Past Articles for December, 2006

Steve Gracey, from Alliance & Leicester, said that many people are choosing an IVA as an alternative to bankruptcy, but he urges consumers to be “sensible” about this.

“Statistics show that more people are taking out IVAsand more people are going bankrupt. What people should remember is that it is okay to have manageable debt and people have got to be sensible about it,” he said.

“If they don’t borrow in a sensible way they could get into financial difficulty.”

Mr Gracey urged consumers to seek out quality debt advice.

“That is when people should look to get free advice on what their options are,” he added.

His comments come as a report indicates that many people used store cards to make their Christmas purchases. With interest rates as high as 23 per cent, this means that many people could start getting hit by large repayments in the new year.

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Moira Haynes, spokeswoman for the CAB, said that consolidating debt can work for some people, but it is important that people get quality debt advice before doing so.

“We would advise people who are thinking about consolidating their debts to get advice and look very carefully at whether it’s actually going to solve their problem,” Ms Haynes said.

She stressed that consolidation is not necessarily the best way for people to clear debt.

Instead, Ms Haynes urged people to seek out quality, free, debt advice to deal with any problem.

“We would say: ‘Get advice.’ There may be much better ways of dealing with a debt problem,” she stated.

Instead, Ms Haynes warned that people could end up paying more than they would have done otherwise because they were improperly informed.

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Moira Haynes from the debt advice charity said that CAB saw 1.4 million more enquiries last year and warned that people often have their finances in a poor state in January.

“We are seeing more debt problems than ever before,” she said. “The rate of growth of debt problems is alarming.

“The new year is when our debt advisers are at their busiest. It is an all-year-round problem but it is certainly at its peak in the new year when people come face-to-face with the reality of having spent more than they could afford, or used credit and then found that they are going to struggle to pay that back in the new year particularly when the bills come in January and February.”

She added that “big winter bills” also play havoc with debt management plans, adding that she expects it to be worse this year following large fuel hikes.

Ms Haynes’ warning comes as other debt advice experts warn of the financial dangers people face in January.

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According to Neil Munroe, spokesman for credit reference agency Equifax, the good mood from Christmas and for new year preparations does not mean that people should lessen their protection against identity theft.

“It is historically a time of year when it’s a fairly open-season for fraudsters to be getting hold of information mainly because people are obviously out and about concentrating on buying presents and enjoying themselves and keeping their data and documents secure tends to become a secondary thing,” Mr Munroe said.

“If people aren’t careful some fraudsters will be having just as good a time as the rest of us.”

In addition to credit card debt or other forms of theft that identity fraud can incur, it can hit consumers in other ways.

If someone is unaware that their identity has been used, they could find that they have a lower credit rating, leading to higher charges for loans.

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According to the supermarket bank, 18 per cent of this went on credit card debt, which will soon accrue interest unless debt management steps are taken.

Donald MacLeod, credit card manager at Sainsbury’s Bank, said: “Our research suggests that it could be a busy time for the shops on Christmas Eve and that a lot of people will be using their credit cards.”

He suggested that as a form of debt management, people should look at transferring their credit card debt to avoid high repayments.

Debt advice can also help people cope with their yuletide spending in 2007, particularly as loan interest rates and bills are expected to increase in January, adding to repayment worries.

Experts have warned that many people paid more for gifts by leaving their shopping to the last minute, and Sainsbury’s Bank claims that 4.48 million people did this, with those in the Midlands worst for late purchasing.

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According to moneysupermarket.com, banks are set to introduce hidden fees, house prices will continue to rise and interest rates on loans will increase.

Stuart Glendinning, managing director at price comparison website, moneysupermarket.com, said: “2007 will be the year of the bank charges. The investigation into current accounts is going to force banks to offer lower charges on unauthorised overdrafts.

“As a consequence other charges will be introduced to help the banks compensate for lost revenue.

“People should look out for these charges or face some unexpected bills,” he warned.

In addition to these threats to good debt management, Mr Glendinning believes that interest rates on unsecured loans will rise, pushing up the amount repaid each month.

However, he believes that the payment protection insurance (PPI) industry will improve, offering some great protection for consumers next year.

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This was nine per cent more than in October and 19 per cent more than last November, when loans only totalled £27.7 billion.

CML director general Michael Coogan said: “Not only is today’s lending figure the highest ever, our recently published forecasts suggests lending will beat our previous predictions for the coming two years.”

With lending at such high levels despite increases in the interest rate, this could be a worrying sign of the failure of Britons to engage in sound debt management.

Mr Coogan stated that he expects the situation to get worse, with total gross lending in 2007 to reach £360 billion, “another record breaking year”.

For anyone who felt that they borrowed more than they could afford in 2006, advice on becoming debt free can help rectify the situation.

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Neil Munroe, external affairs director of credit rating firm Equifax, said that UK debt stands at £1.2 trillion and consumers spending, with a buy now pay later mentality, added to this growing problem.

A sign of this is that a fifth of bankruptcies are for those aged under 30, meaning that debt is going to be a “huge problem” in 2007, the financial expert stated.

Mr Munroe also warned of the danger of identity theft, stating that it has cost consumers billions of pounds and around 27 per cent of people had been a victim of such an act.

This can cost people both through the direct loss of funds and the damage it does to a credit rating.

If consumers are not aware that their identity has been stolen, it can dent their credit rating, meaning that they pay higher interest rates for loans.

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Alliance & Leicester states that such use can create an excess £1,500 of credit card debt, yet nearly a quarter of shoppers have used store cards for purchases.

“Christmas costs can really add up and some of the offers pushed at us by sales assistants in connection with their store cards can seem really tempting. The real costs of these ‘discounts’, however, may be with you for a long time as interest payments stack up,” warned Richard Al-Dabbagh, senior personal loans manager at Alliance & Leicester.

He urged proper debt management to allow shoppers to financially survive the season, even going as far as suggesting a low-cost loan as an alternative to using a store card.

Debt advice can help decide what is the best option, but it is worth looking at any purchases made on plastic, as many APRs are as high as 30 per cent.

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According to Barclays, this is £230 million more than the next busiest day, December 22nd, adding that £1.5 billion of Saturday’s bills will go towards credit card debt.

In addition, December will see over £15.5 billion withdrawn from cash machines and £31.6 billion added to debit and credit card debt, Barclays claimed.

For those wishing to avoid busy periods for ATMs, the banks said that 12:00 to 13:00 GMT on December 23rd will see over a million transactions take place from 50,000 cash machines.

Barnaby Davis, electronic banking director for Barclays, said that the run-up to Christmas “is a busy time for everyone”.

However, in all this rush, it is important to stick to any debt management plan and to keep control of finances, ensuring that the new year does not start in the red.

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