Past Articles for May, 2006

According to the research for the Morgan Stanley Card Index, 55 per cent of all card purchases are for groceries, petrol and home items.

Patrick Muir, marketing director of the Morgan Stanley Credit Card, said: “Credit cards have changed enormously over the years and so has the way that people use them.

“Savvy credit card customers are taking advantage of credit card incentives and beginning to use their cards more and more for everyday purchases.”

Average credit card debt in the second quarter of 2006 is £363 for items for the house and car such as petrol, electrical appliances and bills.

Groceries are expected to account for £315 over the next three months, with 30-somethings adding most to their credit card debt over the coming months.

With a variety of credit card deals available, Mr Muir urged consumers to shop around for credit cards to get the best deal to minimise debt as plastic use becomes more common.

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Results from engage Mutual Assurance’s survey on the subject say that 89 per cent of the UK’s families are not prepared to financially support retiring parents, with over a third expecting the state to do so.

“With older relatives living for longer and the rising costs of living, providing financially for family members is becoming increasingly difficult to afford,” explained Karl Elliot, spokesperson for engage Mutual Assurance.

“It’s a concern that many people aren’t aware of the costs of supporting their parents in old age, let alone what they can do to help make provisions for them, given the financial sacrifices these parents have made for their children.”

Warnings of old age poverty comes after uSwitch.com found earlier this month that a third of over-50s need an overdraft just to survive.

According to this new survey, the rising cost of raising a child to the age of 21 has hit £166,000, meaning that money to care for older relatives is not available.

Longer life expectancy is also straining finances, with 14 per cent of families not knowing how they will fund their parents.

With more Britons than ever being pushed into debt, pensioners are being affected by both their own and their family’s debt levels.

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Bankruptcy stays on credit records for at least six years and can severely curtail credit and the ability to get a house, which is why those in debt should do what they can to evade it.

“You could have had marital problems or been made redundant,” warned Stuart Glendinning of Moneysupermarket.com of the dangers of bankruptcy. “Two years later you could be back on your feet and the previous problem may no longer be an issue.”

“But the impact will be felt for six years, which is a long time,” he added.

His warnings come as government figures show that the number of bankruptcies has reached new highs, but schemes exist that can help avoid this last resort.

Individual Voluntary Arrangements (IVAs) freeze interest, repay creditors as much as a debtor can reasonably afford and write off all remaining debt at the end of the arrangement (typically three to five years). Creditors cannot chase people in IVAs.

Individual voluntary arrangements (IVAs) allow those in debt to repay creditors an agreed amount each month in return for having to avoid paying interest.

With Mr Glendinning saying that bankruptcy is often caused by just one event, he believes that cutting down on spending and seeking debt advice can help a person avoid being driven to bankruptcy.

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Moira Haynes of the Citizens Advice Bureau (CAB) describes the credit market as “complex”, which can lead to people getting into debt through a lack of understanding.

“It can be difficult to understand the exact details of what they [borrowers] are taking on,” said Ms Haynes. “The credit market has expanded greatly and become very complex.”

The warning comes as politicians and even the Bank of England’s governor publicly state their worries over the levels of debt people are getting themselves into.

But Ms Haynes said that part of the blame lay with lenders, stating that small print could make the details difficult to understand.

“Lenders should make it clear to customers what they are committing to,” she added.

Anyone in credit card debt or in need of debt help should seek professional help before their situation gets any worse.

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April’s total loan value rose by £5,278 million, compared to £5,087 million in March and £4,442 million in April 2005.

“Overall, the trends in consumer lending appear stable,” said David Dooks, BBA director of statistics.

“After March’s stronger figures, mortgage lending fell back in April to around the recent average and, although credit card lending was stronger, that has to be viewed against the rare net repayment seen in March.”

March saw the unusual situation where repayment of credit card debt beat credit taken out, but April appears to give more typical figures.

The BBA says that lending in April showed a net increase of 1.4 per cent on March’s figures and while loan and overdrafts had no growth, credit card debt increased by £0.3 billion, against average increases of £0.1 billion.

Mortgages accounted for the majority of the rise in debt, at £4,973 million, while credit card debt grew by £277 million compared to a fall in March of £186 million.

After the unusual figures in March, the BBA believes that loans and credit have now returned to more average, stable patterns.

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Robin Amlot, senior editor of AWD Moneyextra, the financial service information website, has hit out at the fact that not only are the interest rates high, the people pushing the card are often clueless about the product they are offering.

With a temptation to promote the benefits of the cards only – such as discounted clothing and purchases – consumers are often left unaware and uninformed of the practicalities of having store cards.

“They [stores] should make it clear exactly what you are getting into,” Mr Amlot said, adding: “It would help if the sales people offering these cards knew something about the product.”

At a time when consumer debt has surpassed the £1 trillion mark, a proportion of this is credit card debt and store card debt. With some of the latter carrying rates as high as 30 per cent, Mr Amlot suggested that warnings on statements may not be enough to highlight the problem.

“Putting a warning about the high rate of interest on statements will only make a difference if people actually read them as opposed to just looking at the total or minimum payment,” he said.

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Barrow In Furness residents are now in average debt to the tune of £19,275, up from £13,647 a year ago. Debt advisors, ClearDebt, claimed that these figures were low for the north-west region.

“Our database of more than 15,000 over-indebted individuals shows average debt for the north-west as a whole is £23,002 – well ahead of the CAB’s figure for Barrow,” said ClearDebt marketing director Andrew Smith.

“In fact, Barrow’s indebted individuals owe slightly less than England and Wales’ least indebeted region, the north-east, where our average debt figure is £19,415.”

“We have never dealt with anything like that level of debt in this area,” CAB debt supervisor Zoe Hurley told the North-West Evening Mail. “It’s an awful lot of money for this area. It is predominantly Barrow that we deal with. The level of debts is worrying.”

Debt levels are rising all over the country and the CAB has already had to increase the number of specialist debt advisors in its bureau in Cumbria due to such growth.

According to the article, Barrow’s CAB dealt with 306 new cases of debt between April 2005 and March this year, totalling nearly £6 million.

Blaming credit and store cards for much of the debt, the CAB’s action may help debt levels in the town to be reduced.

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Sandra Quinn, director of communications at Apacs, said of the launch of the developed service: “As an industry we are committed to improving consumers’ understanding of credit cards and encouraging responsible borrowing.”

Credit card debt can be a problem to many families around Britain with many people having more than one credit card which has helped lead to debt levels passing £1.1 trillion.

The website allows consumers to download credit card comparison guides to different credit cards and advice on how to best use them to avoid creating too heavy a debt burden, with 2006 updates to information.

Though Ms Quinn claims that most credit card holders know how to use them, there was still a minority who were at risk of debt because they did not.

With a series of guides, comparison tools and advice, Ms Quinn said that she hopes the website will help lead people to better debt management.

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According to suggestions from financial comparison website uSwitch, the problem with zero per cent interest credit cards was that banks lost control of the system, with the business being led by whichever provider offered the rate for longest.

“As a lender you can’t beat a zero per cent deal except to do it for longer,” Nick White, head of personal finance at uSwitch, said.

“Once one lender had done it the others were forced to follow and it took on its own logic.”

With personal debt levels standing at over £1 trillion, the incentive to take out zero per cent credit cards is still apparent. Current credit card debt could be transferred to a zero per cent credit card in attempt to make debt more manageable.

The number of zero per cent credit card deals available is very low compared with six months ago, however and despite the biggest banks adopting a united front and “[holding] their breath and [hanging] on with low rates for longer”, the end seems nigh for the zero per cent credit card.

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The Citizens Advice Bureau (CAB) has said that while many are tempted to use this avenue by what seem very tempting loan interest rates, it doesn’t mean that the idea is a good one, with many seeing a good deal and grabbing it without thinking of how they will repay the loan.

“Loan rates may look attractive but you must consider overall affordability,” a CAB spokesperson said.

“You need to look for repayment levels and work out whether you can afford the loan.”

And the CAB warned against covering old debts by taking on new debt and suggested that what you needed may be advice on your financial future, not greater financial burdens.

“Is the loan you are taking out to help with debts? If so, getting some debt advice might be a better option,” the spokesperson said.

ClearDebt’s debt analyser allows you to work out what swapping loans will do to your finances now and up to twelve years in the future.

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