As we move towards a decline in worldwide business activity, a time when interest rates around the world will fall, many are starting to ask when they should consider re-financing their debts.  Is it time to do it now, or wait as long as possible?

While it may be tempting to take advantage of the recent reduction in interest rates in some areas of the world, those who can may well benefit from waiting a few months longer.  The UK for one is expected to see interest rates start to decline very soon, with recent indications by the Bank of England seemingly confirming this.  We are also in a situation where finance is still more expensive in real terms than it was 6 months ago, because there is less liquidity in markets, which has pushed money market lending rates higher.

If you are looking for a fixed rate refinancing of your debt, and you are able to hold on for a little longer without impacting upon your credit rating, it may well be beneficial to hold off any action for a little while.  We could see UK rates fall by more than one percentage point over the next 12 to 18 months, depending upon the performance f the economy.  Even this relatively small fall will offer many consumers, who have built up substantial debts, the chance to reduce their future debt repayments.

Each person’s situation will be different and there is no simple answer to the question, but it seems inevitable that the UK, US and other major countries around the world will be seeing lower interest rates in the not too distant future.

For those who have not come across leveraged buy-outs before, these were very very popular in the 1980s, at a time when stock markets were flying high and takeovers and mergers were all the rage.  Money was also cheap, and lenders were bending over backwards to help corporate raiders with worldwide economies booming.  So how do leveraged buy-outs work?

As the name suggests, raiders who used the leveraged buy-out ideals would take out massive loans against a target companies assets and cash flow projections, paying off the debt as they went along.  While obviously this would have an impact upon short term profitability, with the majority of income going towards paying off what was in many cases millions of dollars worth of debt, there were advantages.  The beauty of these schemes was that for a relatively small initial sum, the raider could borrow many more times that amount using the company’s assets as collateral and maybe even selling off non-core assets.

After the pay back period was over, and the loan had been successfully repaid the corporate raider would have a business which they owned lock stock and barrel, for which they may only have paid a fraction of the value - with the vast loans paid back out of the companies cash flow.  If the theory went perfectly to plan, which it often did, the owner of the business could net hundreds of millions of dollars of assets.

So what went wrong?

As the market was pushing along well, the economy flying high and not a cloud in the sky, up popped the 1987 stock market crash.  Not only were the banks now looking to reign in some of their ill advised loans, interest rates were sneaking higher (adding to the debt burden) and the economy came under pressure (reducing profitability and cash flow).  These were the events which killed the leveraged buy-out market overnight.

While highly successful for many investors in the 1980s, the situation has never been quite the same with leveraged buy-outs.  We have some debt funded buy-outs since then but the banks are more risk averse and there are fewer prime candidates available for leveraged buy-outs.  Are the golden days gone for ever? Who knows……

While the old saying “Never mix business with pleasure” can be used too often, in the case of finance it is probably very relevant.  Whether lending money to a friend, helping out with a mortgage application or acting as a loan guarantor, it can get very awkward mixing your personal life, finance and business.  Are you sure you know what it all entails?

Loan guarantors are becoming more popular among close knit families and friends, and with the financial markets ever tighter at the moment, the banks are looking for as much protection as possible.  However, if you are in a position to act as guarantor for an acquaintance or family member, you need to be aware of a number of factors :-

• If the loan goes into default, the banks can chase you for the full outstanding balance.
• If payments are missed or delayed, the bank can chase your for payments.
• You may be in a position to act as guarantor now, but what if your financial situation changes, will it still be as safe for you to act as guarantor.
• You need firm ground rules before setting up such an agreement as there can be no doubts or confusion, as things could get very messy.
• Is your friendship or relationship with the other party strong enough to with stand possible added pressures if the loan goes wrong?
• Can the person taking the loan actually afford it?

What can often start as a favour for a friend has seen many great relationships ruined, and financial losses for both parties.  It is not advisable to mix business and your personal life, but if you have no other option, you need to ensure that you are covered, and there is as little chance of default as possible.

Friendships can soon disappear in the blink of an eye!

While if you listen to the main stream press you would think that the days of negotiating are well and truly dead in the financial industry, this is not always the case.  Even now in the current climate there is still scope to squeeze that extra few pounds out for yourself, whether a delayed payment schedule, a rebate on the set-up fee, or some other perk.  So how do you actually go about doing it?

In order to get the best deal for yourself, you need to be a little up front, but in a controlled manner.  Ask what they can offer you, and how they can assist in reducing the cost a little, because many financial institutions will see set-up fees as their basis for negotiating.  But, don’t expect them to rollover and give your a discount without a fight, it wont happen.  They are in business, and in it to make as much profit as possible!

If negotiating is so wide spread why is it never in the press, and why do advisers never encourage you to look around for the best discounts? This is a regular argument for those who say that discounting does not go on (i.e. the financial industry), and they will do their best to ensure that they can squeeze the last penny of profit out of you.

If you have ever been in major debt, you will know the pressure which it can put upon your shoulders, the effect it can have on your life and your health.  Under this pressure, many sufferers are forced to take out loans to consolidate their debts and try to bring things a little more under control.  All ok so far, but…..

Under such pressure it is human nature to want to pay of your debts as quickly as possible, and this is a trap which many have fallen into.  Do not forget that you were in that situation because you were unable to handle your debts in the first place, and now you need a major restructuring, not just an amalgamation.  Do not fall into the trap of trying to pay off your debts as quickly as possible, you need to live, you may have other expenses in the future, but you can not afford to fall into the same trap again.  Why?

In simple terms, when you first fall into debt this can have an effect on your credit rating, which is why many people will not be able to obtain loans, etc from the normal sources.  However, those who are lucky enough to nip the problems in the bud before they grow, should also be very careful.  Many in such a position will be in the last chance saloon, and need to ensure that they take a structured and sensible approach to their debt solution.  As strange as it may sound, you are better off taking a loan over a longer period than you really need, in order to give yourself some breathing space.

If you take the consolidation loan over a short period, in the hope of rectifying your problems as soon as possible, you have a good chance of falling behind with payments at some stage and falling back into trouble.  Only this time, your credit rating will be lower and you may not have access to the relevant finances to refinance again.

When you are in trouble, you need to take a long term approach as this will give you some breathing space and also allow you to rebuild your credit rating.

As the whole financial sector of the UK takes a more cautious approach to funding issues, the personal loans market is set to become another victim of the ongoing financial turmoil.  We have seen signs from the large banks that due to higher funding costs, they will be looking to increase their loan rates over the short term, and only lend to higher quality customers.  So where does this leave those with credit problems?

The loans sector is set to be even more polarised than normal, with much of the funding to the sub prime area of the market as good as stopped over the last couple of weeks.  There are reports of banks cutting down on the number of loans they are processing, and being a little more choosey about who they deal with.  This has major repercussions for some of the more needy of society who may be struggling as we approach the Christmas period.  So what will happen next?

Unfortunately, the current situation will open the door for the money lenders to step into the breech, with their sky high interest rates and tough repayment terms.  Unless there is a major turnaround in the short term, we may be about to see another wave of UK bankruptcies and  other financial troubles, to add to the woes which are already building up on the economy.

As the Bank of England stated this week, the current problems are the result of lending to sub prime customers over the last 10 years, and it is now that this over stretching is set to hit home.  Quite rightly the Bank of England have stated that they will assist in the markets where absolutely necessary, but there is a natural requirement for the over capacity in the system to feed through.  This will have a major impact on some areas of the UK finance sector, but it will cut away much of the “fat” around the edges.

Market forces got us here, and market forces will bring us back down to earth, but it will be a bumpy ride!

As we leave summer behind in the UK, many are now looking towards Christmas, wondering how they will be able to cope, how they will be able to pay for the children’s presents.  Christmas is a very difficult time of the year for many, when emotional blackmail can actually see the majority of us spend more than we had bargained for.  What are the pitfalls to watch out for?

Do not over spend!

While it may seem obvious, this is the major downfall of many people who are already sitting poised with their credit cards to hand and their eye on the next big gift for their loved ones. This is also the time of the year when your credit card will melt, racking up masses of debt which many people will find difficult to pay off in the new year.  This is the time of you when you need to stay focused and keep to your budget - no matter how hard that may be!

The credit card culture in the UK has never been more alive, and with the opportunity to purchase more and more gifts online, this Christmas seems set to be a bumper one for the retail sector.  Historically, even in times of doom and gloom, people have always found money for the Christmas period, and while it may take until next year to pay off that debt, few will be sitting back on their hands.

How can you ensure that you do not fall into the debt trap?

While it is easy to advise staying within your budget, how many of us will actually do that? How difficult is it not to buy that extra little gift for a loved one, what really is the price of that little smile on their faces as they open their gifts on Christmas day.  Unfortunately to many people, Christmas is a very traumatic time, and these are the people who need to ensure they spend within their limits.

Calculate what you can realistically expect to spend, and if you know that you are going to over spend, then why not look at a loan rather than very expensive credit card debt.  A loan is more structured and provided that you arrange a payment plan that you can afford, you will be able to reduce your debt in a controlled manner.  These minimum payment rules on credit cards can often cause major problems!  

As if the UK debt situation was not bad enough, with more and more people struggling to cover their monthly mortgage payments, it seems that many of the UK’s gamblers are using debt to fund their habits.  A survey by one of the leading money sites on the internet has unearthed evidence that one in eight of the UK’s gamblers use credit cards, overdrafts or bank loans to fund their habits.  How hs this happened?

It seems that the increase in the number of online gambling sites has led to a new breed of gambler, the home based player.  Twice as many online gamblers are using debt than those who use the more traditional bookmakers shops, a figure which again highlights the potential dangers of uncontrolled online gambling.  If the results of the 2000 people survey were replicated for the overall UK population, this would indicate a hardcore of 1 million plus gamblers, 75% male and 25% ladies.

There is no doubt that online gambling has opened up a whole new market, which is attracting a whole new style of gambler.  Increased credit facilities and more and more adverts about gambling sites are starting to take their toll, with associations such as Gamblers Anonymous and the like experiencing a large increase in problem cases.

The UK has one of the most tightly controlled gambling industries in the world, although it has proved difficult to regulate overseas websites which are out of the control of the UK authorities.  The US have attempted to curb this problem by attacking the online payment companies, a move which while highly controversial has had the desired effect.  Are the UK gambling laws about to turn full circle? Or is it full steam ahead for more casinos and  opportunities to gamble?

Over the last few years we have seen a major increase in the amount of junk mail which drops through our letterboxes, not too mention the regular “cold calls” offering the “best service” on the market.  The majority of these marketing strategies are employed by the finance industry, which has always been very aggressive in the marketing stakes.  Is it now too easy to get a loan?

Many will agree that the simple answer to this is yes, with seemingly the whole spectrum of the UK population under siege, no matter if you are a millionaire or a bankrupt.  It is the emphasis on those who may have seen recent financial woes, such as those currently in Individual Voluntary Arrangements (IVA) or those in bankruptcy, which is most surprising.

Research has shown that some of these companies specialising in credit for those with a chequered credit history will regularly trawl the financial press releases detailing those in bankruptcy, and the subject of IVAs.  As you can imagine, these people who are being targeted have had many of their traditional credit routes taken away, leaving them at the whim of those who charge extortionate interest rates, on long term arrangements.  While the financial companies are taking a risk on this type of client, the client is the one who is put under more and more financial pressure.

The authorities have tried to stop this type of activity in the past, but the information is often in the public domain and there is very little which they can do about it.  The competition in the financial sector is as tough as ever, with companies constantly trying new marketing ploys and new areas of the market on a regular basis.

Many are now calling for the financial industry to put its house in order, before much more financial pressure is put to bear on those already in financial trouble.