Mortgages Direct

With the total UK debt standing at £1,400 billion - according to Credit Action figures - many Britons are being advised to create hard-fast budgets for 2008 to ease financial strain.

The Consumer Credit Counselling Service (CCCS) recommends making a 12-month budgeting plan which should include all annual debts, including car insurance payments and quarterly bills, and then dividing by 12 months to establish monthly needs and avoid much financial anxiety.

“Sit down and do a budget,” recommended Frances Walker, spokesperson for CCCS, who also added, “You need to do an annual budget and then divide it by 12 so that you take account of things.”

Many Britons making New Year resolutions have promised to gain control of their financial worries – and for those who stick to it, will surely feel some financial ease by the end of the year. Ms. Walker stated that people paying over 20% of their incomes towards monthly repayments are overextending themselves.

Ms. Walker added, “It is also a good time to look at income maximisation.” As households are better able to forecast expenditures, many will see their incomes being used more effectively.

For those with existing debt and seeking to lower monthly outgoings, a consolidation loan can be a reasonable way to reduce monthly repayments and ease budget strain

Personal insolvency is expected to increase this year, noted James Falla, Director of advice service Thomas Charles, while speaking of the predicted rise in the number of people struggling with bankruptcy in 2008.

Although “everyone’s talking” about the rising number of people facing debt problems, Mr. Falla acknowledged that the actual numbers of declared bankruptcies are difficult to measure. A forecast by KPMG predicts a 30% rise in the number of personal insolvencies this year; however the type of insolvency can vary.

Consumers facing personal insolvency are not always forced into bankruptcy. Many can enter into Individual Voluntary Arrangements (IVA’s) or informal debt management plans, Mr. Falla added.

The Director also noted that the exact number of IVA’s between consumers and lenders can be measured easily, but there is no way of calculating the exact number of other debt management plans that will be arranged this year.

Debt consolidation loans are recommended as an effective answer to insolvency for many people this year, suggests the price comparison website uSwitch.com. By lowering interest payments, a debt consolidation loan can be the answer for people looking to eliminate their debts and avoid outright bankruptcy.

According to recent research the mounting credit card debt of roughly £9 billion will transfer from one plastic product to another, in the New Year.

Abbey Credit Cards conducted a survey of over 1,000 adults and found that Britons are looking at the savings credit card transfers can give them on the interest they are paying. Nearly 3 million credit card users around Britain are expected to transfer an average of £2,666 in the first three months of 2008.

“It’s great to see that many people are already turning their attention to getting their finances in order. January credit card bills can often catch people by surprise, so we would encourage people to keep a check on their finances over the festive season and plan ahead to ensure they aren’t paying over the odds for their plastic,” recommended Roger Lovering, Abbey Credit Cards Managing Director.

The survey also found that both gender and geography has an impact on the expected amounts that will be transferred early this year.

When compared to 8% of men transferring a balance of £3,395 across to another card, only 7% of women will be transferring an average balance of £1,820. The residents living in the Midlands are expected to transfer £3,021, just above those living in south-east England, expected to transfer £2,900. Other areas, such as northern England will have an average of £2,501 expected to switch, which is more than Scotland at £2,154 and Wales and the south-west coming in at £2,022.

Transferring higher interest rate balances is an effective way of reducing repayments when utilizing credit cards with lower interest rates, especially when coupled with the wide variety of zero introductory rate cards, available today.

A survey carried out by the Bank of England showed millions of Britons are being adversely affected by debt. Even as households cut spending or borrowed more to cover expenses, almost one million families consistently had problems paying off mortgages and another 1.8 million individuals reported, ‘at least occasionally’ encountering problems with debt repayments. 

Interest rates have mounted drastically for homeowners and yearly mortgage payments rose to £3.6 billion in the last 12 months.  As banks continue to tighten their lending policies, the number of households encountering debt is expected to rise over the next two years.

Half of the families included in the Bank’s Quarterly Bulletin survey were forced to reduce their spending and another 10% of households have been pushed to borrow more or extend their mortgages. In an effort to make mortgage repayments, another 10% of homeowners are taking on second jobs, freelancing or working overtime. With lower incomes, renters are being hit hardest as 28% of individuals report trouble paying debt ‘at least some of the time’.

The Bank of England’s survey was taken in September, when the current credit crisis was just beginning. At the beginning of the New Year, many are seeing even worse financial situations than  during the latter half of 2007. Even more damaging, a portion of homeowners are unable to utilize the quarter-point interest rate cut  mandated by the Bank of England earlier this month - as their lenders are failing to pass the savings to their customers.

 Conversely, the Chief Economic Adviser of The Confederation of British Industry said that while the slowdown of the economy may seem to overwhelm the year’s strong growth, the fundamentals of our economy remain sound and talk of a full-blown recession is exaggerated.

Many families are shown to be nearly twice as in debt than they were only 7 years ago. The average Briton now owes £33,000 as opposed to the £17,000 owed in 2000, according to international accountancy firm, PricewaterhouseCoopers.

With the rise in property prices and mortgage repayments, many families are feeling the affects of a global credit squeeze which experts warn will continue for some time. If the struggle to survive financially was not enough hardship for most households, now banks are increasing pressure manoeuvres on many customers to pay more than they can afford.

The Citizens Advice Bureau (CAB) has been replete with customers who report being upset about the ‘aggressive tactics’ being used by banks on those in debt.

One such customer of HSBC complained about the continuous phone calls and harassment he received after repeatedly rejecting the bank’s ‘managed loan’ proposal which included a 13% interest rate - twice as much as he is currently paying. Although HSBC agreed to the amount he was able to pay, the bank would only accept the terms if he signed up for the managed loan offer. 

In addition, HSBC also sent numerous letters with claims of wanting to help customers in financial trouble when their aggressive behaviour suggested differently.

Even the BBC has discovered many cases of customers begin hassled by their banks after putting a debt repayment plan in place. Often the banks pressure customers to agree to costly loans to immediately repay the debt - which goes against the advice of debt charities.

On their part, HSBC responded by saying ‘as a responsible lender HSBC only offers a managed loan to customers when all other lending options have been exhausted’.

The British Bankers’ Association (BBA) commented that banks are always willing to work along side debt advice charities to help their customers, however CAB often finds their customers still receive harassing phone calls and letters. 

In many cases the CAB has heard of customers who attempt to work with their banks and offer to make payments, but the bank asks for more than they can afford. Even after the bank has worked with a debt advice charity, the customers continue to be pressured to pay more in higher interest products.

A spokesperson for the BBA explained that when banks work with intermediaries, like money advice trusts, they consider the agreements to be negotiations. This suggests that, while customers of debt advice charities can benefit from financially sound information, not all banks will be as willing to assist customers in a mutually beneficial manner.