Consumers who are already struggling with debt may find their situation deteriorates further as the country is already back in recession, according to one economic analysis.

The Ernst and Young ITEM Club has claimed: “The UK is probably in technical recession at the moment and likely to remain stalled until the second half of the year when falling inflation should provide a platform for a consumer recovery.”

Such an argument suggests that the final quarter of 2011 saw Britain’s economy contract and that this will be the start of an official recession as the first quarter of 2012 will also see negative growth.

As yet, however, even one quarter of decline has yet to be confirmed, making the conclusion tentative.

However, if it is the case that the UK has returned to recession like many of its eurozone neighbours, the situation may make matters worse for many as rising unemployment could make it particularly hard for some to pay back what they owe.

Andrew Smith, ClearDebt’s Director of Marketing and External Affairs comments:

“A lower inflation rate doesn’t look like it will be good news for people trying to repay debt. Creditors do aim to ensure people in debt repayment plans have enough income to meet essential needs, but debtors will always find it hard when the amount needed to meet those needs is rising sharply and the amount creditor guidelines allow doesn’t change as fast. Costs of heating the home and getting to work can’t be avoided and have seen sharp rises. Creditors need to respond to this if the people who are working hard to repay their debts are going to be able to afford to stay on plan”.

The one consolation in the ITEM Club prediction is that of a recovery in the second part of 2012, which would mean the second recession would be much shorter than that of 2008-09.

And the forecast of lower inflation does appear to be accurate, with the Office for National Statistics revealing today that the Consumer Prices Index (CPI) rate dropped in December to 4.2 per cent, compared with 4.8 per cent in November.

It means the rate of CPI has fallen by one per cent since its peak in September last year and this comes before the impact of last January’s VAT hike drops out of the equation, which will have a downward impact on this month’s figures.

By James Francis

Unwanted Christmas gifts might provide an unusual source of help for those who are deep in debt.

While the festive season is a time when some pile up credit card debt and other borrowing in order to pay for gifts and other costs, the festive season may provide part of the solution.

This possibility has emerged from a survey by online auction site lovelyjubbly.com, which has found Britons tend not to sell or give away unwanted gifts, but hoard them – so many, in fact, that put together they could fill Wembley Stadium 11 times over.

Commissioner of the lovelyjubbly survey and auction expert Gareth Whipps noted £124 billion is spent on gifts each year, but one in three Britons received unwanted items.

He added: "The other question after the survey was run was how much was that and that worked out to be £900 million worth of unwanted gifts, sitting there, not doing anything, and possibly be hidden in the back of a cupboard."

Such gifts might be discreetly sold on via an online auction site like lovelyjubbly or eBay- which could raise cash to pay off credit card bills and other debts.

But for many consumers, the gifts they have received this year are ones they will want to keep, rather than sell.

Using a debt management plan may be an alternative to letting wanted treasured gifts go and those doing this may find the spreading out of payments makes everything much more manageable.

People who are in debt should check out what benefits they may be able to claim, as this may help them financially, managing director of Debt Advice Foundation David Rodger recently advised.

Posted by Paul Thacker
 

With inflation and pay freezes putting the squeeze on consumers and making it harder for those in debt to manage their repayments, the level of hardship may be great for many – with some motorists also facing large hikes in car insurance costs.

A study by price comparison site Confused.com revealed the north of England was hardest hit by rising premiums in 2011, with the greatest increase coming in the Bradford postcode area at 17.1 per cent.

Second on the list was Oldham across the Pennines at 14.8 per cent, while premiums down the road in Manchester rose 14.4 per cent.

And elsewhere in the north, Blackburn, Liverpool, Halifax and Bolton saw large increases.

The only places in the top ten outside the north of England were Birmingham, Ilford and east London. 

By contrast, some places saw premiums fall, with the seven greatest decreases coming in Scotland – led by Falkirk with a 4.6 per cent drop – and the next three in the south-west of England.

Head of insurance at Confused.com Gareth Kloet said: "This time last year drivers were paying an eye watering £804 average premium for comprehensive cover which has continued to rise to a massive £844 over the past 12 months."

Concerns over the cost of car insurance have often focused on the way premiums have risen due to providers having to fight many claims made on a no-win, no-fee basis.

Car insurer LV has published research today (January 12th) indicating that 60 per cent of doctors have seen an increase in the past two years of patients feigning injuries in a bid to make car insurance claims, while 53 per cent have been approached by claims firms looking for cases.

By Joe White
 

Those who are in debt have increasingly been relying on equity to pay it off, an expert has said.

Director general of Safe Home Income Plans (Ship) Andrea Rozario said homeowners have tended to use equity release to raise capital for a more comfortable retirement or to help make home improvements, but noted this has changed recently as a growing number have used their bricks and mortar to raise cash to pay off debts.

She explained: "It could be they had an interest-only mortgage previously – with the view of selling and paying off that mortgage at a time when they came to retirement. But, they may find that they no longer wish to do that and they find they have another option – which is to take out equity release."

Whatever the reasons, using equity release may help ensure against repossession and clear debts.

But this may not be an available option for others, such as younger people and, most obviously, those who are not homeowners.

In these cases, debt may be a problem that cannot be so easily tackled and other means may be required, which in the case of severe and unpayable debt of £15,000 or more could include individual voluntary arrangements (IVAs).

These involve an agreement by which creditors will accept lower monthly repayments to avoid losing more through bankruptcy, with these being made on a regular basis for up to five years, after which any debt left is written off.  

However, it does require the consent of three-quarters of creditors to be binding.

One thing those struggling with debt should do is find out if there are any benefits they are entitled to that could ease their financial burden, managing director of the Debt Advice Foundation David Rodger recently noted.

Posted by Paul Thacker

Credit cards can be a very useful budgeting tool – but when used for everyday spending, the debt that results is invariably a problem.

This is the view of Annie Shaw, editor of CashQuestions.com, who noted that for some people, having such an account can be very handy, helping to make budgeting and cash flow simpler and more convenient.

She said an example of how a card can be useful is the provision in the 1975 Consumer Credit Act that ensures those ordering items from a firm that goes bust before the goods are delivered can get their money back.

However, people can get into difficulty through using a card "not as a budgeting tool or as a consumer protection tool", Ms Shaw added.

She explained: "It becomes very worrying if people are using it because they actually don't have enough money and they are then not paying off that bill every month. That then becomes a very expensive way to borrow."

Those who do this may soon find they end up with more debt than they can cope with.

In this case, measures such as a debt management plan may help to ease the burden and offer a chance for consumers to bring their debt under control while finding ways to budget batter and therefore avoid piling up more credit card debt in the future.

Earlier this month, the Post Office Consumer Credit Report indicated that 36 per cent of consumers will make everyday purchases with credit cards during January, which may reflect a lack of cash in the wake of the expensive period around Christmas.

By James Francis