Is debt management social?

by on September 16th, 2011

Guest blogger Emma Bryn-Jones, from consumer cooperative Zero Credit, questions whether debt management is social.

Ignorance is bliss… or is it? Can we safely say that what you don’t know cannot hurt you? When we eat a duff meal or employ a rogue builder, are we any safer for not knowing that the products and services are dud? No! We depend on an array of recommendations, quality and standards labelling to help us. The same is true of credit.

In a country where average household debt is approaching £60,000 compared to an income of less than £30,000, we have a collective responsibility to manage a change in circumstances. Some of us may very well continue to meet our repayments, but for those of us on shorter hours, lower wages or made redundant, a decade of easy credit is a tough habit to kick.

What the credit industry has failed to recognise is that when a product or service ceases to be exclusive, any problem with it becomes mainstream. This is precisely the dilemma we face with personal borrowing because so many of us have walked into 90% plus mortgages, loans, credit and store cards, that our economy depends on spending beyond our means.

Far from addressing the problem, we seem to be crafting a Dickensian throwback, with people who are struggling, cast as fraudulent wastrels, who deserve everything they get. By turning a blind-eye to no credit checks and dodgy debt advice, survivors of the crunch define their superiority over perfectly good people who cannot sort the wheat from the chaff.

Let us be clear. A good credit history shows evidence of repayment. If you still owe money, there is always a risk that you may fail to repay it and with some £1450 billion in outstanding bills, it is not in your interest or mine to fool anyone into parting with money for a scam. Your security depends on another’s ability to repay.

Like it or not, debt management is integral to our credit history and it is as important, if not more so, to manage credit well when things go wrong. For this reason, I welcome debt management charities and companies to social networks because they encourage people to talk openly about the issues that affect them.

Of course, there are charlatans, as there always will be, but discussion creates a record of integrity that is hard to fake. From CCCS moneyaware, combining light-hearted movie quotes with more serious reminders to keep borrowing manageable, to ThinkMoney’s contributions to the managed banking debate, we are quite literally richer through dialogue.

I may not agree with ClearDebt’s Andrew Smith when he discusses credit caps with Chris Goulden of the Joseph Rowntree Foundation, but my goodness do I welcome the fact that someone who works for a debt management company actually considers and cares about people on low incomes.

I think it would be a mistake for the OFT to restrict social networking amongst debt management professionals because if banking and borrowing can continue to like, comment or share, so too should those who pick up the pieces when it all goes wrong. To prevent people feeling so isolated that insolvency is their only option, social media needs a debt management voice!

Posted in Government policy on debt | 4 Comments »

Money saving in the home – save on your water

by on September 9th, 2011

Autumn is well and truly upon us, and the drop in temperature could mean you end up with higher household bills. One area of household bills which you can save on is water, read on to find out how!

Every day, each of us uses 150 litres on average – with water bills eating into a large chunk of the household spending- every drop counts. In these tough economic climates with increasing debts and increasing bills, it is time to stop the leaking taps, leaking pounds.

So what is the real cost of ‘spending a penny’?

With toilet flushing counting for 30% of water used in a household, it really is money down the pan. We however, have a solution which could help you save water and save money – the ‘Save a Flush’.

We’ve teamed up with United Utilities to offer ClearDebt and Abacus clients a Save a Flush pack free of charge. These Save a Flush packs come with installation instructions and other tips for saving water in the home. Once installed, the ‘Save a Flush’ pack saves around one litre per flush, which long term can save you money on your water bill if using a water meter in your home.

How does Save a Flush work?

All you have to do is place the Save a Flush pack in the cistern of your toilet. The Save a Flush contains super absorbent polymer and silica sand, which absorbs water when it is placed in the toilet cistern. The Save a Flush will last for many years, all the while quietly saving the environment and potentially saving you money.

It is an easy to install, cost effective solution.

How to get your Save a Flush pack

If you’d like to save water in your home with a Save a Flush, we have a limited number to give away to ClearDebt and Abacus clients. Here’s how you can get your pack.

1) Leave a comment below sharing your money saving tip
2) Email Sally.Hardiman@cleardebt.co.uk with your name, email address and ClearDebt or Abacus reference number.

A few simple changes could see you becoming more water-wise and making a real difference to your water consumption. So leave a comment now and get in touch to request your Save a Flush pack now.

Posted in Managing Your Money | 8 Comments »

Office of Fair Trading Consultation on Debt Management Guidance – ClearDebt Response

by on September 7th, 2011

We’ve published, below, ClearDebt’s response to the Office of Fair Trading’s just closed consultation on new guidance for debt management companies and charities.

Those of you who also read the Debt Resolution Forum’s (DRF) response will notice many similarities.

The two documents have been principally authored by the same people and the issues are, broadly, those on which most debt resolution companies would agree  (in the case of the DRF response, the views of members have been incorporated too).

ClearDebt’s principal concerns lay in creating a level playing field between fee-charging and non fee-charging providers and also in the industry’s future freedom to market itself (ethically and transparently) on the internet. This topic is discussed in more detail in a recent article in the Daily Telegraph and in a response by our colleague and web marketing consultant, Paul Gailey which you can view here: Response to the OFT Debt Management Guidance.

The OFT consultation document can be found here.

Posted in Government policy on debt | 1 Comment »

IVAs – a question of perspective

by on August 22nd, 2011

I’ve been concerned for a while that there seems to be a tendency by some of those who write and blog on personal debt to understate the value, to someone in debt, of an Individual Voluntary Arrangement, rather than a Debt Management Plan – just because IVAs tend to be provided by fee-charging organisations.

Yes, an IVA is only available to people who are insolvent. But many who could take advantage of an IVA get put into a Debt Management Plan instead, usually, at least doubling the time it will take to repay their debt and without any of the certainty that comes with an IVA.

What CCCS say about IVAs

Let’s look at what, for example, CCCS said in a recent blog (their comments quoted below) and what we believe to be the case:

IVAs are only an answer to your prayers if your financial situation dictates that you need an IVA.

If this said “if you are eligible for an IVA” then this statement would be more accurate.
IVAs freeze all interest and charges from the day your creditors’ meeting is passed, and, if you make all the payments (usually 60) then a substantial proportion of your debt (usually half or more – often more – but it entirely depends on your ability to repay, which, of course, makes an IVA fair to creditors too) is written off. Creditor harassment stops too from the day the IVA is approved (in practice it might take a few weeks for the letters/phone calls to stop).

Debt Management Plans usually require higher contributions than IVAs because the expenditure guidelines (most are required by creditors to use those which CCCS provide, interestingly enough) in debt management plans don’t allow for contingencies, whilst IVAs do. So, someone in an IVA is allowed to get a couple of tyres, to pass their MoT, so they can drive to work. Someone in a DMP either stops payments for a month or two, putting any interest freeze negotiated with creditors in jeopardy, or they get the bus.

Re-mortgaging your house in an IVA

Yes, you do write off a certain amount of debt with an IVA but you could be forced to re-mortgage your house

All the indications are that the debt write off in an IVA is very significant – typically cutting debt in half in ClearDebt’s case – and don’t forget that frozen interest (that could potentially increase the savings made in an IVA by thousands). In addition to this, nobody is ‘forced’ to sell their house – they are made aware of what the creditors will require in order for the IVA to be successful before any documents are signed, and, with reputable IVA providers, before any fee is paid to the provider. If you don’t like what the creditors are asking for, you don’t pay a penny in fees and, instead of the IVA you find a more appropriate solution, which may or may not be a debt management plan.

Should you proceed with an IVA you will, if you have equity, be asked to re-mortgage the house in the last year of an IVA and to provide your creditors with a substantial portion of this (85% of your equitable share – so 85% of half if it is just you in the IVA and you share the house with a partner). If you can’t get a re-mortgage for the calculated equity then you will be asked to make an additional year’s contributions. If your share of the equity is £5,000 or less you won’t need to re-mortgage or make any additional contributions. What’s more, if you do release equity, your IVA contribution is reduced by the amount of the additional re-mortgage payment – so your outgoings don’t change. And, in an IVA, you’ll still be very unlikely to end up paying anywhere near as much as you would in a Debt Management Plan.

What happens to your car in an IVA

you can lose your car…

Rubbish. Yes, if you’ve three Ferraris parked on the drive they will be seen as assets and will have to go. But, even then, you’ll be asked to downsize – not lose your motor entirely: If your cars are just the normal family motors they’ll stay. If both of you need a car for work, for example, you’ll stay a two car family and your disposable income will be worked out to ensure you can afford their use. This is just scaremongering.

IVA Fees

the fees can be high…

The fees, as CCCS know, are entirely predictable; The agreement between government, creditors and insolvency practitioners has created a protocol with standard fees. What’s more, if a debtor completes an IVA all they pay is the monthly contribution that has been agreed they can afford – in effect, if you go the distance, it is the creditors that pay – not you. If you have a high disposable income, the IVA supervisors’ fees can reach a maximum of 15% of the monies distributed to your creditors. Never higher. Incidentally, many IVAs now get arranged for monthly contributions of around £100 – so they are no longer the prerogative of the more highly paid debtor.

How intrusive in the IVA process?

…and the process can be incredibly intrusive. A debt management plan never goes into that level of detail.

This is an extraordinary comment. The writer must be aware that the process of creating a statement of affairs for an IVA is almost identical to that for evaluating contributions in a Debt Management Plan. Both solutions have to be intrusive to ensure that appropriate advice is given. An IVA has a protocol requirement for an annual assessment, and contributions can go up and down depending on your situation at that time. But most reputable debt management firms do this too – and, I suppose the author might justify his comment by the fact you don’t have a duty to disclose changes in circumstances in DMPs – but you should – and if a pay rise meant you could pay off your debt faster, why wouldn’t you?

Can you trust your IVA company?

Too often, the insidious creep of “IVA=write off debt” (parroted by dodgy debt companies) means that it’s seen as an easy way out. It isn’t.

IVAs can only be provided by licensed insolvency practitioners who are subject to a toughly monitored, strict statutory code. IVAs are well regulated and problems with providers are rare. So, by the time an IVA proposal is being drafted, the debtor is in the safest of hands. There are some lead introducers who promise IVAs but merely sell on debtors’ details – I believe the new guidance from the OFT will put an end to them.

Is an IVA an easy way out? No. It’s five years hard labour at the end of which people have, through the school of hard knocks, learnt to manage their money and to have a strong aversion to credit. But, unlike a DMP, there is light at the end of the tunnel from day one – all interest and charges frozen, and debt freedom in five years, usually – unlike the minimum ten that a DMP will normally take.

Posted in IVA | No Comments »

Student debt? I hardly notice it

by on August 19th, 2011

ClearDebt’s newest member of the marketing team, a recent graduate, fears that people like her are entering working life with the mantra “Borrowing is good. Debt is good. It’s the norm”.

With the riots of the past week echoing the student riots last year and with the release of A- level results this week, it feels as if the student debt topic is as fresh as ever.

Year upon year thousands of graduates take to the graduation stage in every university nationwide. Neat and alphabetically ordered with the stereotypical worries of not tripping and making sure a mantelpiece-worthy photo is taken.

However I wonder if many graduates list as their prime concern, that their degree certificate equates to nearly £27,000- and that is the old fee costs.

The new fees will see graduates leaving university with a total debt of £56,000 instead of the £27,000 for 2011 starters.

But what does this debt really mean and can it really be that big of a worry when the majority of university leavers have it?

A debt which can easily be ignored

I personally feel, like the majority of my friends, that a student debt is a debt that doesn’t really belong to me. Having worked at ClearDebt for a couple of months now and hearing about debts in the tens of thousands I‘m ashamed to say that, at first, I found it difficult to share the clients’ obvious distress and worry; because, in reality I could easily match some client’s debt pound to 27,000 pound.

I feel that aside from a relatively unassuming letter from the Student Loans Company every once in a while, my student debt has no real bearing on my day-to-day. When I were to say to older generations, who are typically more averse to borrowing, that I have £27,000 of debt before I even start work they are horrified. Yet the Student Loans Company is set up in such a way that it just silently chips away 9% of my earnings and only when I earn over a certain amount, with various different stipulations all designed so that I barely notice it.

A student debt in this respect is like a niggle, not a worry, not a panic but a niggle- I know it’s there but find it pretty easy to ignore- not much of a burden really.

Student debt creates  a worrying precedent for the future

However I do feel that the debt level university leavers are coming out with is setting a worrying precedent for the future.

Along with my student loan I also have a meaty overdraft that ticked my union bar bills over nicely during my time at university. With all the no added charge, no hassle borrowing and extending it right up until it was positively fit to burst, I was lulled into a false sense of security.

My student loan had detached me from any real ownership of my debts and when I saw a negative number every time I checked my bank account I barely registered that I would eventually have to be held accountable for it.

Having been out of university for a year now, the faithful, always- there -when- I- need- clothes/ alcohol/ night out – overdraft is quickly not being so faithful. Where has all this added interest come from?

Student loans allow you to borrow vast sums of money in an easy, flexible, largely low-key way. This is not how other debts work and borrowing and borrowing and again borrowing will in later life lead to a concerning outcome.

Thankfully I never succumbed to the offer of my very own student credit card whereas a couple of my friends did. My mounting overdraft interest is looking a whole lot more appealing in comparison to that expensive nightmare.

Lack of money management skills

Ultimately, student debt for me  has been pretty simple. I went to university, graduated and pay back a measly amount every year and that’s about it. I could very easily live by the mantra of “Borrowing is good. Debt is good. It’s the norm.”

The problem is with this is the lack of money management or understanding of budgeting. Coppering up at the supermarket once you have run through your freshly extended overdraft is not a successful budget. I believe that the tell of how badly student debt affects the ‘youth of today’ will not be seen in the vast student loan sums they owe but rather in their attitudes to money and debt. Not to forget the credit cards and overdrafts. I am guilty of this and only a year later have I begun to think ‘errm … I didn’t really think that through, did I?’

I am still struggling to make a dent in my overdraft as it grows bigger and bigger with interest; it is still difficult to strike the balance between spending and saving. One thing that has helped me is speaking to the clients here at ClearDebt and Abacus and seeing how they are sticking to strict budgets in order to make monthly payments- out with the old student ways, in with the new.

If you would like to share your story on the ClearDebt blog, please get in touch by emailing marketing@cleardebt.co.uk or leave a comment below.

For any further information regarding student debt, student finance or university fees, visit the Directgov website.

Tags: overdrafts, student debt, student loans, university debt
Posted in Debt and Young People | No Comments »

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