Individuals or companies can buy distressed debt from lenders at knock-down prices if it the borrower is in default or behind with payments and are then free to do with it as they see fit, including cancelling it free of charge.This shows that £1 can buy 28 times that amount of toxic debt.
As a test run the group spent $500 on distressed debt, buying $14,000 worth of outstanding loans and pardoning the debtors. They are now looking to expand their experiment nationwide and are asking people to donate money to the cause.
When we are looking at improving economic activity and prosperity in Wales shouldn't the reduction of debt be one of the economic levers that we should be using to that end?
The Daily Post reported in September of this year on the crippling level of debt in North Wales and the success of advice agencies in cancelling out nearly a £100 million of debt through Debt Relief Orders and Bankruptcy. Looking at this another way, a £4 million investment across North Wales would have served the same purpose in cancelling out this level of debt.
Also not all debt are suitably resolved by Debt Relief Order or Bankruptcy but are rather smaller debts like a £1000 on a credit card is a big burden for an out of work family whilst it would be manageable for other families.
Another problem that debtors across the country will find in future is that welfare advice agencies will no longer have funding to represent debtors in court as the Community Legal Services budget is decimated by government cuts.
Cancelling of toxic debt for our most impoverished residents must be a priority and brings with it immeasurable benefits such as better health and wellbeing (particularly mental health), less stress within families and of course more disposable income for spending in the local economy.
This suggestion is not without its problems and controls will be necessary to ensure that families that benefit to do not return to a spiral of debt.
Imagine if 22 Local Authorities invested half a million pounds in a one off fund to buy up toxic debt then there is a potential of £300 million worth of debt that could be written off, that would make a huge difference to the most impoverished and debt ridden families in Wales and is one answer to the impact of welfare reform.
Whether Local Authorities can use their finances for such a project is another question?