Finance Matters

Posts Tagged ‘Debt News’

National money education charity Credit Action today revealed that one person is declared insolvent or bankrupt every 60 seconds during the working week.

Based on statistics gathered in the third quarter of 2011, the charity estimates that 331 people are made insolvent or bankrupt every working day and 101 properties are repossessed every day.

The current high level of unemployment is a major factor in tipping people into debt and between August and October 2011 1,764 people a day were made redundant.

The average household debt in November, excluding mortgages, fell slightly to £7,982 in November from £7,995 in October.

When mortgages are included, the average household debt increased slightly to £55,816 in November compared with £55,815 in October.

For the UK as a whole, personal debt totalled £1.451 trillion at the end of November 2011, with £173 million being paid daily in interest alone.

Michelle Highman, Credit Action’s chief executive, advised people experiencing financial difficulties to seek free advice from Citizens Advice or the Consumer Credit Counselling Service.

Last month the Insolvency Service reported a worrying trend for record numbers of young people to become insolvent.

Young people are increasingly turning to Debt Relief Orders, a type of insolvency only introduced in 2009, which wipes out debts after a year unless there has been a change in personal circumstances.

There is a fee of £90 and no need to go to court but although this seems like a quick and cheap solution, the holder of a Debt Relief Order will be unlikely to be able to secure a mortgage, credit card or loan for six years.

Debt Relief Orders are only available to people with debts of less than £15,000, who don’t own their own home and have less than £300 in savings or other assets.

The Family and Parenting Institute (FPI) today warned that families with children will be worst affected by the Government’s proposed changes to tax and benefits.

A study by the Institute for Fiscal Studies on behalf of the FPI suggests that the average income of families with children will fall by 4.2 per cent by 2015-16, representing a loss of £1,250 a year.

For families with four or more children, the average drop in income will be even higher at 5.2 per cent.

In comparison the study calculates that average household income will fall just 0.9%, or £215 a year.

Dr Katherine Rake, the FPI’s CEO said: “This research confirms that families with children are shouldering a disproportionate burden”.

Although the government will launch the phased implementation of Universal Credit benefit from 2013, the overall change for families will be negative, according to the report.

Universal Credit, which will replace Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Housing Benefit, Child Tax Credit and Working Tax Credit, is designed to increase the incentive for people to work.

It is also expected to protect the incomes of the poorest families, however cuts to child benefit for high-earners, a reduction in tax credits and VAT at the higher rate of 20 per cent will all have a negative effect on family incomes.

The FPI’s report has prompted criticism of the Prime Minister’s pledge to create “the most family-friendly government ever” and confirms the charity’s earlier warnings that austerity cuts would hit already hard-pressed families.

Following the Chancellor’s Autumn Statement in November Dr Rake warned that the plans offered “old comfort for stretched family finances”, although she did welcome a promised increase in investment in childcare for two-year-olds.

The number of two-year-olds receiving free nursery care will be doubled, with an additional £380 million a year in funding by 2014-15.

The Office of Fair Trading (OFT) is increasing its scrutiny of payday loan companies after the number of complaints about them soared.

In a report to the Government, the OFT revealed that the number of complaints received by helpline Consumer Direct about payday loan companies more than doubled to 1,535 in the 11 months to November.

In 2010, the number of complaints received by Consumer Direct in the whole year was just 700.

Complaints to the Financial Ombusdman have also increased – by 72 per cent this year, compared with 2010.

Payday loan companies have been found to be breaking advertising rules and the OFT is checking the websites of around 50 firms.

Payday lenders are also failing to check if customers can afford to take out a loan.

They often promise a decision on a loan within minutes, a clear indication that the correct checks are not being carried out.

Rolling over a loan can lead to hefty charges which can soon send a debt spiralling out of control and the OFT is investigating complaints that they do not explain their charges adequately.

Other concerns include the misuse of continuous payment authority, which allow payday loan companies to take funds from a borrower’s bank account even if the account is overdrawn.

The OFT has the power to confiscate companies’ consumer credit licences if they fail to adhere to guidelines.

Earlier this week debt advice groups warned that official data on the short-term loan market is two years out of date.

The Centre for Responsible Credit is calling for a national database of short-term loans to be established urgently.

R3, the trade body for insolvency practitioners, estimates that 3.5 million people will seek a payday loan in the next six months.

The OFT is due to carry out a formal compliance review of the lending market early next year.

Although stores have been forced to start their sales early this year to persuade shoppers to part with their money, nearly a third of people in the UK will go into debt over Christmas.

Fifty-eight percent of this group will put more spending than usual on credit cards and thirty-nine per cent will go overdrawn to fund Christmas according to a survey carried out by YouGov on behalf of banking software company Intelligent Environments.

Others will take out personal loans or borrow money from friends and family.

The survey of 2,015 adults found that 11 per cent of people in the UK will lose track of spending over the festive period and people between the ages of 25 and 34 were found to struggle the most with money.

Sixty-four per cent of this group expect to incur debts or arrears of some kind as a result of Christmas expenses.

Jerry Mulle, sales and marketing director at Intelligent Environments, said: “Christmas is typically a cash-strapped time of the year but as harsher economic conditions start to bite the number of people falling into debt or behind on their payments looks set to rise.

Another YouGov survey, this time commissioned by housing charity Shelter, also highlighted people’s willingness to go into debt in order to buy Christmas food and gifts, to the extent of putting their homes at risk.

Out of 1,029 adults surveyed, one in twelve said they would miss paying their rent in order to pay for the cost of Christmas, and one in fourteen said they would miss a mortgage payment.

Shelter warns that cuts to jobs and housing benefits and the high cost of housing is creating the conditions in which homelessness is likely to rise.

Graeme Brown, the director of Shelter Scotland, said: “We urge people to think very carefully before delaying rent or mortgage payments. It can seem like a quick fix, but can have long lasting implications.”

High levels of interest on payday loans are helping to create ‘Zombie’ debtors – people who can only afford to pay the interest on their debts each month and not the debts themselves.

Based on a study of 2,000 adults, insolvency trade body R3 suggests that around 45 per cent of the population struggle to make their income last until payday and around 3.5 million adults are thinking about taking out a payday loan over the next six months.

Payday loans are short-term unsecured loans, averaging around £300 in value.

According to R3, sixty per cent those who take out a payday loan regret the decision and nearly half believe the loan made their financial situation worse.

The survey also found that young people were most likely to be attracted by a payday loan, with people between the ages of 16 and 24 using this form of credit.

R3 also announced its latest Personal Debt Snapshot, which revealed an increase in the number of people without savings from 19 per cent last quarter to 27 per cent this quarter.

Consumer charity Citizens Advice recently warned of a four-fold increase in the number of people running into debt after taking out a payday loan, between May and July this year, compared with the same period in 2009.

The charity is calling on the government to introduce tighter regulations to protect consumers from payday loan companies who may charge interest rates of more than 4,000 per cent.

While these loans are reasonable if they are paid off as soon as the payment is due, debts quickly escalate if the loan is rolled over.

There are also often associated fees which can sometimes exceed the loan amount.

However Consumer Minister Ed Davey has expressed concern that tighter regulation could lead to people having to turn to illegal loan sharks.