Archive for February, 2010

Crippling levels of debt are pushing up rates of stress and depression, and pushing some people to extremes

IN THE 1950s Joan Nunn was the face of a well-known toothpaste in the first-ever commercial run on ITV. Last year, her husband, struggling with debts he could not pay, tried to smother her to death as she lay asleep.

On Tuesday, Peter Nunn, an accomplished chef and former financial adviser, who had hidden the scale of their mounting debts from her, was sentenced to eight years in jail by Bristol Crown Court.

Earlier this month in Wales, Hugh McFall from Oswestry, described as gentle and loving by neighbours, murdered his wife and daughter before hanging himself. He, too, had buckled under the strain of living a life he could not afford.

This year, a record 150,000 people in the UK – 15 per cent more than last year – are facing bankruptcy, but up to one million people are finding it difficult to cope.

Official figures say the UK’s privately held debt, including credit cards, mortgages and personal loans, now runs to £1.5 trillion (€1.7 trillion) – nearly twice what the treasury owes international lenders.

Including mortgages, every household owes £56,000, though the bulk of that is held by younger homeowners, while, on average, people are trying to juggle between 11 different creditors.

A house is being repossessed every 11.2 minutes. One person is being declared insolvent or bankrupt every 3.72 minutes, according to statistics compiled by the lobby group Credit Action.

The average owing on the 11 million mortgages currently outstanding is £111,000, while the average debt, including mortgages, of each UK adult is £30,000 – 129 per cent of average earnings.

Last month, the housing charity Shelter reported that up to one million people had borrowed money on their credit cards to pay their mortgage or rent over the past year – 6 per cent of all households.

Contrary to expectations, default figures on credit card debt have not risen, but some lenders are increasingly likely to go to court to tie unsecured debt to a debtor’s assets, usually their house.

Since 2000, the number of unsecured creditors taking this action has risen sevenfold, while three-quarters of the 130,000 such applications made in 2007 – the latest year for which figures are available – were granted, according to the Citizens’ Advice Bureau.

Unsurprisingly, many are finding it difficult to sleep. Three-quarters of family doctors have seen an increase in the number of patients reporting stress and depression over the past 18 months.

Men are doing worst, according to a survey carried out jointly by the Post Office and the Family Doctor Association, with an 82 per cent rise in the number reporting stress tied to money worries, compared with 74 per cent of women.

Half of all those surveyed under 30 reported sleeping troubles, with one in eight men in the age group experiencing impotence. A third of doctors are now prescribing antidepressants for patients under 30.

And the group is not just worrying about meeting its own obligations. Over half of them, according to separate Post Office polling, are now concerned about how they will support their parents in retirement.

One in 10 of all calls taken in the past year by the Samaritans in the UK concerned financial pressures, while suicide figures, which had been dropping, have been rising since 2008.

“If people don’t talk about their problems they can build up over time into more serious emotional distress,” said Samaritan trustee and professor in health policy at Edinburgh University Dr Stephen Platt.

Such are the numbers that debt advice agencies report a 30 per cent rise in calls from people needing help, and some have imposed a six-week waiting period before they see new people.

Faced with these problems, people have pulled in their horns, paying back about £400 million more in debt each month than they took on every month since last July. New credit card spending is continuing to fall, down 3.7 per cent on the year, though the amount outstanding on “plastic” jumped by £4 billion to £54 billion last year, as people were forced to stretch out repayment.

In all, total consumer credit has dropped 1.8 per cent. Savings are up by nearly 5 per cent. Shop sales, meanwhile, have shrunk. And the United Kingdom needs people to spend if it is to begin a proper recovery.

Offering evidence in Bristol at Peter Nunn’s trial for attempted murder this month, Det Sgt Lee Jones said Nunn and his wife had been due to be evicted from their home in Wookey, near Wells.

Nunn, a former member of Somerset Rotary Club, had said he wanted “to take his wife with him”. Now he faces a minimum of four years in jail, the judge has ruled.

His wife, who is 80, now lives alone on benefits in a one-bedroom flat.

It is all so far away from the glory days of the 1950s, after she had finished promoting toothpaste, when her image was captured by photographer David Bailey for the pages of Vogue and Vanity Fair .

source: Irishtimes.com

PWC report on state pensions warns that dire public finances means plans to raise retirement age to 68 do not go far enough.

An ageing population and the poor condition of the public finances will require the state pension age to be raised to 70 by the middle of this century, one of Britain’s leading consultancies warned today.

PricewaterhouseCoopers said government plans to raise the pension age in three stages from 65 now to 68 by 2046 did not go far enough, given the sharp increase in national debt caused by the recession of the past two and a half years.

John Hawksworth, PWC’s chief economist, said that the public should be offered a deal by the state: work longer in return for an assurance that pensions would rise in line with average earnings.

He added that future governments would need to raise the pension age to 70 in order to guarantee that the earnings link would remain in place.

“The sweet spot enjoyed by the economy during the past 30 years as the post-war baby boomers moved through the workforce has the potential to turn sour as longer periods of retirement leave a lasting and expensive burden on future generations of workers,” Hawksworth said.

“Either taxes will have to rise or other policies need to adjust to deal with the higher costs of state pensions, health and long-term care, as well as the large debt hangover from the global financial crisis,” he said.

Hawksworth added that plans to raise the pension age to 66 by 2020, to 67 by 2036 and to 68 by 2046 provided part of the solution to the rising cost of retirement but did not go far enough.

The savings from raising the state pension age to 70 would be £9bn a year at today’s prices, enough to cover the majority of the costs of an earnings-indexed basic pension.

“This would restrict greatly the spread of means-testing for future pensioners and avoid adding to the already large burdens of public debt and taxation on the children and grandchildren of the baby boomers,” he said.

PWC estimates that pushing the state pension age up to 70 would avoid the need for higher taxes, which would amount to 2p on the basic rate of income tax or a two-point increase in VAT.

The consultancy’s report – Working Longer, Living Better – said the changes to the state pension age should be accompanied by the scrapping of the “increasingly anachronistic” default retirement age for employees.

source: Guardian.co.uk

nsolvency trade body R3 has called for a ban on retail staff being allowed to sell store cards to consumers.

The organisation said 66 per cent of its members have dealt with personal insolvencies involving people who have signed up for the cards without fully understanding them or realising that they are entering a legally-binding contract.

A further 78 per cent believe many consumers unwittingly go over budget on store cards because they do not consider spending on them to be as “real” as using cash.

In one case, a couple ran up a debt of £150,000 on ten store cards buying clothes and toys for their two children, while in another incident, a man who was declared bankrupt with debts of £384,000 was found to owe £125,000 on more than 20 credit and store cards.

R3 has therefore called for a ban on the “irresponsible practice” of allowing shop staff with no formal financial qualifications to offer the cards at checkouts.

The organisation’s president Peter Sargent said: “Store cards must be handled just like any other credit card.”

source: myfinances.co.uk

A new study has shown Britons are an increasing amount of debt.

Figures from Unbiased.co.uk show that although the total owed on personal loans has stayed constant over the past 12 months, outstanding credit card commitments have risen.

At present some £54 billion is owed on cards, an increase of £4 billion from last year.

With the research also showing the country’s Debt Freedom Day – the point at which enough money has been earned to pay off interest – was last Saturday (February 20th), Karen Barrett, chief executive of Unbiased.co.uk, points out “now is a better time than ever” to get to grips with debt.

However, doing so does not have to be “a daunting task”.

Such comments come as Ian Boden-Smyth, spokesperson for the UK Insolvency Helpline, recently claimed that his organisation will “pretty busy” during the first quarter of 2010 as people look for assistance in tackling their debts.

By Which4u.co.uk  (Bret Clement)

A series of body blows to savers, borrowers and consumers was dealt by the Government, banks and credit-card providers in a matter of days.

The news that average credit card rates hit a 12-year high was the first shocker, given that it coincides with the lowest ever Bank Rate of 0.5pc. Yes, you might have been forgiven for thinking credit-card rates should be falling as the cost of borrowing hits a nadir. But that’s because you live in the real world, not the make-believe one of financial services companies, where rules are made up as they go along and smoke and mirrors are used to confuse customers into coughing up more cash than they should.

Rates have been creeping up gradually, but not across the board. Instead, providers have been singling out certain types of borrowers and lifting their rates out of the blue, which makes it harder to detect their wrongdoing. At first, it was thought those customers deemed to be a high risk were being punished for missing payments and going over their limit. This is hard to justify as they already get hit with penalties for this.

But then again these penalties have been capped at £12 by the Office of Fair Trading, which put a squeeze on the ability of credit-card providers to bring in more revenue. So maybe we have all been a bit naïve in thinking the banks and credit-card firms would accept this loss of income. Of course they haven’t. Instead, they have clawed this money back elsewhere, and have decided ”rate jacking’’ is the way to go. So if you behave yourself and pay your bill on time and don’t go over your limit you’ll be safe, right? Wrong.

It’s not just potential bad debtors who are being hit with higher rates – those with excellent credit records are also being targeted.

So is the answer to find some middle ground – miss the odd payment every now and again and go over your limit once or twice a year? Sadly this isn’t a fail-safe tactic either. They will still get you.

The most reliable solution would be to phone your credit-card firm, complain about the rate rise and then threaten to leave if they don’t back down. Just as we came to terms with this, we heard the cheery news that inflation was still heading north, just like the bumper profits at Barclays. Prices are now rising at 3.5pc for the average British household, which isn’t exactly the best timing given we’re shaking off the effects of a recession, struggling with unemployment and seeing the unjustified rise in the cost of borrowing.

Like a naughty schoolboy, Mervyn King has to write to Alistair Darling if inflation is more than one percentage point outside the Government’s 2pc target. Although he claims this rise is ”temporary’’ – partly due to VAT going back to its original level – critics are not so sure.

Maybe if it happens too often Mr King will resort to text messaging Mr Darling, saving time and money. ”Hi Al. Sorry I did it again m8. Merv’’ might be the quickest way to pass on the bad news to the Chancellor.

Whatever happens to inflation, the real victims are savers, who have seen savings account rates plummet. They have spent a lifetime putting money aside and now are fighting a losing battle to get a real rate of return. Meanwhile, the bankers who brought the world economy to its knees seem to be just as keen as ever to grab their bonuses and carry on as if nothing had happened.

Source: Telegraph.co.uk

Figure for 2009 is down on previous year, although rising inflation may lead to more living on their overdraft.

Five million Britons are permanently overdrawn, and rising inflation could force more to live on their overdrafts, says product comparison website moneysupermarket.com.

The website’s research shows one in 10 current account customers were overdrawn the year round, a further 12% drop into the red at least five times a year, while 38% of current account customers have used their overdraft at least once during the past year.

However, these figures are a big improvement on 2008, when moneysupermarket.com found that 17% of British adults were permanently overdrawn, a further 15% used their overdraft five times or more a year, and a total of 52% relied on their overdraft at least once during the 12-month period.

Kevin Mountford, head of banking at moneysupermarket.com, said: “While it is encouraging to see less and less people reliant on their overdrafts, we should be concerned that there are still such a large number of people permanently overdrawn.

“With rising inflation, it is going to be difficult for many to break the habit of living in the red, and it may be that more people will fall back into this position as living costs increase.”

Analysis by the website shows that those going into the red on a regular basis need to be careful about which current account they use or they could end up being even more out of pocket.

A Halifax Reward current account is the cheapest for customers who go overdrawn by £500 for just five days a month, as the overdraft charge of £1 per day for debit balances under £2,500 will be covered by the £5 monthly payment the bank pays to account holders who pay in £1,000 a month. By contrast, Alliance & Leicester’s Premier Direct account is one of the most expensive, costing £2.50 a month or £30 a year.

Santander Preferred Overdraft account would charge the same customer £10.80 a year, Barclays bank account £15.87, Nationwide BS FlexAccount and Lloyds TSB Classic account Plus £15.60, NatWest Current Plus £16.20 and HSBC bank account £16.80.

But the positions are reversed for those who are overdrawn permanently for a whole year. Halifax’s fixed daily rate the makes it one of the most expensive, with borrowers clocking up £300 in charges, while Alliance & Leicester is one of the cheapest, costing £60 a year.

Santander would again be the second cheapest in this list charging £64.80, Barclays £95.22, Nationwide BS and Lloyds TSB £93.60. NatWest £97.20 and HSBC £100.80.

Kevin Mountford added: “The charges attached to overdrafts have been at the forefront of the news agenda over the last couple of years, with the courts eventually deciding the banks can penalise those who go overdrawn in whatever way they choose, without interruption from the Office of Fair Trading (OFT).

“The dangers of being overly, or entirely, reliant on your overdraft are clear; firstly this can be an extremely expensive debt to carry if it hasn’t been agreed with your bank in advance, and secondly your bank can reduce the size of your overdraft with little warning.”

source: guardian.co.uk

Research from moneysupermarket.com* has discovered the depth of reliance Brits have on credit cards.

• One in five Brits has three or more credit cards
• Over 14 million use their card for day to day living
• Women more prudent with credit cards than men

The research found that one in five of us carry more than three credit cards and that 17 per cent of credit card holders use their card at least once a day, with a further 28 per cent using their card at least once a week.

The research also discovered a worrying trend in that over 14 million** Brits are using their credit cards to fund day to day expenses. The most popular use of credit cards is to purchase goods online, with more than half (56 per cent) of credit card holders using their card for this purpose. 40 per cent of credit card holders use their plastic for day to day spending. However, the data also showed that consumers are savvy when it comes to making their plastic work hard for them – 25 per cent use their card specifically for the reward points, and 11 per cent use their card for cashback and zero per cent purchases.

Peter Harrison, credit cards expert at moneysupermarket.com, said; “Credit cards are still playing an important role in the nation’s finances. Our research makes clear the extent to which many of us rely on credit cards at frequent intervals in our lives although it’s alarming to see that so many people are using credit to pay for day to day expenses as this can be a dangerous habit to get into. If you are funding everyday items such as petrol or food, and still paying for it long after the product has been used, you should seriously consider stopping.

“Holding more than one credit card can be a good idea, if you are using one for balance transfers and one for purchases, and have suitable zero per cent deals on both; however, holding more than two cards does expose you to a large amount of credit, which may not be financially healthy and could make it difficult to obtain further credit in the future.”
Women and men
moneysupermarket.com’s research has found some surprising discrepancies between men and women in the way we use our credit cards.

Whilst more than one in four men (26 per cent) has three or more credit cards, just 16 per cent of women have exposed themselves to this level of credit, in fact a third of women don’t have a credit card at all, compared to a quarter of men.

Only half of all female credit card holders (49 per cent) flash their plastic more than once a month, but half the boys (49 per cent) use theirs on a weekly basis.
   
Peter Harrison, continues; “There is a national stereotype of a woman maxing out her credit card on bags and shoes, but our research shows that men are consistently more reliant on credit cards than women. It also shows that women are more savvy when shopping for credit, with more women choosing their credit card based on the incentives offered.”

Credit through the generations
The research also found that those over 70 are likely to hold more credit cards than any other age group, with 27 per cent hoarding more than two cards compared to a national average of just 20 per cent.

Whilst the over 70′s are well above the national average with regards to how often they use their credit card, with one in four over 70′s credit card holders spending on the plastic everyday, they are eclipsed by credit card holders under 20, a third of whom (31 per cent) rely on their card on a daily basis.

Peter Harrison added; “It seems that our reliance on credit is heightened at the beginning and end of our financial lives. Young people must work hard to avoid the temptations of becoming trapped in debt. Reliance on credit cards at a young age is a dangerous trend, especially now that our credit record can open and close so many other doors.”

UK Credit card hot spots
The North East has emerged as the region of the UK with the least reliance on credit cards, with half (49 per cent) eschewing credit cards altogether, and just one in ten (11 per cent) holding more than two. In stark contrast to this, just one in five Londoners are without a credit card and one in four holds more than two.

Credit card holders in Northern Ireland use their plastic the least often, with just nine per cent using the credit card once a day or more. Again London’s credit card holders come out at the bottom of the pile, with 31 per cent using their card everyday.

Northern Ireland’s credit card holders are also the least likely to be using their card to cover day to day spending day to day, with just one in four (26 per cent) admitting to this. However more than four in ten (42 per cent) of the North West’s credit card holders are using their card to fund day to day purchases.

Peter Harrison concluded; “These figures really highlight the disparity of credit card usage between different regions of the UK. Clearly London is something of an anomaly and its figures stick out like a sore thumb. Those in the North East are clearly far less reliant on credit cards than the vast majority of the UK, and their neighbours in the North West aren’t far behind.”

 source: MoneySupermarket.co.uk

Bailiffs have been given permission to collect debts by credit card from people who are already struggling with monthly bills.

Campaigners have already told ministers that allowing people to pay debts such as speeding tickets or council tax bills by credit card would make their situation worse.

The Tories said the news was “bizarre”, adding to existing concerns about debt collectors marching people to cash machines to force them to pay up.

Anyone who is owed money can go to court to seek an order forcing the debtor to pay them. If they do not have enough cash, bailiffs can retrieve goods to the value of the debt.

Trials have now started to allow people in debt to pay their bills by credit card in the south east of England, according to guidance issued by HM Courts Service.

There are now plans to expand the scheme nationally, after a period of evaluation. Bridget Prentice, Justice minister, told MPs that a “national roll-out of credit and debit card facilities is currently under consideration”.

The Conservatives criticised the plans. Grant Shapps, the shadow Housing minister, said: “You couldn’t make it up. Labour ministers have actually given the go-ahead for aggressive bailiffs to collect debts by credit cards.

“This callous approach will give the green light for aggressive bailiffs to demand credit card payments with menace, pushing some of the most vulnerable in our society deeper into debt.

“The fact that ministers have approved this plan signals how they have lost touch with reality.”

Paying debts by credit cards will almost certainly leave the person more heavily in debt. The average APR interest rate is around 16.3 per cent, although for those with bad credit records, the interest rate could be as high as 30 per cent to 40 per cent.

A low income family putting a debt of £1,000 on a credit card charging interest at 40 per cent, would have to pay an extra £400 of debt every year.

The minister also admitted that campaigners have expressed alarm that allowing people in extreme debt to pay back money on credit cards could make their situation worse.

She said: “Those consulted expressed some concern that accepting credit card payments for a debt, particularly one which may have arisen from a consumer credit debt, may exacerbate a debtor’s difficulties.”

She added that this was balanced by “the large majority of court users where a debt has arisen from a genuine dispute for a small claim.

“Not providing these facilities would be denying those debtors a very convenient way to pay their debt.”

A Ministry of Justice spokesman said: “Magistrates’ courts already accept cards to pay fines and other penalties in criminal cases.

“People will still be able to pay by cheque or cash, this will just give people more payment options. Where a debtor may face difficulties paying a judgement, they can arrange to pay in instalments, rather than paying in full.”

There is evidence that bailiffs are getting increasingly desperate in the way that they try to recoup outstanding debts.

In January last year, Andy Miller, a 78-year-old man from Accrington die in the street after being driven to a cash machine by a bailiff to pay off debts accrued on a speeding ticket. He had just been released from a spell in hospital.

Earlier this week it emerged that a couple were asked if they would like a new credit card with the same company that is repossessing their home.

Geoff and Linda Solly and their two daughters are waiting to be evicted from their Hertfordshire home in the next few days after Abbey, now Santander, took out a repossession order.

The bank has frozen the couples’ bank accounts, including the children’s savings accounts. Mr Solly was declared bankrupt a year ago and that order has now been discharged.

source Telegraph.co.uk

Staff at a major claims management firm have been misleading customers, a BBC investigation has found.

Beneficial Claims says it uses mistakes in credit agreements to get unsecured debts, such as credit cards and loans, declared “unenforceable” by lenders.

But in recorded conversations, sales advisers wrongly said there was no risk to a customer’s credit rating.

The company denies the allegations and said lenders are removing debt from people’s credit files.

Mystery SMS

Radio 4′s Money Box first began investigating when a member of the programme team received an anonymous text, offering to get her loans “written off”.

By law, consumer credit agreements have to include certain details such as the amount of credit and the interest charged.

If they are not, and you took out the loan or card before April 7 2007, the agreement may be unenforceable.

Upfront costs

For an upfront fee, which starts at £245, Beneficial Claims says its experts will get your credit agreement from your lender and review it for potential “fatal flaws”.

If it finds the flaws, for a fee of 15% of your debt – minus the initial charge – you can choose to have Beneficial Claims take on your unenforceability claim.

But in numerous calls the BBC made to Beneficial Claims, sales advisers boasted about the company’s track record.

Successful cases?

“Our success rates are through the roof at the moment, across the board, we’ve got about a 93% success rate,” one adviser told an undercover BBC reporter.

“All credit cards and loans – the majority are 100%, apart from a few we’ve got – like Barclays is 98%.”

The BBC asked Beneficial Claims how many customers had had their agreements declared unenforceable.

It said it could not give an exact number, but that many had.

It gave a breakdown of the number of agreements from one particular bank, which were deemed unenforceable by a company it commissions to carry out such reviews.

ut Beneficial Claims acknowledged that the figures were yet to be accepted by the lender, or agreed by a court.

However, a potential customer would get the impression that the success rates quoted by Beneficial Claims’ sales advisors did refer to formal resolutions of the disputes, according to the head of claims management regulation at the Ministry of Justice, Kevin Roussell, who has seen transcripts of the calls.

He said that was misleading and unacceptable.

“The more that happens, the more likely it is the business will have their authorisation cancelled,” he said.

But the chief executive of Beneficial Claims, Keith Chorlton, said, “We are a unique company because we give all our clients a legal indemnity issued by our solicitors, which is backed up by an insurance.

“If they do not get the outcome that we have told them they are going to get, they are fully refunded every single penny that they paid to the company.”

Credit rating risk

In October 2009, a High Court judge ruled that, although a lender cannot make you pay an unenforceable debt, it can register the default with a credit reference agency.

But in calls secretly recorded by the BBC, Beneficial Claims sales advisers said a customer’s credit history would not be affected if they bought its services.

Mr Roussell, from the Ministry of Justice, said, “No one certainly now should be suggesting that your credit rating cannot be affected – it can.

“And where we pick it up, we instruct the business to change their practice; and if they don’t, we can take formal enforcement action against them.”

But Mr Chorlton said, “The only evidence we’re seeing now are lenders removing the actual contract from the credit file, and they’re not putting flags on it, and they are not marking it negatively.”

“Consumer catastrophe”

Sales representatives at Beneficial Claims tell customers that millions of agreements are unenforceable, but really no one knows how many actually are.

There have been only a small number of successes at court, although thousands more cases are said to be with solicitors, and an unknown number have been settled out of court.

It could be that the banks have a large number of potentially unenforceable debts on their books.

Mr Chorlton said, “As a claims company, we give the consumer an opportunity to get what he is entitled to.”

But trying to get a debt declared unenforceable not only comes with risks – it could be far from straightforward, according to barrister Paul Brant, who has won some high-profile unenforceable credit agreement cases for consumers.

“I believe that many people who have seen the advertisements have been led into a false assumption that they have easily successful and clear-cut claims,” he said.

“In that respect, this is a real consumer catastrophe waiting to happen.”

But Mr Chorlton said, “The only catastrophe waiting to happen is where the banks and the lenders are going to be caught out.”

source: BBC.co.uk

Research carried out for Moneybasics shows that nearly one in 10 adults in the UK has used gambling as a way to manage their finances and make extra money.

Commenting on the BBC over the weekend Credit Action Director, Chris Tapp, noted that many people were driven to gamble out of the need to pay for essentials and in desperation at not knowing where else to turn.

Indeed the trend of more people using gambling to get through tough times for their finances is being seen by gambling support groups as well.

Ian Semel from Breakeven, a gambling counselling service, says his group has seen first-hand evidence of it. “People come to see us with the irrational thought pattern that gambling is a good way of getting money,” he says. “In reality it’s a good way of increasing your debt.

Further results of the Moneybasics ‘Financial Fitness’ research will be released later this week.

source: Craditaction.org