Archive for January, 2010

If you are in debt and finding it hard to keep up, you might feel like you are in over your head and fighting a losing battle with your creditors. But don’t despair, you are not alone and there is help available that could make a world if difference to your financial situation.

There are a number of options available to those who find themselves in over their heads, depending on your personal circumstances. Here, we pay particular regard to debt management plans, which can help you to bring your debt under control without increasing the amount owed in the process.

Unlike other debt solutions, such as filing for bankruptcy, entering into a debt management plan cannot effect your future employability, or current employment status – meaning that you can enter into a debt management plan without any concerns that it will impact on your income or career.

What are debt management plans?

A debt management plan is basically an informal arrangement with your unsecured creditors to repay your debts over a period of time.

They are prepared on an individual basis, with repayments calculated on your ability to repay your debts without getting into further financial difficulty. The more you can afford to pay, the quicker you can clear your debt.

Debt management plans can either be instigated through the County Courts, or by individual debtors, usually with the help of a debt management company.

The typical plan will list all your debts in priority order, such as where failure to make payments would lead to the loss of your home (mortgage), an essential utility (electricity, water, etc), an essential item (such as a car you need to get to and from work) or financial obligations which left unpaid could lead to prosecution (council tax).

After all of these are taken into account, a final plan is drawn up, listing your obligations to pay off your debt.

If your plan is arranged as the result of a court hearing brought about by one of your creditors, the court may also freeze interest so that the money you owe does not increase.

When debt management can be the solution

Debt management strategies can offer a flexible means of bringing debt under control and could be the solution for you if:

• You have a short term cash flow problem and believe that your financial circumstances will change in the near future.

• You are unable or do not wish to take out any further loans or use the equity in your home.

• You want to remove the pressure from creditors.

• You want to pay all your debts but are struggling with your current repayment schedule.

The pros & cons of debt management

Pros

• A debt management plan is flexible; if your financial situation changes, then your payments can change accordingly.

• If you choose to deal with a debt management company, they will handle all correspondence from your creditors.

• You are displaying a responsible attitude towards your debts which may be looked upon favourably by future creditors.

• There should be no contracts with debt management mompanies. If you are not happy with the service they provide, just walk away and make alternative arrangements.

Cons

• Unless otherwise negotiated, your interest repayments will mount up, leaving you with a large sum at the end of your repayment period.

• You will be breaking the terms of your credit agreements with your creditors.

• It may take a significant time to repay your debts.

• You may find it expensive to get credit in the future.

• This will not necessarily stop creditors from passing your case to a debt collection agency, issuing default notices or seeking County Court judgements.

Where to go for more help

There are lots of companies out there offering debt management services which can be broadly defined in two categories; free and fee charging. Fee charging companies make a profit directly from you, where as ‘free’ debt management providers are funded through the financial services industry.

When considering debt management, you should endeavour to secure the best deal for yourself. As a priority, you want any agreement to include the interest on your debt being frozen. On this note, be wary of companies that promise to have your interest frozen – it is up to your creditors to decide this point and not the debt management companies.

There are a lot of companies out there, so if at first you don’t get the deal you want, shop around.

Get debt free, stay debt free

Whatever option you think suits your situation best, it’s important to make changes to the way you handle your finances in order to improve your situation and to stop debt mounting up again in the future. To put it simply – don’t spend more than you earn!

It is also important to prioritise what you owe and to whom. Obviously, if you are a homeowner, your mortgage needs to come first.

Also, be organised! Calculate your income and outgoings and work out exactly how much disposable income you have to play with. Try to budget for extra expenditure in advance, for example birthdays, Christmas and other special occasions. If you want to be extra organised you could also start a contingency fund for that unexpected ‘rainy day’.

And finally – it is important to remember that no matter the size of your debt – there is a solution.

source: Emergency Services News

It’s a return to economic growth… but only just.

It’s time for another of our quarterly snapshots of the UK economy.

After contracting for six successive quarters, there was a return to growth in the final quarter of 2009. But it was close: the eventual outturn, released at 9:30am this morning, showed that the economy grew by just 0.1%. Thus ends the longest recession since records began in 1955, and the steepest collapse in economic output since the Great Depression of the 1920s.

Although perilously close to zero growth, it’s still a far better GDP figure than the 0.4% contraction for Q3, which shocked economists, confounded the City, and left the UK in recession even as economies such as France and Germany powered out of it.

A modest recovery

But economists were once again surprised at the slow pace of the recovery. “This is another desperately disappointing GDP release,” said Howard Archer, chief European & UK economist at analysts IHS Global Insight, which had predicted a figure of 0.4% growth. “GDP growth of 0.1% quarter-on-quarter was well below expectations, with service sector output and industrial production only edging up by 0.1%, and construction output stagnating after expanding in the previous two quarters.”

As a result, the UK will struggle to grow by more than 1% in 2010, expects IHS — and from such a low base, it’s entirely possible that there could be a relapse in the current quarter.

That said, today’s GDP is a preliminary estimate, based on little more than 40% of the data that will eventually become available, and will be revised — hopefully upwards — in the coming weeks. The preliminary estimate of a 0.4% contraction in Q3, for instance, was subsequently revised to a contraction of 0.2%.

Still, growth is growth, and very welcome. For the record, Q4’s 0.1% improvement in output means that the economy shrank by “just” 4.8% in 2009. And in terms of GDP-per-person, that leaves us all slightly worse off than we were in 2005, according to figures from economic advisory group Oxford Economics.

Jobs, trade and public sector borrowing

Further modest good news came in the form of the unemployment figures. While the table below shows unemployment apparently constant at 2.5 million, the count actually fell slightly by 7,000 people over the quarter to 2.46 million, bringing to an end the continued rise in unemployment that began in the summer of 2008. The fall is reflected in the slight improvement in the unemployment rate — from 7.9% of the labour force to 7.8% — and is hopefully a sign of better things to come.

That said, the number of people in part-time employment now stands at a record high of 7.71 million, having risen again during the quarter. More than a million of these people were working part-time because they could not find a full-time job — the highest figure since records began in 1992, according to the Office of National Statistics.

The trade figures, too, were better than expected, with the balance of payments showing a marked improvement over the quarter. Exports were up 7% over the quarter, and while imports were lifted appreciably by the vehicle scrappage scheme, November’s trade figures — the latest — mark a modest-but-distinct improvement over October.

The good news continued with the public sector borrowing requirement. Yes, it’s up, at a record £15.7 billion, but the rise was certainly not as much as had been feared: analysts had figures as high as £18.7 billion pencilled-in. Going forward, recovery-led rising tax revenues must surely help, as will the return of VAT to 17.5%.

Speaking of which, the inflation figure bucked the ‘modest good news’ trend with a vengeance, coming in at 2.9% — which economists agreed was “a nasty shock”. Prices in December 2008 (the point of comparison) had been unusually low — due to factors such as the fall in VAT, sharp falls in the price of oil, and steep High Street pre-Christmas discounting — so some increase had been expected.

But 2.9% was far more than either economists or the Bank of England had expected, and could herald a rise in interest rates sooner rather than later. And in the short term, worse is to come. VAT returning to 17.5% will push the inflation figure even higher — perhaps to 3.5% or more — before there will be any respite. Certainly, the expectation must now be that the Bank’s government-authorised £200 billion programme of quantitative easing has run its course.

Household finances

The same signs of cautious optimism can — for the most part — be seen in household finances. After registering a rare fall in Q3, for instance, household debt rose slightly in Q4, from £1,457 billion to £1,459 billion.

And according to the Council of Mortgage Lenders, mortgage lending totalled £39.1 billion in the quarter, up slightly from £39 billion in the previous quarter, and a sharp contrast with normal years, where a 6% fall typically occurs between the third and fourth quarter.

That said, for 2009 as a whole, mortgage lending totalled £143.7 billion, down 43% from £253 billion in 2008, and the lowest annual total since 2000’s £119.8 billion.

Average house prices rose by 1.6% in Q4 said the Nationwide, and are now up 3.4% year on year, taking the price of the typical British house to £162,116.

The slide in property values appears to have stopped — at least for the time being. But the broader picture remains one of caution. The Nationwide’s measure of consumer confidence registered an unexpected fall in the quarter, with a five point decrease in the month December to a score of 69.

The same caution is seen in the savings ratio. Close to zero — or even briefly negative — during the boom, the savings ratio now stands at 8.6%, up three percentage points on the quarter. With close to one in ten pounds of household income being saved rather than spent — despite interest rates remaining at record lows — consumers are clearly still very wary.

And with consumer expenditure consequently remaining depressed lower, the prospects of a sharp consumer-led recovery seem remote: consumer expenditure, don’t forget, contributes to around 65% of GDP.

The stock market

And what of the stock market? Here — as in Q3 — the picture is clearer, with the FTSE 100 again posting a healthy 280 point rise over the quarter, and the FTSE All-Share recording a similar percentage gain.

So investors, at least, have positive news to cheer — despite yields now starting to approach pre-recession levels, and with the FTSE All-Share’s P/E standing at a hefty 19.

But the real issue lies in earnings and dividends, not price. So there’s hope that rising earnings and dividends will redress the balance over the coming months, as more companies resume paying dividends, and fewer businesses post losses.

And on that note, accountants Ernst and Young helpfully report that only 50 companies issued profit warnings in Q4 — the lowest level in six years.

NOTE: the figures above represent comparisons between the quarterly or monthly period ending 31 December 2009 and 30 September 2009 where the relevant data is available. Where such data is not available, the data used is the latest published figure, compared with the equivalent figure for three months previously. Figures for the previous quarter may differ from those originally published here due to subsequent Office for National Statistics and Bank of England revisions.

source: Fool.co.uk

The Christmas spending hangover has turned into a continuing headache for thousands of consumers.

More people last year turned to paying for their Christmas presents by credit card, probably in part because of increased unemployment and reduced income because of the recession. Many now even pay their mortgages by credit card.

Those credit card bills will now be dropping through the letter boxes. Spending by plastic rose to a record high at Christmas.

While the official figures are not yet published, the UK Payments Authority believes that credit card spending might have risen to £11bn in the run-up to Christmas. But borrowed money has to be repaid and could be expensive in the coming months.

Even worse than the credit card debts, some people in trouble went to loan sharks for emergency finance.

One just published study found that over 100,000 people in the UK borrowed £82m from loan sharks over the Christmas period.

With the extortionate rates charged by loan sharks, that could require borrowers to repay up to 10 times the amount they borrowed.

Not surprisingly, a report from the Nationwide Building Society also found a significant fall in the amount people saved in recent weeks.

Help needed

These factors point to a worsening financial situation for a large number of households —and the need for more discipline and understanding by consumers in how to manage their finances. Here there is some hope, with a new financial education scheme being launched by Nationwide and Citizens’ Advice.

Nationwide is paying Citizens’ Advice £105,000 to run a three-year programme of financial education in Northern Ireland. Citizens’ Advice volunteers will be trained so they can teach people in the poorest neighbourhoods how to improve their financial wellbeing. The programme is part of a UK-wide scheme, to which Nationwide is donating £3m.

Some 66 volunteers here are to be taught, who are expected to go on to train at least 4,000 people over the three years.

The focus will be on people most likely to end up in severe debt, working through local community centres, mother and toddler groups and youth groups.

“It is preventative work, not just helping people in debt,” explains Siobhan Gough-Duffin, who is overseeing the scheme in Northern Ireland. “It is to help people manage their money, teaching them how to budget, how they can save in practical terms, giving people the basic skills in managing money so that people have conversations with each other about how to avoid getting into debt.”

But another element of the programme will be to point people to support if they do enter financial crisis. Citizens’ Advice is acutely aware of the need for practical assistance, having seen an 11% increase last year in people seeking debt advice during the recession. On average those seeking help will have debts of £16,971 each, which would take 93 years to pay-off on an affordable basis.

Moving into the classroom

Others share the Citizens’ Advice aspiration to encourage people from getting into serious debt in the first place, with many arguing this should start in the classroom. Nationwide is itself supporting a programme to teach children from ages four to 16 to manage their finances and publishes the Teenagers’ Guide to Money.

IFS School of Finance is a charity seeking to improving the teaching of personal financial management in schools: it offers personal finance qualifications to 14 to 19 year olds in Northern Ireland, England and Wales.

Anne Kiem, the IFS vice principal, says: “There is no doubt that mismanagement of personal finances contributes to rising debt, poverty and social exclusion. As a result, the IFS feel passionately that we should better educate young people about personal finance issues so that they have the necessary skills and knowledge to avoid such problems. This can be addressed by giving personal finance education a higher profile in the school curriculum, particularly in secondary schools.”

She adds: “Avoiding debt and being able to distinguish between different types of financial products and their implications is a key life skill. Financial education can make a real difference in helping young people be better prepared and more able to make informed decisions about their finances.

“Giving young people a concrete opportunity to understand how personal finance products work will prove invaluable throughout their adult lives and arm them with the skills and knowledge to help them take better control of their finances.”

Education will not provide a total solution to the financial crisis affecting too many people: but it is a very good place to begin.

Financially unqualified shop staff should be banned from selling store credit cards, according to insolvency trade body R3.  Ahead of the closure of the Government’s credit card consultation tomorrow, insolvency experts warn that this practice contributes to the mountain of personal debt in the UK and entices vulnerable customers into debt.

R3 President Peter Sargent commented: “It is frankly irresponsible to sell credit over the shop counter as though it is no more important than buying a sandwich.  Without proper training, shop assistants are inappropriately qualified to understand the consequences of what they are selling and often commission driven.  While these cards are presented as innocuous, they can lure vulnerable people into debt.  They should only be sold by people who have been sufficiently trained to sell financial products.”

A recent poll finds that the majority (72%) of Insolvency Practitioners believe it is too easy to get a credit card and two thirds (66%) have seen cases where people have signed up for store credit cards without any understanding of ‘what they had let themselves in for’.  Case studies show individuals with unsecured debt of £300,000 and others with more than 30 credit cards at one time.

Peter Sargent concluded: “We broadly support the consultation which is considering raising monthly minimum repayment rates. This measure would encourage people to see store credit cards as short term credit rather than ‘a long term way of life.’”

Case Studies:

1. A 43 year old professional woman from the North West had 15 credit cards and store cards/catalogues. She owed more than £85,000 on an income of £25,000pa. When credit became tighter and she was unable to continue recycling debt, she hid the problem from her husband until bankruptcy loomed.
2. A couple aged 29 and 30 with two small children needed new toys and clothes. Using 10 store cards to cover for a deficit in their income, they ran up a combined debt of £150,000 on store cards.
3. A 62 year old director of a company could not get further business loans as his applications for funding had been properly assessed and declined.  He was able to get £53,000 on 0% credit cards.  He now faces immediate bankruptcy as the downturn in the economy has caused his business to cease to trade and he has no income to meet the payment requirements of the cards.
4. A bankrupt male (30, married) whose credit/store card debt (more than 20 cards) exceeded £125,000 out of total £384,000 debts (mortgage £234,000) lost his good job in IT.  A classic case of increasing debt following postal marketing of “new card no questions.”  Debtor admitted it was wrong to apply for the cards but as he was living beyond his means, it was an easy way out until the monthly minimum payments became too large to settle all at one time.

source: R3.org.uk

• Women take action to repay debts
• 15 per cent of men have no repayment plan
• 37 per cent to slash food /utility budgets to pay festive debt

New research from Post Office Christmas Club has revealed that for more than 14 million people (29 per cent) the cost of Christmas shopping, entertaining and socialising has resulted in increased stress over finances.

Worryingly, of the almost five million people (10 per cent) who had to increase their debts to cover Christmas, over a third (37 per cent) are going to have to make cut backs on essentials such as food and utility bills in order to repay debts. Whilst almost half (49 per cent) stated they’ll be cutting back on going out throughout the year.

Although the same number of men and women (29 per cent) are stressed over Christmas expenditure, it seems that many men will be placing their heads in the sand when it comes to dealing with the extra debt – 15 per cent said they have no idea how they are going to make repayments compared to just four per cent of women.

When it comes to cut backs, 48 per cent of women will be making savings on household spend, in comparison to 28 per cent of men. And although January may traditionally be a peak period for holiday bookings, a third of women (34 per cent) who incurred Christmas debt say that spend on holidays will have to be reduced in 2010, though only a quarter of men intend to do the same.

The Post Office Christmas Club research also revealed a reduction in the number of people who budgeted for Christmas in 2009 – 27 per cent said they saved up in advance to cover costs, compared to 33 per cent who saved for Christmas 2008.

This approach has also been echoed by Post Office Christmas Club customers who, because of the recession, said they felt they would not have enough spare cash to save towards Christmas 2009. As a result, the Post Office reduced the minimum pre-payment for the Christmas Club from £5 to £2 to help people take that first step towards saving for Christmas.

With one in ten people still expected to paying off Christmas 2009 debts come Christmas 2010, and the same amount carrying the debt taking them into 2011, the Post Office Christmas Club is advising that now is the time to start planning this years festive season.

Michael Birchall of Post Office Christmas Club said: “Although Christmas 2009 may already feel like a distant memory to many, for millions of people debt and financial worries will be a constant reminder in the months and even years to come.

“People may not feel ready to start thinking about the 2010 festive season but now really is the time to consider saving through schemes such as the Post Office Christmas Club. We know cash is tight for many so we’ve made it even easier to save by reducing the minimum payment to £2. Savings are locked away until 1 November to avoid temptation and helping to avoid a Christmas debt hangover well past the 2011 New Year celebrations.”

Suzy Hall from the Christmas Prepayment Association commented: “It’s especially worrying to see that even less people budgeted this year to cover the costs of Christmas. Savings clubs such as the Post Office’s offer people real flexibility to put away a little cash each week or month to ensure they can celebrate Christmas without the worry of increased debt and stress to follow.”

The Post Office Christmas Club offers an easy way to budget for Christmas 2010. Customers receive a special Christmas Club payment card, onto which they can make pre-payments from just £2 over the counter at any Post Office branch. From 1 November the card is unlocked, enabling customers to use it to buy goods and services directly at retailers, or to purchase retail gift cards. The maximum individual payment is £500, up to a total of £1,000 per card per annum.

Each club member receives a great bonus booklet of special offers with selected retail partners – a significant benefit compared to current rates available from high street savings accounts.

source: Royal Mail

Rising food and fuel prices have been cited as one of the main reasons why an increasing number of older people are releasing equity from their homes in order to pay off debt.

Independent Age’s director of policy and communications Simon Bottery said this inflation, coupled with the impact low interest rates have on income from savings, is forcing this demographic to either reduce spending or turn to schemes like equity release in order to get by.

Key Retirement Solutions’ UK Equity Release Market Monitor revealed this week that debt repayment was the reason for 35 per cent of equity releases in 2009 – up from 11 per cent in the previous year.

The fact that more than 66 per cent of over-65s own their homes outright makes it “easy to see” why this trend has emerged, Mr Bottery suggested, but he recommended that people should explore other avenues to pay off debt first.

“We would urge them to first ensure that they are claiming all available benefits – up to £5.4 billion of benefits goes unclaimed every year,” he commented.

Source: Moneynews.co.uk

Many parents are returning to work earlier than they had intended to, amid worries about increasing levels of debt.

According to research by Scottish Widows, as many as four million parents are looking to go back to work to supplement the family income.

It is thought that 44 per cent of households now rely on more than one breadwinner in order to maintain a comfortable standard of living.

Furthermore, the study showed that 62 per cent of people were not making provisions to protect themselves should the worst happen to a parent.

Scottish Widows’ protection director Clive Allison said: “Nearly half of families with dependent children now rely on two incomes to maintain a decent standard of living and as our stats show, this is not likely to ease off any time soon.”

These findings are reinforced by the recent statistics published by the insurance firm, which revealed that 34 per cent of the people questioned felt they were not spending enough time with their children.

source: Moneynews.co.uk

Several recent surveys have highlighted the social impact of the credit crunch, with UK homeowners renting out spare rooms and delaying having children to make ends meet.

Other findings have also revealed that the amount of debt among parents with dependent kids has increased to the extent where giving up work to care for children is not an option for many parents.

Research by Shelter revealed that 18% of 18-44 year olds, equivalent to 2.4 million people nationwide, are delaying having children because of high housing costs. One in five have waited for as long as six years to start a family, with 37% expecting housing costs to continue to delay their plans for another four years.

Kay Boycott, director of policy and campaigns at Shelter, said: “These figures show just how pervasive the housing crisis is.

While it is responsible to ensure that you can afford to support a new baby, it is completely unacceptable that housing costs are changing important life decisions like starting a
family in such a significant way.”

The housing charity expressed fears that these delays could affect the health and fertility of women who put off having children until they can access an affordable home.

The charity also revealed that the average age of first-time buyers without familial assistance had risen to 37.

In separate research, Scottish Widows revealed that the average household with dependent children has £91,648 still outstanding on their mortgage, an increase of over £3000 from last year. Of the 6.6 million households with dependent children, 4 million are reliant on two or more salaries, suggesting that the days of one parent going out to work while the other takes care of the family appear to be numbered.

Clive Allison, protection director at Scottish Widows, said: “For many families, sacrificing
half their income when they have children is a luxury they just cannot afford.”

Some homeowners have even been forced to rent out spare rooms to help pay off debts
accentuated by Christmas.

The rental marketplace Spareroom.co.uk has reported a 27% increase on live-in landlord adverts in the first fortnight of 2010, compared to 2009.

Mark Hutchinson, director of the flat and house-sharing website, said: “While the recession might be coming to an end, for many people, the financial turmoil of the last 18 months will continue to have an effect on their lives for some time yet. Taking in a lodger is a simple and tax-efficient way of bringing in some much needed additional income.”

source: Mortgage Solutions.

A 22% RISE in the number of people declared insolvent is predicted to hit Chester in 2010.

There were more than 1,600 cases of personal insolvency in Chester last year out of 15,000 people across the North West region – an average of 41 people every day.

Accountancy firm RSM Tenon is predicting a 25% rise in the number of personal insolvencies across the region and a 22% increase in Chester.

Gill Wrigley, insolvency specialist at RSM Tenon, said: “As the bankruptcy courts closed their doors for the last time in 2009, more than 15,000 people turned to personal insolvency as a last desperate measure for dealing with their financial woes across the region.

“However, in a few days’ time those queues will build once more outside of the offices of debt advisers as the downturn has led to many people being ill-placed to tackle debt.

“The longer the recession lasts the more people will be unable to hold on, until they see any benefit from the upturn.”

During 2009 in Chester there were 864 people made bankrupt and 590 people who entered into Individual Voluntary Agreements – up 10% and 11% respectively on the previous year’s figures.

The introduction of Debt Relief Orders (DROs) last April has also had a significant impact on 2009’s insolvency figures.

DROs made up about 9% of insolvencies in the North West – that’s more than 1,400 people taking advantage of a new procedure which results in less associated stigma.

RSM Tenon’s tracker figures show more than half (56%) of people who entered into personal insolvency during 2009 were male and 58% fell into the 26 to 45-year-old age group.

source: chesterchronicle.co.uk

The number of homeowners in Scotland going bust has risen over the last year, according to a new report.

Bankrupt homeowners have increased from 33% in 2008 to 47% in 2009, said accountants PKF.

The figures come as a record number of Scots are registering as bankrupt with the annual figure for 2009 expected to be around 24,000.

The average age when an individual is made bankrupt has fallen by a year to 42 but there has been a reduction in the number of those under 30 being made bankrupt which is down 15%.

However the average debt has risen by nearly £1,500 since 2008 and men are incurring much greater levels of debt than women.

The majority of those declared bankrupt are also middle aged.

Personal insolvency numbers in Scotland are currently double those of England and Wales.

Bryan Jackson, corporate recovery partner at PKF, said: “The figures are deeply concerning since they seem to indicate that debt levels in Scotland are increasing and hitting homeowners the hardest.

“But of great concern is the increase in homeowners who have been made bankrupt.

“This is probably the group who, during the housing boom, used rising equity in their homes to fund their lifestyles and now that this source of revenue has dried up they find themselves with limited equity and rising costs and are unable to cope.

“I think many will be surprised that it is the middle aged who continue to be, by far, the largest group affected by personal insolvency since there is an assumption that the young are the most likely to get into debt.

“Our figures indicate that it is the young who are being more cautious with fewer falling into bankruptcy than before.”

Mr Jackson added: “Whilst there is no easy answer to severe indebtedness we are currently witnessing record numbers of personal insolvencies and few signs that these figures are likely to stop rising.

“With Scots insolvency running at double the rate for the rest of the UK it is clear that we need to encourage fewer individuals into bankruptcy and ensure greater financial awareness among the population.”

source: STV.tv News