over-indebtedness. Both reasons are mentioned in about ten percent of the cases. Another important reason the IFF cites is a consumer behavior that does not fit in with its own financial framework and overall low income.
Too casual handling of own money has also increased as a cause of over-indebtedness, to about ten percent. That could also be due to online shopping. An ever greater temptation to quickly spend money online could lead people to spend more, says Andrea Brinkmann of the Foundation Germany in Plus.
Since the financial crisis, the so-called income poverty has increased the most: Financial hardship due to low income has almost quadrupled since 2008, to almost ten percent. Despite improving overall labor market conditions, the group of over-indebted people could not profit from this, says Ulbricht from the IFF. The same applies to the positive net wage development.
The per capita income of overindebted people has increased from 2017 to 2018 on average by eleven euros. Over-indebted lie with an average of 900 euros net income per month below the poverty threshold, which is 1100 euros. Being over-indebted is a person who no longer has enough available capital to fulfill his payment obligations.
According to data of the credit agency Creditreform, in autumn 2018 there were 6.93 million people with negative credit ratings in Germany. That was 20,000 more than a year earlier. However, in previous years even more people had slipped into over-indebtedness. According to debt counselors, it is particularly common for single living and households with children.
Fewer citizens can be advised
Most sufferers are over-indebted with relatively small sums: More than half have debts of less than 20,000 euros, on average, there are 14,255 euros. Most people are in banks in the chalk or public-law creditors such as the tax office or the Federal Employment Agency.
It is interesting that despite apparently larger money problems fewer people seek a debt counseling: The IFF estimates that in 2018 with about 520,000 people about 40,000 fewer people in the register of debt counseling are, as in the year before. Overall, according to the IFF, these are just under eight percent of the over-indebted.
"Obviously, the hurdles to seek advice and admit to being over-indebted are too high," says Ulbricht. Rather, people tried to cope with ever new debts. "The relatively simple, fast online lending without a thorough review of financial conditions, I do not think in the context makes sense," complains the IFF expert.
Debt counseling would also have scarce resources, could not advertise and often have too few consultants. It could just help counseling to obtain a personal bankruptcy. This happens in just under half of the counseling sessions.
It was also important to curb consequential costs. This can be interest, but also costs of insurers, mail-order companies, debt collection agencies or lawyers. According to the debt counselors, these fees quickly add up to around one-fifth of the claims.
More: Although the economy in Germany is doing well, there are more overindebted people. The reasons for over-indebtedness have also changed, as our infographic shows.