Past Articles for October, 2006

According to moneyfacts.co.uk, users who repay their credit card debt can gain some benefits, yet others are paying interest.

“As the problem of indebtedness in the UK worsens, every day we either see advertisements in the press for the ‘best deals’, or have our doormats littered with ‘tempting deals’, with every company seeming to boast that it has the best credit card, loan rate or debt management solution,” said Andy Britchford, personal finance analyst at Moneyfacts.

“But not everyone uses a credit card in the same way.”

He urges people to repay their credit card debt each month in order to gain benefits that lenders offer, such as points or even cashback.

For those who pay interest on their credit card borrowing each month, advice on becoming debt free could help allow this borrowing to be repaid.

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Abbey has found that affordability and a lack of savings are holding back home-ownership, showing that many would benefit from advice on becoming debt free to get a house.

“There are people who feel that they do not want to get on the property ladder, but those who do face many barriers, of which the most notable is the cost of homes,” said Nici Audham Gardiner, mortgage product executive at Abbey.

Overall, the survey found that 17.3 million adults are being kept off the housing ladder, with a lack of a deposit one reason along with house prices and the desire for the proper mortgage.

The Alliance Trust also found last week that the house price to income ratio had soared by 60 per cent since 1970, which goes some way to explaining the trend.

However, personal debt levels have also risen to nearly £1.3 trillion, indicating that hopeful homeowners may wish to take out advice on becoming debt free before looking for a house.

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According to Birmingham Midshires, savings levels have dropped by a fifth in the past three months, meaning that many Britons may need to start formulating a Yuletide debt management plan now.

Jason Robinson, director of savings operations for Birmingham Midshires, said: “Looking at current levels of savings, it would appear that many Brits may have started spending for Christmas early and so savings have fallen by the wayside slightly.

“What we would say is make sure you’ve still got one eye on the amount that you spend so that the start of 2007 can still be fruitful,” he added, urging action now.

Although it is less than two months to Christmas, many people may wish to start taking advice on becoming debt free now.

Last Christmas consumers spent in the region of £50 billion, Apacs estimates, indicating that Britons are likely to need a debt management plan now to tackle this spend.

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According to moneysupermarket.com, up to 76 per cent of Britons now include putting on a jumper rather than turning up the heat as part of their debt management plan due to costs.

“It is clear that people are worried about their energy bills, particularly in light of the utilities companies putting prices up so frequently this year,” said Paul Schofield, head of utilities at moneysupermarket.com. “It’s concerning the public is being deterred from turning on their heating, particularly the old and vulnerable.”

The report comes in a year which has seen the major energy companies raise their prices at least twice, adding to the debt burden each home carries.

Most likely to benefit from debt advice were British Gas customers, a group moneysupermarket.com claims have an average annual bill of £1,055.77, over £100 more than Scottish Power.

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Hernel Burgher, 45, was sentenced to 40 days imprisonment by Nottingham magistrates for accumulating four years’ worth of council tax debt worth £2,742.

Councillor Michael Edwards, deputy leader of the city council, warned in the BBC that the council would take strict action against non-payment of debt, as would any other authority: “We will take tough action against those who continue to ignore their council tax bills and refuse to talk to us about how they can pay off their debts.”

However, he indicated that there is a need for debt help and professional advice.

Cllr Edwards also stressed the importance of anyone with a council tax debt to contact their council quickly to help stop it building up.

His comments are joined by other experts who recommend that people seek out debt advice and inform lenders of problems as soon as financial difficulties occur, or better still, seek such information beforehand to stop debts becoming a problem.

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In the Family Investments report, 39 per cent of parents said that they did not understand or were unsure of the difference between child trust funds (CTFs), which could cost them and their offspring dearly.

“Parents see cash as a safe, understandable option, but do they really know what they’re getting?” said the friendly society.

It goes on to demonstrate the need for proper debt advice due to the lack of knowledge as to the effect of inflation on CTFs.

The report also shows the need for people to take independent debt advice as a third of parents said that they were confused by the information that banks and building societies gave them.

“A lack of guidance may then be the reason why so many are reverting to what they believe they know and opting for a cash CTF, which is similar to an average savings account,” added the report, revealing how a lack of financial knowledge can be costly.

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According to IFA Promotion, there was a 13 per cent rise in demand this summer in the amount of people looking for advice on becoming debt free and other financial queries.

In a sign that people are heeding calls to plan for their future, there has been a “record number” of people seeking retirement advice, the report adds.

David Elms, chief executive of IFA Promotion, commented: “Our report reflects that… there is still a thriving demand for independent financial advice.

“It is also indicative of consumers’ sustained need for advice on preparing for retirement, which is of course a very positive development.”

The demand for debt advice is likely to grow further as personal debt levels approach £1.3 trillion and utility and council tax bills rise.

While planning for retirement was the information most consumers sought in the report, savings, personal planning, mortgages and other debt advice was also demanded.

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According to the Alliance Trust, London house prices are 4.4 times the average annual income compared to 2.6 times in 1970, while the existence of student loans and easier credit means that many FTBs have large debts.

Shona Dobbie, head of the Alliance Trust research centre, said that the “key ratios have worsened for first-time buyers across the board but there are notable differences among regions”.

“These figures clearly show it is becoming harder for first-time buyers to break into the housing market,” she added.

Ms Dobbie added that there were several pressures for people looking to save for a home as other factors make it harder to gather a deposit.

Advice on becoming debt free can help people save up enough for the deposit in the face of bills and loans and could give crucial information relevant to a debt management plan.

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Scottish Widows claims that 44 per cent of households require two salaries to keep an acceptable standard of living up, yet a quarter of homes have no savings for emergencies to repay debt.

“The majority of the population is walking a financial high wire without a safety net,” said Nick Kirwan, Scottish Widows’ protection market director.

Around 57 per cent of income goes on essentials, yet a significant proportion lacks insurance, savings, planning or other means of guarding against the effects a loss of earning would have.

Mr Kirwan urged people to look at a debt management plan to ensure that they are covered for the unexpected.

“If people don’t start to take responsibility for their own financial futures then they could be left in a position where they can’t even cover the essential expenditure in their lives,” he stated.

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In its bid to help consumers make better-informed decisions to avoid needless credit card debt, the association said that data sharing to help prevent over-indebtedness had increased.

A summary box, as with credit card cheques, will be included by the end of this year, highlighting APR, interest rates and length of any offers and other advice crucial to proper debt management.

Standard terminology, to increase clarity, will also be introduced, along with a best practice guide for lenders.

The association has also launched a web-guide, giving advice on choosing and using a credit card, www.choosingandusing.com/re_downloads.htm, to join its other credit card debt information.

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