Past Articles for October, 2006

According to MoneyExpert.com, PPI can be “an expensive add-on” that can make consumers accumulate excess credit card debt, with a £3,000 balance charging an annual fee of up to £540.

Sean Gardner, chief executive of MoneyExpert.com, said that for those who do want to take out PPI, there are other options than those offered by credit card providers: “Many people don’t realise that they can purchase PPI with any major insurance broker – it doesn’t have to be an expensive add-on to their credit card.”

However, PPI has been labelled as “overly complex” by the Office of Fair Trading (OFT) and last month Which? told the Mail on Sunday that it does not “believe that PPI is a suitable option for most people”.

For while PPI is meant to guarantee repayments on credit card debt due to illness or injury, it has a low claim rate and other drawbacks.

Because of this the OFT is investigating the industry and many people may be better off with sound advice and debt management to cover them during illness.

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Looking at the fees major banks charge for going overdrawen, moneyfacts.co.uk found that the big four high street banks would add up to £30 of debt for anyone going £1 into the red for just one day.

“While it cannot be disputed that current account fees look excessive, the problem is made worse by the lack of transparency caused by the complex terms, conditions, waivers and by every provider charging in a slightly different way,” said Lisa Taylor, analyst at the financial website.

While not all banks charged a fee, she said that those that do could be risking good customer relations.

Ms Taylor added that if any financial problems do occur then customers should contact their bank immediately.

This advice can apply to both minor and major financial problems, where banks as well as independent firms can offer advice on becoming debt free.

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According to internet bank first direct, 53 per cent of adults are happy to talk about personal problems but only 22 per cent discuss debt worries.

Television psychologist Mo Shapiro said: “Some people feel that they are defined by their financial situation - it decides their social status.”

However, she urged consumers to take debt advice to help clear debt.

“Concerns can be managed positively once they are out in the open but the first step is admitting to the problem - then it’s possible to look for support and take action,” stated Ms Shapiro.

Chris Pilling, chief executive of first direct, reinforced this advice, urging customers to discuss problems with their bank to help obtain a debt solution before it is too late.

In addition to information at banks, there is independent and impartial advice on becoming debt free available to consumers with financial problems.

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In the Halifax report the average home spends five per cent of its disposable income, or £34.42 per week, on clothing, adding to credit card debt.

Peter Jackson, head of products at Halifax, urged people to be careful with their fashion spending and how it can add to credit card debt: “We can spend ages choosing the right outfit and we should take the same care and consideration when deciding how to pay for it.

“That garment may appear to be a bargain but this can be far from the truth if you are still paying interest on it months later.”

He suggested that consumers who insist on big spending look at credit cards with nought per cent interest offers to help spread payments.

Debt advice can also help people manage their finances while stepping out in style.

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According to Bradford & Bingley, within two generations parents will not be able to rescue children from debt due to financial problems of their own and the rising cost of property and university fees.

Steve Potter, head of savings for Bradford & Bingley, said; “If this trend of parents expecting their children to save rather than parents bailing them out continues then the bank of mum and dad will be hanging up the ‘closed’ sign in two generations’ time.

“This makes it all the more important for parents to encourage their children to save from birth.”

He blamed this decline partly on the better pension schemes and property wealth growth for people in their 40s and 50s, leaving those in their 20s not feeling as wealthy.

This could be due to rising student debt and other levels, yet it highlights the need for people of all ages to consider taking advice on becoming debt free both for their own and their offspring’s future financial happiness.

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According to the Lincoln Financial Group, 51 per cent of home owners claim that their house was their major pension asset.

Ian Noble, head of strategic partnerships at Lincoln Financial, said: “We all know the phrase ’safe as houses’ but it appears many of us are perhaps taking it a bit too literally by relying on our homes to fund our retirement after our pensions.”

The findings come as several reports warn of pensioner debt as current retirees and those soon to retire report financial problems.

In order to stop more people falling into this trap, Mr Noble urged consumers to formulate a debt management plan

“Of course it can be difficult building up other savings while paying off your mortgage and also investing in a pension. But it is potentially risky to believe that your home will provide for your retirement if your pension is not sufficient,” warned Mr Noble.

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The National Federation of SubPostmasters along with the Royal Bank of Scotland (RBS) and NatWest are to install up to 300 machines to allow free access to savings.

Gordon Pell, chief executive of retail markets at RBS, said: “Lack of free access to cash can badly affect the most vulnerable people in society.

“Having a free-to-use cash machine close by can make a real difference to the elderly, disabled and those living on a very low income.”

The announcement comes after a Citizens Advice study in July found that free ATM “deserts” exist in many parts of the UK, while research published by Nationwide in August claimed that Cornwall and the Scilly Isles are suffering the most from the problem, with 60 per cent of ATMs in Cornwall charging a fee for the service.

This means that many people, often the poorest, are getting deeper in debt just to access their own money.

However, the move to install more cashpoints could help people struggling to clear debt to do so.

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Thanks to IVA expansion, Becky Wilks, spokeswoman for National Debtline, said that banks are sharing information as they realise the scale of lending.

“One move that has happened recently is that creditors have now said that they will exchange more information,” Ms Wilks said.

“Because creditors have now said that they will exchange this information, so they can see now if somebody does have 15 other credit cards and then obviously make a decision whether or not they do want to lend to them or whether it would be a bad lending decision.”

Earlier this year, government figures showed a rise in the amount of people seeking out IVAs as a means of debt management.

As opposed to bankruptcy, an IVA can allow a person to repay debt without many of the major traumas.

“This is an overdue development,” commented David Mond, CEO of IVA firm ClearDebt. “If banks and credit card companies had shared information at the height of the credit boom then fewer people would now be seeking an IVA.”

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Moneysupermarket.com claims that Britons could save up to £2 billion on credit card debt interest in 2007 by applying for an interest free card now.

Robert Kenley, head of credit cards at moneysupermarket.com, warned that consumers should exercise proper debt management, adding: “Cards offer a simple and tempting way to help spread the cost of Christmas.

“Opting for a nought per cent deal means that consumers using plastic for their Christmas spending pay nothing more than the cost of their goods – they just need to make sure the balance is paid off before the introductory offer ends.”

One reason for acting now to tackle Christmas credit card debt is that it can take providers some time to process applications and may take even longer in the run-up to the season.

David Mond, CEO of debt resolution company ClearDebt, reckons that even this good advice is likely to be ignored by many: “Taking Christmas credit can be a desperate measure, there’s so much guilt bound-up in the festive season these days that people can feel mean-spirited sticking to a budget. Many take credit in December and don’t realise until May that they’ve bitten off more than they can chew.

“In our experience, people with existing debt problems are often tempted to overspend at Christmas, because they feel they owe the family a good time. But then they do nothing about it when the new year hits,” he added.

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According to HSBC, delaying starting a retirement fund until the age of 30 can mean that a pension is half of what one could get if saving starts at 21.

Ian Martin, head of pensions and retirement income at HSBC, said: “There has been a great deal of talk about pensions recently and it appears that older workers are starting to hear the message about the importance of planning for their retirement.

“With the basic state pension currently only paying £84.25 per week - and likely to decrease over the years - no-one can afford to put their pension on the back-burner.”

While many graduates may be worrying about their student loan repayments, a proper debt management plan should account for the long-term too.

This is particularly relevant as current pensioners already admit to be struggling with debt repayments and many expect to die owing money.

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