Past Articles for February, 2007

According to analysts at Citigroup, lenders will be forced to write off a total of £6.6 billion for last year, with the figure rising to £7.2 million in 2007, the Times reports.

And because the amount is caused by credit card debt or unsecured loans, banks do not have an “easy claim” on these debts and may only be able to recoup a limited amount, the American financial group maintains.

The claims are echoed by Citizens Advice, which said that the figures vindicate “what we’ve been saying for years”.

Sue Edwards, senior social policy officer of the debt advice group, believes “there is a crisis of personal overindebtedness” and that banks must take some of the blame for this.

Research from The Debt Councillors recently found that over a third of borrowers believed debt and money issues caused problems in a relationship with a partner.

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According to data from the British Bankers’ Association (BBA), new credit card debt in the UK decreased by £496 million, against a rise in mortgage borrowing which totalled £16.6 billion.

While this was a 15 per cent increase in mortgage borrowing from January 2006, it is “well down” on that of December 2006, maintained the BBA.

However, new lending on overdrafts and personal loans for January rose by £226 million. While this is below the monthly average of £330 million, it is higher than the total recorded in the previous month.

“Prudent repayments, particularly on credit card accounts, are keeping the unsecured credit picture very subdued,” remarked David Dooks, director of statistics at the BBA.

In related debt management news, it was recently revealed that around six million British borrowers have entered into debt consolidation agreements in the past three years.

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Consumers looking for a debt consolidation solution could find such loans a short-term answer to their problems since they offer lower repayments and save people from bankruptcy, claims Credit Cards GB.

In addition, the firm notes that credit card consolidation products can help people experiencing very severe debt management problems to get a handle on their financial obligations.

The company states: “It can help you to regain your financial freedom and prevent those debts from mounting up even more than they already are.”

Although credit card loans tend to have a higher interest rate in comparison to standard debt consolidation loans, the financial advice site adds that the products assist debtors in getting their “life back” through having decreased monthly payments.

Meanwhile, the Motley Fool recently advised young people who find themselves in credit card debt to start compiling an emergency fund to help finance unexpected events and outgoings by reducing their reliance on payment with plastic.

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In the past four months fewer people have entered into IVA agreements with creditors as a result of an overall stabilisation in personal debt levels, according to PricewaterhouseCoopers (PwC).

The accountancy firm, which considers about 50 per cent of IVA proposals on behalf of lenders, stated that its records showed a month-by-month decrease in the number of people opting to take IVAs, reports the BBC.

“Our indications are that month-on-month IVA numbers have been falling gradually,” commented Pat Boyden, insolvency specialist at the company.

He added that despite the recent falling rates of IVAs, the numbers could soon pick up again in the future if the economy sees further changes, “mortgage rates are the thing to watch out for if they go up again”.

PwC also asserted that the declining figures in IVAs could be attributed to the fact that some banks and other lenders are becoming stricter when considering such deals.

Lloyds TSB recently stated that it experienced a slowdown in the growth rates in IVAs towards the end of 2006 and predicted that its bad debt charges will be dramatically lower in 2007.

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Over a third of respondents to a survey of people seeking debt advice revealed that they blamed money problems for ruining a relationship with a former partner, while ten per cent said they divorced or separated for similar reasons.

And in the work place too debt worries appear to be having a profound effect, with 45.8 per cent of those polled claiming they performed less well in their job due to debt management concerns.

John Porter, a senior counsellor with The Debt Counsellors, said: “debt solutions do exist, even for serious cases, and anyone worried about their personal debt should get professional advice to find out about the options available rather than allow their financial problems to disrupt relationships and work.”

A bill drawn up recently by the Department for Constitutional Affairs has been designed with the aim of protecting people in debt from “unscrupulous” enforcement agents.

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Mrs Robinson was responding to uSwitches’ own research which reveals that there are over 750,000 female Brits who spend half of their borrowed cash on fashion purchases in search of a retail thrill.

And with their levels of credit card debt mounting, many British women are paying the price for their love of shopping, uSwitch has revealed.

Ms Robinson remarked: “It’s not surprising that women are becoming more interested in size zero than zero per cent APR.

“Indebtedness because of shopaholicism is the result of easy accessibility to loans, credit cards and store cards and highlights the need for consumers to take some personal responsibility for managing their own financial situation.”

Last week, a spokesman for the online marketplace Zopa encouraged British consumers to put pressure on the country’s banking groups to change their practices.

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This figure equates to around one in seven of the adult population of the UK and the Money Expert research also demonstrates that unsecured borrowing is the most popular kind of loan taken out under these circumstances.

Describing its own findings as further proof of the increasing debt management problems faced by the country at large, the price comparison provider also revealed that the average debt consolidation loan was worth £13,000.

Money Expert’s chief executive Sean Gardener said: “debt consolidation is entirely sensible and a good way to get your finances under control if you owe money to different lenders at varying rates of interest.”

“However it only works if you accept consolidation is a wake-up call to get your borrowing under control and then work to become debt-free,” he continued.

In related news, research from uSwitch revealed that there are now more than 750,000 British women who can be classified as shopoholics.

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Each year, women in Birmingham who spend more than half of their borrowed income on shopping for fashionable items will splash out over £1,813 on average, which is almost £773 greater than the typical British spendaholic, uSwitch has revealed.

And thousands of women around the country are now accumulating significant amounts of credit card debt as they bid to stay in style, particularly in the Midlands city, according to the latest uSwitch study.

A uSwitch statement read: “Birmingham is the shopaholic capital of Britain, with the greatest concentration of hard-core addicts residing in the city.

“Birmingham women also spend the most as a proportion of their disposable income on fashion (9.4 per cent) and on average spend the most per shopping trip at £54.96.”

A study carried out by accountancy firm KPMG earlier this month claimed that that enough people to fill Wembley Stadium turned to an Individual Voluntary Arrangement (IVA) in the UK during 2006.

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Sandra Quinn told Channel 4’s News at Noon programme that the proposals are not designed to increase the amount of credit card debt individual consumers amass, but rather to encourage them to use one card instead of another from another provider.

“On average we have about two credit cards in our wallet and the battle for credit card companies is […] to be the card that you pick up first when you open your handbag or your wallet,” the finance expert explained.

Charges set to be brought in by Lloyds TSB could affect as many as £55,000 unused credit card holders, at a cost of £35 annually, according to a Channel 4 prediction.

Earlier this month, Apacs revealed that plastic card spending over the 2006 festive period reach unprecedented levels as millions of Brits accumulated further credit card debt.

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Bosses at what is one of the largest banking organisations in Britain suggested that the profit success builds on Lloyds TSB’s “improved earnings momentum that has been achieved over the last few years”.

And as Britain’s debt management troubles and Individual Voluntary Arrangement (IVA) applications mount up, the bank reflected on what it called “challenges” being faced within unsecured personal lending markets.

Lloyds TSB chairman Sir Victor Blank said: “I am delighted to report that the group has delivered another strong performance in 2006.”

“We have a high-quality balanced set of businesses, demonstrating increased trading momentum and I believe Lloyds TSB is in great shape for 2007 and beyond.”

In a recent interview with the Telegraph newspaper, the chairman of Debt Free Direct Mike Blackburn claimed big banks are to blame for the UK’s bankruptcy and IVA explosion seen in recent years.

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