Abacus Daily Debt News

Britons are suffering from an ever-increasing burden of debts, new research has indicated.

A survey by the Consumer Credit Counselling Service (CCCS) has revealed that at the end of the fourth quarter (Q4) of last year the average household paid nearly £200 per month, equating to 23.8 per cent of disposable income.

The CCCS Consumer Debt and Money Report Q4 2011 found that this was 0.1 per cent up from the third quarter of 2011, even though average interest payments dropped by £2 a quarter, with the share of disposable income being increased due to a squeeze in the latter caused by inflationary factors.

And with this struggle comes an increased desire for solutions, as the demand for debt help has continued to increase. And even if the economy gets better, the indebtedness will lag behind, it seems, as the report indicated the level of need is likely to peak in 2014. It stated that middle-aged and older people will be among the worst-affected, with a major shift in the average age of a CCCS client from 28 per cent being aged over 45 in 2005 to 47.6 per cent by the end of 2014.

The survey also encountered some inconsistencies between the need for debt help and actual demand, with the former rising at the fastest rate in Wales and the Yorkshire and Humber region, but people in London and the north-west being most likely to seek assistance. 

In response to the news, the charity has said it will publish regular reports on the ability of households to meet such costs.

CCCS chairman Lord Stevenson remarked: "While debt levels continue to decline, interest payments are a growing burden on too many UK households."

For people whose debt problems are so severe that maintaining payments is impossible, an individual voluntary arrangement (IVA) may be the best option.

These are potentially available to consumers who have debts of more than £15,000, for whom the repayments may in fact be a lot more than 23.8 per cent of income.

It works through a deal with creditors by which they accept smaller repayments each month, which are made in fixed amounts over a period of no more than five years, after which any remaining debt is written off.

This can be a very effective way out of debt and exists as an alternative to bankruptcy, which means that people do at least manage to take responsibility for some of the repayments.

And unlike bankruptcy - which carries a social stigma and can be publicised in the local press - an IVA can be kept entirely confidential.

However, consumers do need to bear three things in mind before seeking an IVA.

The first is that it still counts as a form of insolvency and therefore will severely affect the customer's credit file for the following few years, although many taking one out might be quite happy not to be borrowing any more money for a time.

A second consideration is that the deal can only be passed if at least 75 per cent of creditors agree to it.

Thirdly, the regular payments still have to be maintained each month, so discipline is required to avoid breaching the agreement.

However, IVAs are more popular than bankruptcy, according to Insolvency Service figures.

Its statistics for the final quarter of 2011 revealed there were 13,047 IVAs, compared with just 8,626 individual bankruptcies.

By James Francis
 

The official figure for economic output in the final three months of 2011 remains a contraction of 0.2 per cent, after the Office for National Statistics published its second estimate of gross domestic product.

Initial estimates are prone to being revised once more detailed information becomes available, but the latest assessment has left a continued indication that Britain may be on the brink of a new recession.

Should that be the case, many more people might need debt help as paying back what they owe could be much harder if redundancy strikes, a fate that would be made more likely by an economic downturn.

The estimate showed the service sector was the only part of the economy to maintain its output level from the third quarter of 2011, with production, manufacturing and construction all down.

Whether or not the UK slips into recession will depend on output in the first three months of 2012, with an Institute of Directors poll revealing this week that only 35 per cent of company directors believe a recession is very likely, while just over half think it is a mild possibility.

By Amy White
 

The sheer number of people in the UK who need debt help has been highlighted by the Money Advice Service as a reason for it devising a new approach to dealing with those owing money and creditors.

It has noted two million people could benefit from such assistance and advice, with one of the elements being the automatic referral by creditors of those struggling with debt to an advice service.

The organisation said it hopes to improve collection rates for creditors, but also reduce repossessions and lower court costs.

Losing a home after being unable to pay the mortgage is something many are experiencing even with the base rate at a record low level.

The measures were agreed after a meeting with financial sector bodies, other debt advice providers and consumer minister Norman Lamb.

Credit Action figures for the third quarter of 2011 indicated 101 homes were repossessed every day.

In addition to this, each day saw an average of 193 mortgage possession claims issued.

By James Francis
 

Many Britons could continue to have serious debt problems despite the economy being tipped for a major export-led recovery.

HSBC has forecasted that Britain will see a 60 over cent increase in its international trade over the next 15 years, with this helping to bring about a significant recovery from 2014 onwards.

It noted this process has already begun in relation to some countries whose economies are booming, with 2011 seeing a 37 per cent increase in the export of goods and services to India and 21 per cent to China.

While this may help increase British wealth in the longer run, those unable to pay the bills demanded of them today may find they need more urgent help, such as a debt management plan.

This spreads repayments out more and therefore makes keeping up with them easier.

One reason for many struggling recently has been the speed at which prices have risen.

A recent Lloyds TSB study has found the cost of goods most families would regard as essential has risen 4.9 per cent in the past year, while their income has only grown by 2.6 per cent. 

By James Francis
 

The recent fall in inflation may not do much to help the increasing number of families in the UK who are struggling to keep their finances in order.

A new report from Lloyds TSB has revealed that many households are finding that the effects of a sustained period of high inflation has been made worse by slow wage growth in many sectors.

The everyday, essential items which most families need to purchase were 4.9 per cent more expensive in January, when compared to 12 months previously, but in the same period, wages have only increased by 2.6 per cent.

This could mean that the number of people seeking financial options such as a debt managemnt plan or IVA help could rise, as consumers struggle to make their budgets stretch.

Patrick Foley, chief economist at the group, said: "The competing effects of falling inflation against a weakening in the employment and income situation are set to be the dominant theme of the first half of 2012."

By Joe White

Graduates keen on making student loans part of their debt consolidation will not be penalised for paying them off early.

The idea was reportedly being considered by minsters after business secretary Vince Cable proposed it as a way of raising more funds.

However, this will now not go ahead after pressure from many Conservatives in the coalition, with a Downing Street source telling the Daily Telegraph: "This is hopefully good news for tens of thousands of families, as well as many Conservative MPs who had raised concerns about the penalties."

This means that debt consolidation can include paying off a student loan early, enabling graduates to turn attention to other financial matters as they build their lives and careers after university.

Director of Women In Debt Georgina Earle recently noted that many children at university can only get limited financial help from parents because of the economic situation, meaning the youngsters are taking on more of the burden themselves.

By Joe White
 

The possibility of a further cut in energy prices has been raised by a consumer group.

Such a suggestion was made by director of energy at Consumer Focus Audrey Gallacher, following news that EDF, like Scottish and Southern Energy (SSE), has enjoyed higher profits this year despite a milder winter than in 2010-11.

She remarked: "This will leave many customers wondering whether energy prices can, and should, be cut further. SSE also revealed a similar picture earlier this month with a predicted profit rise despite falls in consumption."

Ms Gallacher said there are unresolved issues of trust at stake and called on regulator Ofgem to ensure transparency in charging.

Consumers struggling with debt may find they need help even if there is a new price reduction by the major energy firms - which, as winter is now nearing its end, might only come into effect when the weather is warmer and usage is much lower.

EDF's results for the last year saw net income excluding non-recurring items rising by 13.4 per cent year-on-year.

By Amy White

Debt consolidation and other measures to reduce personal borrowing could be among the most effective ways to help the UK economy recover, an expert has said.

This was suggested by Trevor Greetham, the asset allocation director at Fidelity Worldwide Investment, following news that ratings agency Moody's has warned it may downgrade Britain from its AAA credit status.

He suggested there was some irony in this because Moody's has been suggesting the UK economy may see low growth due to the very austerity measures the agency has recommended.

Mr Greetham added: "Contrary to ratings agency advice, I would support a targeted easing of fiscal policy to keep the economy moving while the consumer pays down debt. Without growth, everything becomes more difficult."

The expert also said Britain has more "flexibility" in its economic policy because it is not tied in to the euro.

Currently, Britons are making a more determined effort to bring down their credit card borrowing levels, according to product and marketing director at Santander Cards Gail Goldie.

By Joe White

The government should axe VAT on domestic fuel, price comparison website uSwitch.com has argued.

At present, VAT is charged at five per cent on fuel and the site has argued this is unfair as people do not pay the tax on water and most foods.

It said with the average energy bill at £1,259, the removal of the tax would cut the typical charge by £60 a year, compared with the £34 reduction the recent price cuts announced by suppliers would bring.

Such reductions may provide some help for those struggling with debt.

However, although VAT on domestic fuel was first imposed in the 1990s when Kenneth Clarke was chancellor, it is now a European Union law that there should be a minimum purchase tax on energy of five per cent, meaning uSwitch would need to take its campaign to Brussels.

This means that it is not within the UK government's remit to unilaterally lower or abolish this tax.

By Amy White

Many Britons are becoming more sensible with their money and working hard to reduce their debt levels, according to one financial expert.

Gail Goldie, product and marketing director at Santander Cards, said a large number of people have changed their attitude towards borrowing and become more focused on making their money "go further".

"People are increasingly paying down debts and are looking to be a bit more focused on managing their finances," she commented.

Ms Goldie suggested the current economic climate has made people think differently about credit card debt and other forms of borrowing.

According to the Precious Plastic 2012 report published by PricewaterhouseCoopers earlier this month, the average UK household has approximately £7,900 of debt. Total household borrowing stood at £1.45 trillion in 2011.

The study also found that British households paid off an average of £355 worth of their debt last year, with outstanding credit card debt falling by five per cent.

By James Francis