A recent report in the UK financial press has indicated that some 25% of the UK population are suffering from unmanageable debt, and with the economic situation set to get worse this figure looks likely to rise substantially.  Are you stuck in a debt trap?

If you are stuck in a debt trap it is essential that you are proactive rather than reactive, and do not leave it too late to sort out your affairs.  Too many people in the UK would rather bury their heads in the sand and hope that all turns out well in the end – the chances of this are minimal!

Unless you tackle your debt problems head on there is every chance that you will get yourself into a situation where you have little control, maybe looking at an IVA solution or Bankruptcy and the problems associated with these situations.  By tackling your debt problems early it may be possible to consolidate your debts into one manageable amount, possibly spread out over a longer time scale. 

While there is no pain free way to “fix” your personal debt problems, the longer you put them off the worse they will get.  A simple call to your credit card company, your bank, etc to alert them to your problems may well yield a lot more useful information than you might expect.  It is in their interests to keep you solvent and keep you from the clutches of either an IVA or Bankruptcy, where they will be forced to write off large amounts of debt.

Do not be scared to admit that you have problems, as this is the first stage of your fight back.  That is not to say that either an IVA or Bankruptcy may not be the best option for you, but either way you will take more control of the situation and relieve some of the pressure in the long term.

With news that Barclays Bank alone will be writing down their asset base by approaching £1 billion – with many expecting the final figure to be above this – many are starting to ask who will pay for this financial mess.  Will the Banks take it on the chin, or will they look for compensation from the consumer?

As you guessed, it will no doubt be the consumer who will pay the price in the end, with Banks arguing that the consumers benefitted when their balance sheets were strong (with better lending terms, etc) and now they will need to pay the price.  While the recent write-off by Barclays, and the others expected to be announced from other UK Banks, will not have a long term impact on the financial strength of these institutions, it has affected confidence in the system on the short term.  This will be the reason the Banks use to increase your charges, notch up your loan interest rates and generally squeeze you for a little extra.

Lets not forget that the UK Banks are also in the middle of a messy court case with regard to overdraft charges and the question of there legality.  They have already shelled out some £570 million in compensation, with potentially billions more at risk if they lose the test case in January 2008.  The Banks have traditionally come down in favour of their shareholders in such situations, looking to replace the lost funds by hitting their customers.  We have seen masses of Bank branches closed down, many systems now automated and a general reduction in free face to face advice.  The consumer is already paying the price for increased competition and risk in the sector.

The bottom line is that even though the main UK Banks have substantial asset bases, and will be relatively untouched by recent events in the long term, they have shareholders to keep happy.  Slowly but surely “free” banking will disappear (if it has not already!), charges will creep up and many more new fees will be introduced.  The next few years will show the value of shopping around for the best deal, with many expecting a general hike in the cost of personal and business banking – you have been warned!

The recent rise in the housing market has seen many home owners sitting on potentially large paper profits, although some people still seem to be up to their eyes in debt.  It seems crazy that many people are being penalised by large debt repayments, or credit card balances which are running away from them, so what can they do?

It obviously depends upon the position you are in with regard to your mortgage, the value of your home and the amount of debt your need to address.  However, there are a number of options open to you including:-

Remortgaging your home to raise instant capital.  The main risk with this option is the potential to miss payments and run short of money, but if you are able to cover the payments at current levels you should be ok as interest rates should come down – or at worst, they are highly unlikely to move higher over the next 12 months.

Part remortgage.  For many people a part remortgage may well be the best solution, but again it depends on how much money you owe, and the amount of equity in your home.  You also need to ensure that you can actually afford the repayments.

Down grade your housing.  This is probably the worst case scenario for anyone who is deeply in debt, taking a profit on their home, paying off their debts and down grading to a cheaper house.  If you are in this much trouble then you probably need to take professional advice.

The idea behind releasing some or all of the equity from your home relates to the difference in interest rates.  While you may be paying in the region of 6% for a mortgage, you may be charged over 10% for your credit card debt.  In this situation it would seem a sensible idea to swap one debt for another, but at a substantially lower rate.

Do not rush into this type of decision as it may have a long term impact upon your life and financial situation – make sure you get it right!

While we have all seen the headlines about debt problems in the UK, falling house prices, etc, you would have thought that the banks would be struggling to make money.  Think again!

The only real way in which banks can lose money, from their traditional banking operations, is by writing off bad debts.  You may find this a little curious because surely as interest rates fall, their profit from each loan, each mortgage  and other instruments will fall – not always.

If you watch the interest rate which banks pay savers and charge borrowers, you may start to see a difference as interest rates fall.  The popular trick is to reduce savings rates by more than they reduce debt rates, thereby increasing the difference between what they can charge for loans, etc and what they will pay savers.  This then leaves the banks to use savers money to sell more competitive loans, when in reality it is the savers who are paying for this added competitive edge – an edge which sees their “turn” on savers money increase.

Can you imagine how much money the banks used to earn from current account holders, before they started paying interest on current account balances – this was money for nothing, and the banks were sorry to see this go!

So next time you wonder how the banks make their money in a falling market, you might remember the little tricks they like to play – at the expense of their savers!

Over the last few weeks and months we have seen regular updates with regard to the amount of consumer debt which has been racked up through the “good times”.  It seems that the total consumer debt in the UK has now reached an unprecedented £216 billion, but is it quite as bad as it seems?

On reflection, the announcement from the Treasury that ISA (Individual Savings Accounts) investments have grown from £29 billion in April 2000 to more than £200 billion today, perhaps shows that things are not as bad as some may have you believe.  This figure has been boosted by the ability to make annual contributions to funds as well as the recent rise in the stock market.

So while credit card, loan and mortgage debts are spiralling higher in the UK, there is some support for those who also have “other investments”. However, it is those who have debts without investments to back them up who will probably be hit hardest over the months ahead.   There is no doubt that the UK economy is slowing and house prices are deflating a little, but it is the possible threat to consumer spending and ultimately employment prospects which is most worrying.

Recent events across the Atlantic have highlighted the fact that after enjoying prosperous times over the last few years the world economy is under pressure.  Overnight these worries were realised n the Far East where markets fell on US considerations. 
Even though we can expect rocky times in the short to medium term, the situation is not likely to be as prolonged as more recent worldwide slowdowns.

Despite throwing billions of pounds and countless hours at the Tax Credit System, a report released today has criticised a system which has pushed in excess of 300,000 of the UK’s poorest families into further debt problems. There have been numerous reports of families being “hounded” for overpayments which the authorities have requested be paid back.  It seems that those families prepared to play by the book are being penalised, with those proving awkward or evasive often seeing their overpayments written of or moth balled.  So what next?

There is no doubt that the system, when working correctly, has brought much comfort and assistance to hundreds of thousands of families but there have been too many errors and too many “system” problems.  The Tax Credit system is a monster which is now out of control, and proving very difficult to reign in.  It seems as though the government have passed the point of no return, and are committed to throwing as much money as possible at the project, until it is running smoothly.

There have been many critical reports from families involved in the system, with the more common complaints being :-

· a lack of accessibility to advisers.  Phone lines are constantly engaged and emails are not being answered.

· confusing mailshots.  Many people have been sent different figures, under different cover on the same day.  How on earth are they supposed to know which is right?

· massive delays updating records.  This is a common complaint which has seen many families keep the authorities up to date with their lifestyle changes, but receive overpayment demands years later after finding that payments had not been recalculated.

· differing advice on whether overpayments need to be repaid.  Some say that overpayments of up to £10,000 are being written off, while some families are receiving demands for figures less than this.

All in all the system has shown some slight improvement of late, but there are just too many errors which are causing those who are already struggling financially, yet more heartache.  When the problems will be resolved is anyone’s guess!

In what is probably a sign of the times catching up with all areas of society, it seem that the number of old age pensioners going bankrupt in the UK has doubled over the last 5 years.  While the figure still only represents 7% of all people declared bankrupt over the last 12 months, it has risen sharply from 3% just 5 years ago.  So why is it happening?

It seems that there are a number of issues coming into play, which include :-

• Longer life expectancy.  This factor is putting a strain on the savings of many pensioners, who are not able to make their savings stretch as far as they used to.
• Increased cost of living.  It seems that all areas of living are getting more and more expensive, the cost of travel is increasing, council tax, general tax and a string of other charges have increased substantially over the last decade.
• Pride.  Many of the old age pensioners who have been declared bankrupt have tried to solve their problems themselves, without looking or asking for assistance.  While there are advice agencies out there for the elderly, it seems that there needs to be more work done promoting these services.

While not totally unexpected, it seems sad that those who have probably worked all of their lives looking forward to retirement are often not able to cope with the rising cost of living.  They are often the forgotten side of society, with more and more new finances and new services targeted at the younger audience. 

Surely it is time to ensure that those who may have served time for their country are looked after in their twilight years?