Universal credit fuels debt problems for low-income claimants, forcing many into destitution and driving others to loan sharks to get cash for basics such as food, clothes and heating, a leading charity has claimed.

StepChange, the UK’s largest debt charity, said problems relating to universal credit’s design – in particular the five-week wait for a first benefit payment – made it harder for its financially vulnerable clients to manage their money.

It called for significant changes to the design of universal credit to make it fairer, more flexible and generous for the very poorest claimants, nearly half of whom had taken out loans to pay for basic living essentials over the past year.

A quarter of its clients in receipt of universal credit were in problem debt, three times the rate found in the population as a whole and almost twice the rate of claimants on older, “legacy” benefits, it said.

The majority of its clients struggled to make ends meet each month – only 6% said they always came in on budget, and 46% said they always ended the month in the red. More than a third had used food banks or sought help from local charities or churches.

“We already knew that too many people are experiencing hardship and misery through problems with the universal credit system. What is new is the evidence of exactly how universal credit actively worsens debt problems, more so than the legacy benefits system,” said StepChange’s head of policy, Peter Tutton.

He urged ministers to do more to protect vulnerable claimants: “Sending people into the arms of loan sharks, and making a debt situation worse at the very time when people most need help, cannot possibly be what social security is for.”

The charity is critical of the system of advance loans introduced by the Department of Work and Pensions (DWP) as a means of helping penniless new claimants to survive the much-criticised 35-day wait for an initial benefit payment – over twice as long as the typical wait for payment under the old benefits system.

The wait, intended to get claimants used to monthly payments that are the norm in the middle-class world of work, has caused havoc among people used to being paid on a weekly or fortnightly basis, particularly where they have no savings to fall back on.

Although ministers argue the loans have helped mitigate the negative impact of the wait, StepChange found that the strict repayment terms – which deduct up to a third of the benefit each month for a year – turned a short-term income shock for clients into a long-term one, with half finding it difficult to cope as a result.

Clients struggled even more when DWP loan repayments were combined with deductions for tax credit overpayments and council tax debts. Claimants were often unaware deductions would be made until they received reduced benefits. Deductions were at fixed rates, regardless of affordability, often arriving without explanation.

Asked how they coped with benefit deductions, StepChange clients were most likely to cut back on food or heating or ask friends and family for help. Half said the deductions caused them to fall behind on debt repayments. One in 10 said they took out loans from loan sharks.

Commercial credit firms would not be allowed to operate a universal credit-style deductions scheme, said StepChange: “As it stands the social security system would not meet basic regulatory requirements of consumer credit firms to treat customers fairly.”

A DWP spokesperson said: “Claimants can get paid urgently if they need it and 95% of payments are made in full and on time. We’ve changed the system so people can receive even more money in the first two weeks than under the old system, and Alternative Payment Arrangements to landlords can already be made for claimants struggling to pay their rent.”

More than half of StepChange clients who claimed social security met the definition of destitution, meaning they had gone without two or more essentials over the past month because of lack of money. Essentials include eating two meals a day, owning weather-appropriate clothes and being able to buy basic toiletries.

About 2 million people are in receipt of universal credit, which bundles six working age benefits into a single monthly payment. More than 6 million will be on the benefit by the time it is fully rolled out in 2023.