At the end of April 2011, personal debt in the UK amounted to £1,452 billion – the current sum total of personal debt is almost equal to the country’s entire GDP for 2010.
The average household debt stands at £55,854 (or £8,121 if mortgages are excluded) – a property is repossessed every 14 minutes in the UK and landlord possession orders are made 265 times a day. £179 million is paid in interest every 24 hours, and an individual is declared bankrupt or insolvent every 4.36 minutes.
The total amount of lending in April 2011 increased by £1.2 billion (there was a £700 million increase in secured lending and a £500 million increase in consumer credit lending). At the end of April, total secured lending had reached £1,241 billion and total consumer credit stood at £211 billion.
In the past year, £9.5 billion of loans were written off by UK banks and building societies, which is equivalent to £20.71 million every day, and the Citizens Advice Bureau deals with nearly 10,000 people struggling with debt problems daily.
Redundancy is fuelling increasing levels of debt, with 1,384 people made redundant every day and 850,000 unemployed for 12 months or more.
For many people, a credit rating can be the bane of their lives. But what is it, who decides it and what implications can this elusive score have on your life?
Credit rating is the score given to an individual that gives an indication to lenders as to how likely the borrower will be able to keep up with repayments. Obviously, this is important information to the lender, but this is by no means the ultimate be all and end all when it comes to approaching a lender.
Credit ratings are used when companies assess whether someone is eligible for taking out a loan, mortgage, store card, credit card, mobile phone contract, car insurance etc. The list is endless. Most of us will have had our credit ratings checked by a third party at some point, but perhaps were unaware.
IN the UK, there are three main bodies that hold information about our credit history. They are Experian, Equifax and Call Credit. Each of these credit agencies gather various pieces of important information to sell on to lenders in order for them to predict our financial behaviour when lending. So, what information do these agencies have about us?
Credit reference agencies take information largely from past credit accounts. This gives them vital information such as name, age and address. They also have access to information about when your credit report has been looked into by potential lenders. Although they do not hold information on whether the application was successful, it could be quite obvious that you have been denied if there are a number of checks over a short period of time. Each credit report check stays on the report for up to two years.
Details of your current account provider will be included on your file but information is limited. They can provide relevant information, such as if you’ve entered into an unauthorised overdraft. In addition, public record information can be applied to your report for up to six years, including bankruptcy, county court judgements and property repossession.
There are countless myths surrounding credit ratings such as the existence of a ‘credit black list’. In reality, each credit reference agency scores people differently and this score is just one factor that is considered when ultimately deciding whether you should be eligible for borrowing.
If you do find yourself being refused credit, there are ways to remedy the situation, but it will take time. The best place to start is to check your credit report with the various agencies regularly, perhaps once a year, so you know exactly what position you’re in. Go through your details with a fine-toothed comb and weed out any mistakes that could be detrimental to your report. Make sure you are on the electoral register. If you fail to sign up, you will find it extremely hard to get credit anywhere.
If you have no credit history you should start now. Find a good deal on a credit card and use it wisely. Make payments on time and always stay within your credit limit. This is also a good way to boost a poor credit rating, but the most obvious and effective method by far is to reduce your debts.
During March, consumer credit advances fell by 7% compared to the previous year, according to the Finance & Leasing Association (FLA). The figure reflects how the UK public remain wary of increasing their levels of debt in the current financial climate.
As the cost of living has increased, consumers have been spending less, which has resulted in a reduction in the amount of money being borrowed. There was a somewhat unexpected 28% drop in store instalment lending (payment plans that allow people to purchase things like sofas and TVs on credit), whilst the amount of money spent on store cards fell by 21%. Money borrowed on credit cards was 8% less than March 2010, but this still remained the largest single area of borrowing, with a total of £2.53bn spent on credit cards.
The number of people taking out unsecured loans fell sharply, and the overall amount of borrowing in this form decreased by 15% to £182 million. Second charge mortgages, through which people can borrow money secured against the value of their property, were down by 11%.
Despite the rising cost of motoring, car finance remained stable compared to last year, with advances totalling £1.72bn.
A recent survey by Nationwide indicated that high levels of unemployment and stagnating salaries have contributed to falling consumer confidence, and the figures released by the FLA fit with this picture. As long as disposable income remains in short supply, cautiousness towards borrowing will persist.
Recently, we posted an overview of the PPI mis-selling scandal, and looked at how the banks are putting millions of pounds aside to compensate customers who were mis-sold these products. Since the FSA and High Court rulings against the banks, there has been a huge surge in the number of companies offering to secure the compensation people are entitled to. By pursuing there claims through these firms, however, consumers could lose as much as £2 billion.
In a press release on Saturday, consumer charity Which? explained that “with an average payout of £2,750 for mis-sold PPI and [claims management companies] taking as standard a 25% cut as their fee, consumers could pay £825 each for something they could easily do themselves.”
Successful claimants could even end up owing money to a claims management company (CMC) – “if the loan is still being repaid, redress often comes in the form of a reduction of the outstanding balance leaving the consumer to pay the CMC’s fee out of their own pocket.”
An investigation carried out by Which? found that only 10 out of the 38 CMCs they contacted offered good advice, and 16 “claimed success rates of 90% or above with little or no evidence.” CMCs are regulated by the Ministry of Justice (MoJ)– since 2007, the MoJ has had to shut down nearly 500 of these companies.
Which? is urging consumers to complain directly to their banks, and has created a free online tool at www.which.co.uk/ppiclaim. Where banks reject a complaint, customers can contact the Financial Ombudsman Service for free, independent help.
Barclays bank is backing the Which? campaign, having expressed a commitment to resolving complaints as promptly as possible.
The Bank of England recently predicted that energy prices are to soar over the coming months, threatening to substantially increase the number of people in debt in the UK and to push those already in the red, yet further in. Rising energy costs have been a concern for some time and consumers are really beginning to feel the pinch.
The Committee on Climate Change (CCC) announced that one factor contributing to the rising costs is the additional 11,000 onshore and 3,600 offshore wind turbines needed if the UK is to meet the 15% target for renewable energy production by 2020 as laid down by the EU Renewable Energy Directive. The cost of building wind farms is substantial, and these costs are to be passed on to the consumer.
It was also announced by Centrica, owners of British Gas, that wholesale gas prices have increased by 25% in the last 12 months, and this will significantly contribute to the rise in households’ energy bills in the coming months.
It is increasingly important that consumers compare energy prices on a regular basis to make sure they are getting the best possible deal. With so many providers out there competing for your valuable custom, it is imperative that you shop around. There are countless free resources available online where you can find the latest deals and in many cases it will be more cost effective to cancel your existing contract with your current provider and make up the cost in savings from your new provider.
The predicted increases in energy prices will inevitably affect many people who are already struggling to keep on top of bills. The National Debtline, a telephone advice line set up and run by the Money Advice Trust, have reported that the number of calls related to energy bills have increased by over 180% in the last 4 years. This constant increase is, sadly showing no signs of letting up in the foreseeable future.
All we can do is lessen the blow and take advantage of online comparison sites to make sure we are getting the best of a bad deal.
Student fees are set to treble in 2012, with institutions given the green light to charge up to £9,000 a year (in ‘exceptional circumstances’), £2,700 more than the current fee cap. Student debt is already a massive issue in the UK. A recent Freedom of Information request by the BBC revealed the true extent of the current problem.
The biggest debt outstanding to the Student Loans Company at present is a staggering £66,150 and is expected to rise under the new structure. With the current university tuition fee cap at £3,290 a year, it seems unbelievable that a debt of such magnitude could ever be acquired. However, when you take in to account the substantial costs of living in the UK (particularly in the South) it is clear to see how the amount soon tots up. Many students rely on maintenance loans to help with living costs, averaging at £5,000 each year. Students in London can take annual loans of up to £7,000, pushing them further into debt.
Under the new structure, students beginning courses in 2012 and thereafter are expected to be faced with debts in excess of £80,000 if attending the top institutions. As universities begin to reveal their fee increases for next year, most students can expect to pay £6,000 a year, leaving students with debts of £70,000 after a five year course.
The argument is that graduates are expected to take on higher paid jobs after completing such courses, but as we know full well, graduates are finding it harder and harder to find work in the current economic climate. But what about those taking on standard three year degrees, leaving university £33, 000 in debt with no guarantee of employment? According to a leading accountant, students borrowing £39,000 for a three-year course could end up paying over double that back in cash terms.
Many students will be deterred from attending a higher education institution as they are priced out of the equation. Students from poorer families could be eligible for Government funded scholarships, but this will only be for the highest achieving students. The UK could well see the number of new graduates decrease over the coming years, which would even out the proportion of jobs to graduates, but only time will tell. Only the top earners will be able to get themselves out of debt after university, leaving everyone else firmly within its grasp.
Since the announcement back in 2005 that the 2012 Olympic Games are to be held in London, it appears that the organisation of the event has encountered blunder after blunder. If it’s not the £400,000 logo causing offence due to it’s ambiguous resemblance to a Swastika or ‘Zion’ reference, it’s the panic that the games will land the UK in yet further debt.
The games are expected to cost around £3.3billion, whereas sceptics expect this amount to rise to over 8billion. Largely, the taxpayer will fund this huge sum, at a time when the economy is already in crisis. Does the UK really need this extra economic burden?
The latest blunder directly affects those purchasing tickets, putting many at financial risk. It was revealed last week that for those ‘lucky enough’ to have bagged tickets, debit payments could see major delays. Although tickets have been allocated, payments were not due to be taken from accounts until May 10th but this has now been delayed until anywhere from May 16th to June 10th. This is due to the overrunning of ballot allocation and it could have serious implications for many people.
With no exact date given for transactions to go through, unless people ensure there are sufficient funds in their accounts, they could end up with unexpected bank charges. People could find themselves faced with penalty charges for overdrawn accounts or for returned fees. Some banks charge as much as 30% interest on withdrawals over the agreed limit, whereas banks such as Barclays charge £8 for every returned fee.
This is just another blow to the already debt-ridden population. Bank charges heighten the country’s debt problem by driving many people deeper and deeper into the red. Many people find themselves in the vicious cycle of being unable to bring their accounts back to being within the agreed limits as the bank keeps piling on extra charges.
Anyone who has bought a ticket for the games should be prepared for their accounts to be debited at any time between May 16th and June 10th. It goes without saying, avoid the risk of falling victim to dreaded bank charges by ensuring you have enough funds to cover the cost of the tickets.
Earlier this week, British banks abandoned an appeal against measures introduced by the Financial Services Authority (FSA) in 2009 banning the sale of single-premium PPI with loans.
PPI (payment protection insurance) is a product that was sold by lenders alongside various forms of credit. It is designed to protect consumers in the event that they are unable to pay a debt, usually in the event of accident, illness or redundancy.
Whilst some consumers have no doubt benefited from PPI, it is the banks that have profited most. Indeed, the margins the banks have made on PPI have in many cases exceeded what they make in interest on loans, credit cards and mortgages, and this has been reflected in the fact that their sales teams have been receiving serious commission for getting people to take PPI. Unfortunately, many of those people didn’t need PPI, didn’t want it, or had no idea they were paying for it!
The history of the PPI debate dates back to 1998, when consumer magazine Which? suggested that PPI represented poor value for money, due to the cost and the common exclusions (things not covered by a policy).
In early 2005, the FSA announced it would be reviewing the way in which PPI was regulated, and the Citizens Advice Bureau issued a ‘super complaint’ to the Office of Fair Trading (OFT) regarding PPI sales. Towards the end of the year, the FSA published a report identifying problematic selling practices and compliance issues in the PPI market.
In 2006, the FSA fined a number of smaller lenders for mis-selling PPI, and ‘enforcement procedures’ were imposed on 24 firms. Subsequently, the OFT announced that it would refer the matter to the Competition Commission, which it went on to do the following year. Around the same time, a number of large PPI providers were fined by the FSA for unfair treatment of customers.
In 2008, the Competition Commission published 3 papers on the PPI issue, whilst the FSA imposed further fines and introduced ‘comparative tables’ for PPI. Which? carried out new research, finding that as many as 2 million consumers had been paying for policies that they would never be able to claim on, and that 1.3 million incorrectly believed that taking PPI meant their applications for credit would be accepted. Towards the end of 2008, Alliance & Leicester were fined £7 million for mis-selling PPI.
In 2009, the Competition Commission recommended that that firms selling loans shouldn’t be able to sell PPI as a bundled product at the same time. Barclays lodged an objection to this, but in May 2009, the FSA made the ban official.
In October 2010, the British Bankers’ Association sought a judicial review of these measures, and a High Court case began in January 2011. Last month, the High Court ruled against the banks, and they have now announced that they won’t appeal.
On one level, this sounds like good news for consumers – RBS has set aside £850m to compensate people for mis-sold PPI, whilst Barclays has set aside £1bn and Lloyds £3bn. However, banks are already beginning to increase their charges in an effort to balance the books. As things stand, it’s hard to see the public’s faith in the banking system being restored any time soon.
A ‘spendaholic’ or ‘shopaholic’ is often defined as someone who likes to shop and spend a lot. Normally, spendaholics buy things in excessive amounts – some of which they really have no use for – and spend beyond their limits. Over spending can result in excessive credit card repayment each month and, like those twenty pairs of shoes you could buy everyone week, credit limits you don’t actually need.
The signs of a spendaholic can be hard to spot in yourself but obvious in others. The biggest sign is the need to spend and shop constantly. Looking forward to your weekly spree in the town centre may seem like a healthy way to spend a weekend but it isn’t financially healthy week after week. If you only feel happy when you’re pushing your credit limit every month then you may in fact be a spendaholic.
Secondly is the need to buy things we won’t use. If you already have twenty pairs of shoes in your wardrobe that you don’t really go out in but you’re tempted to buy a new red pair then you really must ask yourself why. Constantly buying what we don’t need is a sign of excessive spending and, of course, a waste of money.
By spending too much you may find it difficult to stick to shopping lists when out and about. If you struggle to pay off monthly outgoings and find yourself raising your credit limits time after time whilst you’re still out looking for the biggest bargains and hording new shirts and shoes, you’re probably spending too much.
Spendaholics frequently spend their own necessities and means. A dangerous sign of a spending addiction is spending money set aside for your food, rent and bills, which will leave you short of your monthly essentials.
If you find that you’re spending habits are priority above everything else you could be heading straight for debt and financial difficulty. It’s a perfectly reasonable idea to spend the extra money in your bank account, as long as it really is extra and everything is paid beforehand. If you’re first desire when you get your wages is to blow it all in an Outlet store then take a step back and consider your situation – do you really need another new outfit, or should you buy your weekly food shop first?
Always keep an eye on your shopping and purchases. If you cut out all the credit cards and work out your monthly outgoings – including your shopping – with your monthly salary and your outgoings are more than what’s coming in then you’re spending beyond your means. It may be worth putting the wallet away for a few nights a week and eating in!
Are you paying attention to your finances? Have you considered how much you could have been affected by the economic downturn? It’s harder to tell than ever whether or not we’re among the most ‘at risk’ in the country wide financial crisis. What should you think about when assessing whether or not you’re facing a financial disaster?
Do you know how much you owe?
Do you have a tight rope on how much you owe out each month or do you hide your face in your hands each time a bill is posted? Losing track of your spending is the quickest way to get into debt and the hardest way to get out of it – you don’t know where you’re spending big and what to cut out. This is a sure sign of financial trouble and an indications you have no control over your money worries.
Are you borrowing to pay off outstanding debts?
This is perhaps the biggest sign of financial trouble. By borrowing more to pay off existing debts you’re basically admitting you don’t have the money to pay off your other debts. Adding additional credit and payments will not help in the long run.
Can you afford savings?
If you can’t put any funds away for savings at the end of the month then this isn’t a good sign. You’re monthly outgoings could be swallowing up your salary and preventing you from making the emergency fund to get you out of future debt and, quite obviously, indicate that the majority of your outgoings are debts. If something arises other than a credit card payment, like an emergency breakdown, the stress with double in the form of charges when you sub your debt payments for something important.
Are you avoiding the situation?
Are you still spending even though money isn’t going anywhere and expenses are becoming extraordinary? If you’re avoiding talking about your huge credit card payment or phone bill, or quietly taking out another loan whilst still telling your partner you can afford to treat them to a three-course meal, you may be facing denial of your financial situation. Hiding from your troubles and hiding them from others only escalates a dangerous situation – don’t be afraid to admit to your tumbles and turns, ask for help.
Constantly worrying about your finances?
You may simply consider yourself a worry-wart, but be aware that this is the biggest shout-out when you’re in trouble. You should always tackle your main concerns before they grow – with your debt – and avoid denial or little secrets from friends and families. 61% of people don’t sleep because of stress when they’re in financial trouble – if you find yourself restless at the thought of next month’s repayments take it as the ultimate wake-up call and act immediately.
If you think you could be in financial trouble and are struggling to manage growing debts, get in tuoch with MoneySolve today for free, confidential, non-judgemental advice.
