Past Articles for September, 2007

Individual Voluntary Arrangements (IVAs) can help people who are heavily indebted address their financial issues and to find a solution, one expert has made clear.

In many cases, British borrowers effectively bury their heads in the sand and hope their debt management problems will solve themselves, suggests Nick O’Reilly, vice president of the Association of Business Recovery Professionals (R3).

Mr O’Reilly remarked: “The thing about voluntary arrangements is that it’s a finite period and you know that providing you abide by the terms of the arrangement, at the end of it will be successfully concluded and you will be able to write off a proportion of the money that you owe.

“That’s a much better option for people than just putting it on the back burner.”

He went on to suggest that IVAs can prove to be particularly beneficial for young credit consumers, who use them to clear debt and make a fresh start before taking on the financial responsibilities of getting married or buying a property.

The average amount spent on a wedding ceremony now stands at around £11,000 in the UK, according to the latest figures from F&C Asset Management.

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A new guide has been launched by the UK’s payment association Apacs with the aim of helping teenagers and young people learn how to borrow responsibly and avoid unmanageable credit card debt.

The association has also made another publication entitled “using cards - a parents guide” available, with the aim of giving adults advice that might help them keep their children on the right financial path.

Highlighting the need for sound financial understanding among young consumers, Apacs points out that around 85 per cent of all 18 to 24-year-olds in the UK have some sort of plastic spending card.

“Young people are spending ever-increasing amounts of money and it is therefore vital that they make a considered decision before choosing which product they use,” said Sandra Quinn, director of communications at Apacs.

“Being able to manage their personal finances is one of the most important life skills a young person can acquire, and these guides give both young people and their parents a useful introduction to some of the issues that they will face,” she added.

Earlier this year, the extent of the UK’s credit card debt problems prompted Apacs to launch a guide explaining how to assess relevant monthly statements from financial service firms.

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Would-be homebuyers in the UK have been warned that money lenders are likely to hike their repayment rates when dealing with someone who has a poor credit history, according to one financial expert.

Mike Pendergast, a spokesperson for Zen Financial Services, suggests that while consumers who are keen to borrow money will likely find a lender willing to offer them a loan, they can also expect to face a heavy debt management burden.

“With adverse credit, most lenders will have a range of products depending on the severity of the adverse credit,” explains Mr Pendergast.

“They generally refer to them as prime - being no adverse credit - light, medium and heavy depending on the severity and the [interest] rate will go up accordingly.”

The Zen Financial Services spokesperson went on to add that for mortgage borrowers who have a poor credit history, the underwriting process is often “a little less strict”.

Many UK mortgage borrowers have seen their debt management problems worsen in recent months in the wake of several increases in the base rate of interest.

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A report from the consumer group Which? has cast doubt over the credibility of supposed experts who offer advice on a variety of personal finance issues, it has emerged.

Research from the organisation found that only 32 per cent of expert advisors who work for a particular banking group passed its ‘quality of service’ test.

Meanwhile, among those who operate independently and have no obvious bias toward a particular service provider, the overall pass rate stood at 48 per cent, the Which? report reveals.

“For more complex financial products such as investments, mortgages and pensions you really should see an adviser unless you’re confident that you understand the market, but with a shocking number of advisers failing our test it’s clear that you need to choose your adviser very carefully,” said Neil Fowler, editor, Which? magazine.

Figures from the Citizens Advice charity showed recently that more people are approaching its staff for debt advice than ever before.

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Young British consumers become accustomed to having debt management issues to deal with almost as soon as they enter adult life, it has been suggested.

James Ketchell, from the Consumer Credit Counselling Service (CCCS), claims that it has become easier for young British adults to take on personal loan or credit_card_debt”>credit card debt, because many are used to borrowing money while studying at university.

Moreover, the stigma that had once been attached to taking on significant amounts of debt in the UK has been diminished as the situation becomes increasingly commonplace, according to the CCCS spokesperson.

“Once people are used to the idea of debt then its easier for them in the future, to take up credit cards and personal loans, because the stigma has already been removed,” explained Mr Ketchell.

Ear;ier this year, a report from the CCCS suggested that the burden of debt management is increasingly being shifted to more elderly generations of UK consumers.

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UK consumers could be obliged to tighten their belts over the next few months as economic conditions leave many people out of pocket, according to one expert.

Howard Archer, chief UK and European economist at Global Insight, insists that relatively high interest rates and “muted” increases in real incomes around the country could lead to financial pressures for millions.

Furthermore, Mr Archer suggests that with debt management posing problems for more and more British consumers the rate of growth of the UK’s gross domestic product could begin to slow.

“The still very low savings ratio maintains our belief that the consumer will have to tighten his belt to some degree over the coming months,” he said.

“If it becomes increasingly clear that growth is being significantly hit, thereby diluting underling inflationary pressures, the Bank of England will become more inclined to trim interest rates before the end of the year.”

Five rises in the base rate of interest on just over a year have been introduced by the Bank of England, leaving borrowers facing repayment costs at a six-year high.

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Mortgage borrowers around the country are increasingly looking to avoid the uncertainty of having a variable rate arrangement with their lender, according to recent research.

Figures from Abbey show that almost eight in ten British consumers would opt for a fixed-rate deal, in the interest of stabalising their debt management circumstances, if the were obliged to remortgage tomorrow.

The cost of borrowing has risen five times since August of last year and Abbey suggests that uncertainty in the mortgage market means fixed-rate deals are becoming an ever more popular option in the UK.

Sue Hayes, Abbey’s director of mortgages, commented: “Fixed-rates have always been popular in times of uncertainty when people look to gather as much security as they can from their mortgage.”

Earlier this year, the Consumer Credit Counselling Service predicted that homeowners across Britain would face debt management difficulties throughout 2007.

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Young British consumers need to learn how to manage their money effectively to avoid facing debt management disaster when the get older, it has been claimed.

Becky Boden-Wilkes, a spokesperson for National Debtline charity, insists that the onus is on educational institutions around the country to ensure that young people are given the tools they need to avoid debt in later life.

Indeed, the debt management expert is convinced that giving young consumers a solid understanding of basic money-related matters could make a “massive difference” in how they fare financially as adults.

Mr Boden-Wilkes commented: “There does need to be more education into how financial products work, so that young people understand if they’re taking out a personal loan of £5,000, what is the APR? And what does that actually mean?”

“It is important to learn how to budget and how to use credit responsibly. Financial literacy is a really big thing,” she continued.

According to figures complied by Credit Action, the overall amount of personal debt in the UK increases by close to £1 million every four minutes.

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A greater degree of awareness among consumers has helped to boost the number of people entering an Individual Voluntary Arrangement (IVA)
in the UK over recent years, it has been suggested.

Stephen Rose, director of the Debt Advice Bureau, insists that while they can be no single cause behind the increasing uptake of IVAs, consumer awareness of the option has grown over the past few years.

And Mr Rose suggests that IVAs are an attractive way to clear debt for many people, who view them as a more appropriate solution than bankruptcy.

“Certainly one of the redeeming features of an IVA for many people is that it isn’t bankruptcy,” he said.

“You could consider it a trade-off: you’re in it for conceivably longer…but on the flip side, you retain greater autonomy over your life.”

Accountancy firm KPMG forecast earlier this year that 2007 would see more than 130,000 British credit consumers declared insolvent.

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Millions of British consumers are aiming to reduce the amount of credit card debt they have outstanding and the number of cards they use, according to recent research.

Figures from Abbey suggest that around 7.7 million Britons who spend money on plastic are planning to consolidate their debts by using a single card.

Currently, close to a quarter (22 per cent) of British adults have three or more credit cards and the typically plastic spender has at least one card that they have not used at all over the course of the past 12 months.

Roger Lovering, managing director of Santander Cards UK, said: “Unless a person is using all of their credit cards, many don’t want to keep them up and running.

“In the current climate, people are becoming more and more savvy about the impact numerous cards have on their credit rating and a significant number of cardholders are now looking to consolidate all their credit cards.”

Figures from the UK’s payment association Apacs show that the amount of money spent annually on plastic cards has seen a threefold increase over the past decade.

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