Families on Brink of Insolvency Due to Credit Card Habits

In the United Kingdom, as with much of the rest of the developed world, there has been a decided and nearly continual slide into debt via credit cards and other similar products such as overdrafts. Over the past 2 decades recent research has shown a marked trend towards families using their credit cards to make purchases that they were able to partially pay off, but the balance alone has stayed nearly perpetual for them. Contrary to what some suggest, it is not generally a process of running the credit cards sky high and then crashing against a wall of debt, say analysts. Recent studies are beginning to give experts a clearer picture of a Britain struggling quietly with debt that continues to mount, but is generally able to be partially paid off in order to keep the credit cards from from being canceled.

This upgraded picture of British family finances comes as word from the Bank of England only days ago stated that lenders are writing off record amounts of debt from credit cards while thousands of households plunge into insolvency. The need for help is great according to the Financial Stability Report and lenders know this, but breaking the pattern of borrowing to spend is difficult for both sides to break. The ways lenders appear to be striving to discourage debt is by raising interest rates. This, in turn, makes those families holding high but manageable balances really suffer as things start to spiral out of control for them. This is the point when many are advised to enter into a Debt Management Programme in order to avoid outright insolvency. However, pride means that many families may feel as if they cannot do this.

Savings, however, are beginning to grow for the first time in 20 years, the Bank says. With £24 billion going into savings this year, that is £4 billion more than has been given out by lenders in the form of new loans. Since records of this have only been kept since 1988, it is remarkable to see that since that time savings have never yet outweighed loans. Could this be a brighter path for British families? Financial experts state they believe it too soon to cast an across the board judgment, but the news is certainly brighter than had been expected. This is due to the fact that nearly 150,000 in the UK will be made insolvent in 2010 alone which is still a 10 per cent rise from the previous year.

For many in the British credit help industry, the general sentiment is that a crisis of family insolvencies is certainly afoot and it could be yet another decade before families understand the importance of seeking solutions right away. The problem is not people thinking that massive loads of debt are a good idea, rather it is, say analysts, a problem of trying to maintain a life style that is not in congruency with today’s current economic climate.

An interesting example of the current spending patterns that are no longer feasible in the UK would be the fact that many will buy into a service plan such as comes with the Apple iPhone and this alone will push their debt higher because it is an added expense at a monthly level plus the £300 to £600 for the smart phone itself. While in the past this would have been seen as permissible and even advisable, at the rate technology is developing it is not an investment that would be possible to see a pay off for because by the time the phone is paid back at the average rate a British household can afford, a new phone is available. In fact, Apple recently announced it will no longer support the first iPhone with upgrades – a device released only 3 years ago. In this way, the consumer market can work against consumers. This is why financial help is so desperately needed for changing times, say experts.

Consumption levels will need to be lowered for UK families as belts are tightened during this time of economic recovery and social readjustment to the digital age. With the right solutions such as a Debt Management Plan, families can dodge insolvency say consumer advocates. However, it is often taking that first step that can be the hold up as families fear a lower quality of life since they do not realize the relief from stress alone will will dramatically reduce their personal woes.

Shocking 60 Plus Percent of Britons Using 0% Balance Transfer Cards for Purchases

A study has unveiled that 63 percent of consumers in the UK are using credit cards with 0% balance transfers for new spending despite the fact that this will nearly always lead to a higher cost in the end due to building a negative payment history with credit reporting agencies. According to this study, UK customers also take these credit card offers and make all new purchases that build their debts up even higher. Almost a third of those using a balance card said they did not intend to do this when they first applied for the card, but the sad fact is that doing so will lead them into even further debt.

The purpose of the balance transfers is, reportedly, to help consumers control their own debt and pay it off more quickly, but the zero interest deals are apparently too much of a lure towards new merchandise and end up paying extremely high, even double, interest after the introductory offer period is over. After this point, the interest tends to go back up and can be a tremendous shock to consumers that had hoped to simply spend and forget. The mounting debts then begin to snowball and many end up wishing they had first opted for a smart move such as a debt management plan rather than taking on more spending despite the sweetness of the zero interest offers. Once their payment histories slide further down, they often have to pay higher interest rates in other areas of their lives, too, including auto loans, home mortgages and other similar areas of their finances.

Since these situations have tricky small print conditions, one needs to be exceptionally careful in zero interest offer territory, say debt experts. The UK has already been dealing with incredible levels of debt and the situation can worsen for families that use such offers as a means of putting more time between them and their debt rather than pushing that debt down to lower levels.

Trend Towards Defaulting on Credit Cards to Hit High Street Banks

After being on shaky ground from the effects of so many bad home loans in the UK, high street banks are hearing from KPMG accounting firm that unsecured loans such as credit card loans may bring further losses right behind the huge hit they took from large numbers of home loans that were defaulted on in the past few years.

Even though investment banks are back on the path to profits, their retail arms are still not showing the profitability expected of them largely due to unemployment rates which affect whether or not people are able to repay their debts. This, in turn, will most likely mean higher interest rates and increased fees for those consumers who are seeking credit at this time and in the near future as banks attempt to restructure their services back to a more profitable situation.

Barclays, Lloyds Banking Group, Royal Bank of Scotland (RBS) and HSBC have all reported profits for the first six months of 2009 in their retail divisions, but the levels of bad debt are pinching those profit margins. Lloyds has announced that it believes the worst of the defaulting has already occurred in the first half of this year, with £2.2bn in bad debt, a 60% increase. After this, they expect the defaulting situation to calm back down to more normal levels.

From March to June 2009, over 11,000 homes in the UK were repossessed according to an announcement from the Council of Mortgage Lenders, a 14% increase from 2008.

All told, many citizens are expected to turn to Individual Voluntary Agreements, as opposed to bankruptcy in order to get themselves out of the debt worries brought on my these tight economic times.

Rule Breaking Credit Card Companies Shut Down by Government

The Ministry of Justice (MoJ) has formally shut down companies that offered to secure compensation for personal injury claims or write off debts. From April 2007 to August 2009, one hundred of these companies have been forced to stop doing business.

According to a spokesperson from the MoJ, the companies have been using high pressure sales strategies and making claims that are misleading in an effort to get consumers to pay large fees for their services. The spokesperson told the media that those who are desperate for a way out of debt are especially vulnerable to these tactics and only end up getting further into debt due to the unscrupulous tactics the companies employ. As a result, the government is warning citizens to be careful with offers that appear to be too good to be genuine because that is the lure these businesses use.

According to the MoJ, many of the companies that were shut down used extremely exaggerated claims in their advertising such as claiming that 80% of credit agreements were not enforceable or that debt from credit cards could be totally wiped out within six weeks. Other cases involved companies run by those who had fraud convictions or people ignoring the goverment claims regulator’s request for further information about their advertising claims.

The current regulations for this industry state that no in person cold-calling is allowed and a cooling off period of two full weeks must be given for anyone considering taking on a new credit agreement. This is means that it is better to find IVA, Debt Management Plans or other debt reduction services through a company that allows the customer to request the call by providing their information of their own free will. Instead, many of these companies were making their customers pay huge fees up front, knowing that the customers were already struggling with large debts and that the services they offered to them would not be carried out.

However, plenty of debt management companies still operated within the rules and did not use high pressure cold-calls or unsavory tactics to get the consumer to pay large fees. The Ministry of Justice Claims Management Regulator continues to tackle more cases in an effort to relieve the public of these financial predators, but as long as the claims the companies make are accurate regarding the chances of debt management success and the costs involved for the company’s services, no harm is done.

Hopefully, these companies will either change or continue to be shut down so that the public will be able to get the help they need without fear of fraud.

Credit Card Cheques Expected to Face Serious Opposition from UK Government

A new post is being created to help consumers recoup losses from unwanted credit card cheques which have become such a huge problem in the UK in recent years. The cheques are from rogue traders and are expected to be banned in the near future, as well, due to the amount of debt they add to the already staggering debt problem in the UK that has seen so many turning to Individual Voluntary Arrangements and Bankruptcy.

According to the latest figures coming out of the Bank of England, UK citizens owe loans, credit card debt and overdrafts that total to £233bn.

However, the reaction to the current plans to create a Consumer Advocate are mixed, though the White Paper on its creation outlines the Advocate as a means to raise awareness about the severity of current consumer struggles. It would also act on behalf of groups of the public who are seeking refunds or compensation when the case is judged to be of “national importance”, such as against a substantial and unfair debt from a rogue company.

The government is looking for action to be taking in regard to debt levels during this current recession. They want lenders to be held more accountable for irresponsible practices within their industry because UK credit card debt is again standing at £54.4bn after having been reduced for a short time, months ago.

Credit card cheques have proven to be quite controversial because of the handling fees incurred for using them. These blank cheques are often sent to credit card holders along with their monthly statements as a means of enabling the customer with a different way to spend the funds from their card’s account. If things go awry, these cheques do not offer the same protections as the cards themselves and they almost always do not have an interest free period that the card does, leading to confusion for consumers and thus, increased spending.

Since the government has been expected to ban these cheques for some time now, they will be banning them in order to halt companies from sending unsolicited cheques. This means credit card companies may only offer these to those who have opted in to receive them ahead of time rather than eliminating the option to consumers altogether.

This news follows the announcement from Uswitch, a price comparison website, that states 20% of UK consumers have seen their credit limits rise without asking for such an increase.

Consumer groups have been requesting that there be more help for consumers who believe they have been unfairly treated by companies and as a result, experienced significant financial loss.

The person who will be the Consumer Avocate in the coming year will be an individual comfortable with being involved in representing substantial groups of consumers who seek compensation through the courts and also highly public consumer campaigns. These consumers who feel they have been ripped off will be able to perform group actions against the company named by opting in to the group legal action.

Retail Sales Surge in June

According to official figures, after a pronounced drop of sales in UK shops during May, sales shot up 1.2% in June. This most likely comes because of an increase in summer clothing purchases as the public attempt to deal with the hot weather of this season.

According to the Office for National Statistics (ONS), sales rose 2.9% during June of 2008. In an effort to encourage consumers to spend, shops have pushed their summer sales forward and this has combined nicely with the heatwave to trigger additional purchases.

Although economists had expected a 0.3% rise in retail this June after a drop of 0.9% this May, it appears that sales in retail are in fact quite healthy.

Clothing retailer Next said that the fortunate weather had boosted its sales to an extent that they felt comfortable raising their profit forecast.

Of course, all of this comes thanks to the easy access that consumers have to store cards and other forms of personal credit, so there could be a rise in individual debt following not far behind.

Some analysts believe that this impressive improvement in retail sales figures supports the notion that the worst of this current recession is now over.

It is expected that the Economic growth figures due Friday will show that the overall UK economy shrank by 0.4% from April to June of 2009. Compared to the 2.4% contraction for the same period of time in 2008, this is certainly an improvement. Yet, analysts insist that retail sales are mercurial and that UK households will most likely continue to struggle economically.

According to the ONS, textile, clothing and footwear sales in retail stores rose 11.3% compared to 2008, yet there was a decline in big-ticket household items sales, as well.

Debt in the UK stands at Double the Average of Europe

The debt capital of Europe is now, unfortunately, Britain. UK citizens are borrowing an average of nearly twice what those in other western European countries borrow.

Credit cards and other unsecured UK debts stood at £216bn in 2005 alone. That is over a third of the total borrowing in Europe for all forms of debt except mortgages. This means that, according to the Datamonitor research firm, the average resident of the UK owes £3,175 and the total personal debt of the UK stands at £1.2 trillion, including mortgages.

According to this report on the market in 16 European nations for borrowing through hire purchases, credit cards, personal loans and overdrafts, the UK has quite the gluttonous appetite when it comes to credit. Compared to the UK average of £3,175 the average European owed unsecured debts of only £1,558.

These numbers are due mostly to the skyrocketing levels of borrowing that have been reached over the last ten years in the UK. Most of this new debt has been created with the aid of credit cards. Compared to most European countries, the British are far more comfortable taking on credit card debt.

Outstanding credit card balances have risesn by over 380% since 1994 according to figures from the Bank of England. While credit card debt may not be difficult for many people to repay, for those facing large debts it can be incredibly difficult to deal with. This is why so many people are turning to Individual Voluntary Arrangements (IVA), debt management plans and even bankruptcy in more severe cases.

The French trailed closely behind the UK in terms of new lending last year while the Germans came in second in terms of the amount of debt currently outstanding. Even though the lending market is overshadowed by the largest economies, smaller economies like those in Greece and Turkey saw the fastest rising levels of borrowing that didn’t include mortgages. Although it went through a 2001 economic crisis, Turkey saw new lending shoot up by 52% between that year and 2005. Greece, during this same time period, saw its debt from unsecured borrowing increase by 29%. Both countries have the fastest levels of outstanding consumer debts out of all 16 countries.

In the case of Turkey, there is barely a mortgage market and that means most borrowing is in the form of credit cards or other unsecured debts. In Holland, the situation is very different and there only 5% of all debt is unsecured because people typically expand their mortgages in order to buy things.

Dealing with Debt

These days, credit in very easy to obtain for those living in the UK. Those looking to led money include small scale money lenders, mail order firms, credit unions, finance companies, insurance companies, credit card companies, building societies and banks. Most of us will eventually require credit in some form or another, whether it is a mortgage to buy a house or a loan to purchase expensive electronics, furniture or a new car. The definition of credit is buying a product or service under conditions that offer you time to pay it off. That credit itself is paid for in the form of interest. Those who borrow money would be wise to check the APR (Annual Percentage Rate) to make sure they are getting the cheapest credit possible.

It’s easier than you might think to end up borrowing more money than you have the ability to repay and when you do that, the resulting money owed is called debt. To word it another way, credit is debt that you have under control while debt is credit that has gotten out of control. Many people end up borrowing even more money against their debts in the hope of clearing what they owe, instead creating an even larger debt for themselves.

When people experience debt problems it is usually due to multiple debts they owe becoming overdue, such as:

Overdue on Holidays (Particularly ‘Fly now, pay later’)

Overdue on furniture payments

Overdue on TV/Video/Stereo equipment

Overdue on car payments

Overdue on electricity, gas or telephone utilities with the result of being cut off

Overdue on council tax with the result of bailiffs or worse consequences

Overdue on mortgage with the frightening result of repossession and subsequent homelessness

Debts have a nasty tendency to ruin lives when they get out of hand so it is crucial that you seriously consider borrowing money each and every time you do so. You and your family’s lives are what will be affected should the situation spiral out of your control. More often than is commonly believed, debt is a cause of the breakdown of a marriage. Your golden rule could be: Never borrow more money than you are absolutely certain you can pay back.

If you do, despite your best intentions, find yourself struggling with debt, take a moment to consider your options for getting your financial life back on track.

A Debt Management Plan or Individual Voluntary Arrangement (IVA) may be exactly what you need to get yourself back into financial health once again.

Credit Card Debt

With debt in general hitting a record high recently, and debt from credit cards soaring to excruciatingly high levels, many people fund themselves completely unable to repay their debt. What we want to do now is take a look at credit card debt and learn about some of the causes and solutions with which we can handle it.

Credit card debt is all too easy to run up, but it can be quite difficult to alleviate once you’ve stacked the bills high enough and interest begins to set in. Credit cards and unsecured debt are one and the same so because of this, they must be treated that way. The first step towards tackling this problem is to get serious before the situation gets serious with you. Sit yourself down and begin creating a budget. It’s very simple, just list your income and your expenditures – be thorough. This particular budget should not include payments you make on unsecured credit, that includes overdrafts, credit cards and personal loans. You can deal with those later on.

In order to get yourself back into financial balance as quickly as possible, you will want to open up a bank account that has no overdraft and no cheque facility. This is where you can save your money without having it be accessible to you for spending. It’s an important part of digging yourself out of debt.

The major solutions to debt that is entirely out of hand, in the thousands of pounds and rising, are listed below:

Debt Management Plan (DMP) – With a DMP, you work with a professional Insolvency Practitioner (IP) who will assist you in your efforts to free yourself from debt. A DMP will allow you to make a single monthly payment that you can afford instead of trying to juggle multiple bills. Under a DMP you have a responsible plan to repay your debts and creditors look favorably upon that. Many times, your IP can have your interest frozen by your creditors during your repayment period and once your DMP is completed, you are debt free.

Individual Voluntary Agreement (IVA) – This form of insolvency is far less severe than a bankruptcy. It allows you to pay back your debt with a single, affordable monthly payment that is customised to your financial means by your IP who will work with you because each IVA is uniquely designed for the person taking it on. Because of the commitment an IVA shows, once completed it does not have the same negative effect upon your credit rating as a bankruptcy.

Bankruptcy- It is a major decision to declare bankruptcy and usually a last resort but once a person is truly so far behind they can never reasonably repay then it may be the right solution. Keep in mind that major assets can be lost and your credit rating will be affected for some time.

If you are in serious debt, it is best not to wait to take action. Learn about the solutions that may fit your situation above. You owe it to yourself to ease the stress of any debt, especially from credit cards. It’s easy to get the help you need and you will be able to sleep through the night once again so why not take action now?

Store Card Debt

In the UK there are more than 11 million people who hold store cards and the total outstanding balances on those cards now exceeds £2 Billion

Problem Areas in Regards to UK Store Card Debt

There are quite high interest rates attached to store card debt that you will want to be aware of because it is extremely easy to allow debts on your store card to pile up. In the UK this is becoming an increasingly difficult problem due to the public embracing the convenience that store cards offer them.

For British shoppers, the allure of saving up to 20% on purchases via store cards is nearly irresistible. However, the downfall of giving in to this temptation is that interest rates on store card debt can be as high as 30% so as you can see, the savings are then nullified and the store card companies end up profiting quite handsomely. Millions of consumers are facing debt trouble from this situation.

What a store card is:

A store card is a branded credit card that is usable only in a single shop or chain. Traditionally, they are the most expensive method by which you can borrow money because the APR (Annual Percentage Rate) is 30%, double the rate of a high street credit card.

Understanding the benefits store cards offer:

- Consumers can use store cards during a significant period of no interest being charged and take advantage of incentives or special offers that the retailers have in order to compound their savings

- Certain customers want a relationship with a certain store or brand and since they are able to obtain discounts from these favored stores or brands they feel the card is beneficial to them. Often, they are told about new merchandise before customers who do not have that store card. These customers appreciate the ‘designer label’ feel of owning and using a store card.

Understanding the disadvantages store cards can pose:

While credit is an extremely useful tool for millions of people in the UK, it is still important to be aware of the risks posed by any unsecured credit. A lack of financial education can leave people vulnerable to poor decision making when it comes to balancing their finances. Those who are already struggling financially face danger when they give in to temptations of ‘interest free’ offers or ‘pay nothing for six months’ programs that sound more beneficial than they end up being in light of that individuals real monetary circumstances. Often, consumers who spend this way are simply hoping the future will be brighter than the present and so they willfully take on unwise debt knowing the consequences that can result and hoping they will avoid them.

Many times, over eager sales people promote store cards to customers that are uneducated in how to use them properly. With these customers, offering incentives can really win them over because they do not understand the full ramifications of what will happen when they are unable to avoid the high interest rates by paying off their debt in time. It is extremely easy to talk a person into signing up for a store card because the benefits are real, but unless the customer can truly pay the debt back within the time frame then the store card is a liability, rather than an asset. While it is tempting to try to benefit from the discounts offered on your shopping expenditures, it is all too easy for that store card debt to rise out of reach.

Since the incredibly high interest rates are the danger with store cards, it is commonly advised that consumers avoid them unless they intend to and are able to pay down their store card bill as soon as it arrives. Shoppers who have budgeted money to pay off the balance during the period without interest can benefit from these borrowing tools.

Who provides the majority of store card debt?

Over 20 million store cards are issued annually in the UK and in 2007 alone, store card debt totaled over 2 billion pounds. Approximately 70 UK retailers offer store cards, primarily those in the department store and retail clothing sectors.

Research indicates that the following store cards are the most expensive in terms of debt:

- Dorothy Perkins

- Warehouse

- Miss Selfridge

- Laura Ashley

- Burtons

- Topshop

- Oasis

- Russel and Bromley

- Toys R Us

To give you an idea of exactly how severe the interest charges on store cards can be, the average store card charges close to 25% APR. At this rate, an £800 balance would end up costing £126.83 in interest per year. Yet due to the easy application process for store cards versus lower interest rate credit cards, UK consumers continue to be seemingly obsessed with this method of borrowing.

Debt troubles from store cards have led many people to seek solutions and here are a few of those that have worked for others:

Debt Management Plan – With this option, you can make one payment per month that is divided up between creditors for you by a professional Insolvency Practitioner. You can find out more about Debt Management Plans in the UK by using the web.

Individual Voluntary Agreement (IVA) – This form of insolvency is growing in popularity each year because it is not as severe in consequences as a bankruptcy, but does free a person from debts over time. Creditors appreciate an IVA and often work with those who seek them since they are more likely to recover their debts than with a bankruptcy. Since an IVA is less devastating to your credit, it makes it easier to obtain credit once again after you’re back on you feet financially. Also, while you cannot force any creditor to work with you, your Insolvency Practitioner who sets up your IVA will often be able to negotiate a freezing of interest to rein your debt in.

Bankruptcy – Typically, this is a last resort means of dealing with store card or other debts. It generally comes with the loss of all the major assets owned by that debtor.

If you are struggling under the weight of debt from store cards, the important thing is not to wallow in the guilt, but to seek out a solution. Those outlined above may be right for your situation so do not hesitate to find out because you deserve a chance to get your finances back under control.