Concern for Christmas on credit cards

Think Money, a leading financial solutions company, has urged would-be borrowers to consider how they’d pay everything back should they turn to credit in the near future.

With the festive season fast approaching, many people will be covering the cost of Christmas on credit cards, store cards and other forms of credit. It can be a quick and convenient way of spreading the cost of spending at this time of year – and with the base rate at an all-time low, may be an attractive option for some people.

However, there are concerns that borrowers without an adequate financial plan or a strict budget could have difficulties repaying what they owe.

An expert at Think Money commented:

“Financial planning is as important as it’s ever been – especially when it comes to borrowing money. Those of us who are managing well financially may be thinking about making a big purchase on credit – whether that’s home improvements, a new car or a holiday. That’s fine, just as long as those people have planned out a budget and are sure they can afford their repayments.

“Similarly, some people might be making a New Year’s resolution to get their finances in order. For some, that might involve taking out a debt consolidation loan to simplify their finances and set out a clear plan for repaying their debts. This can be a good way of managing debt, but borrowers still need to make sure their repayments fit in with the rest of their budget.”

Getting into debt has become an integral part of growing up it appears and we must all have witnessed at some time or other the heartbreak that this awful addiction has inflicted upon family members and people that we know.

The surprise is that it continues unabated, our ‘must have it now society’ is fuelled by easy borrowing and credit cards despite the banks making it more difficult to do so.

There is also no longer any stigma attached to the process of being made bankrupt and the consequences thereafter, it is almost seen as part and parcel of the deal, made all the easier in recent times by companies specialising in this area who can rid personal debts at the click of a finger while lining their own pockets.

The credit crunch has only served to highlight the problem that has been growing year on year for decades and it is quite scary seeing the details from this infographic and wondering what the future holds for a nation that is unable to pay its way out of debt.

Infographic by Money Debt & Credit

• We would like to thank the charity Credit Action for their help with core statistics

The information is supplied by money.co.uk and clearly illustrates how the rich and poor divide in the UK could be set to increase dramatically as various groups face up to the possibility of losing up to 20% of their income.

While some groups stand to suffer a loss in their income others could actually benefit from the cuts.

UK Debt

Over one in four (41%) have had debt outstanding on their credit card account for more than a year, the research by Moneysupermarket.com also revealed.

And almost one in ten (9%) said that they only pay off the minimum amount on their credit card debt each month – significantly lengthening the amount of time taken to repay the debt and increasing the amount of interest paid overall.

A debt expert at Gregory Pennington commented:

“Credit cards are not ideal for long-term borrowing, because of the relatively high interest rates they tend to carry. Many people with credit cards start out with the intention of repaying the debt before the interest can start to mount up, but it’s very easy to delay repayment if other things get in the way.

“Making the minimum repayments will usually cover the interest charged, but little else, meaning the debt can take a very long time to fully pay off. All the while that debt remains a burden, and if the borrower gets into financial difficulty the situation could become serious.

“However, all this can usually be avoided with proper planning. Although credit cards have flexible repayment options compared with things like personal loans, it’s wise to set yourself a timescale for repaying credit card debt.

“For those who do plan on borrowing money and repaying the debt over a longer period of time, a credit card with a 0% interest period may be an option, or for repayment periods of longer than a year a personal loan is likely to be more appropriate.”

Gregory Pennington is a founding member of DEMSA, the Debt Managers Standards Association, which was established in 2000 ‘to promote good practice in the debt management industry’. DEMSA’s code of conduct has received Office of Fair Trading approval, under its Consumer Codes Approval Scheme.

For more information, visit the Gregory Pennington website

Not only are people finding it hard to make money, but they are also finding it very difficult to pay off the bills and the debts that they have. Many people spent a lot of money that they did not have because credit was so readily available. Now that there are financial problems, people are not able to afford paying their creditors back, which is creating an even larger problem in the economy. Debt is running rampant and there are very limited ways of stopping it. Many people feel like they have no place to turn to and no place to hide when it comes to settling their debts.

There are several bad things that can happen to a person that does not settle their debts. This is why there are many ways to help people that are having financial difficulties to get out of their debts. In fact, because of new ways to do this, getting out of debt has never been this easy before.

One way to get out of your debts is to contact a debt consolidation company to help you negotiate your finances. They will talk to your creditors to help you make a new payment plan. Some of these companies can also help you to eliminate the debts all together by talking with your creditors. These firms are usually very large and very easy to find when searching online or in a directory. They want to help their clients get out of their debts and be able to work and to live without having to worry about creditors coming and taking hold of their possessions.

These firms will usually have a small introductory charge that has to be paid for their services. If they are able to decrease your debt they may charge you a percentage of what you have saved, but this is much lower than the cost of paying off the debt would be.

Another way to get out of debt is to work with a debt management company that focuses on changing how you spend and what you do with your money. These firms will send out employees to review your finances and look at all of your expenses. They will find what you are spending money on that you really do not need and help you to control these expenditures. Many of these people can also help you to increase your payments to creditors without feeling like you are breaking your pocket book.

If you would like further advice, you can find information on the National Debtline website.

The key to beating your debt problem is to tackle it sooner rather than later. If you regularly receive warnings over late payments then start at a very basic level. If you haven’t yet devised a weekly budget then write one out and stick to it. Key to overcoming a debt problem is being aware of it and its severity; burying your head in the sand and ignoring credit card statements won’t make the problem go away.

Once you’ve developed a budget and are confident in its feasibility, it’s time to take a long, hard look at your outgoings. If you’ve been made redundant and are experiencing cash flow problems then a budget may be easier to stick to – it is often more difficult for people used to weekly or monthly treats such as big nights on the town or regular shopping trips. If you’re prepared to show a bit of self determination and cut back on life’s little luxuries, you’ll find your finances get back in shape sooner rather than later.

Credit cards are a fantastic way of borrowing money and, if used correctly, are the cheapest too. There are an incredible number of deals available, and if you can get zero per cent on purchases and balance transfers for a year, you’ll be laughing – providing you remember to pay off your debt as early as possible. There is a flip side however – if you get it wrong, don’t do your research and fall behind on payments your debt problems can intensify and last for a number of years.

It should be remembered that there are two types of debt. Debt by itself is not a bad thing; it’s something that the majority of us will have to utilise at some point or another in order to advance in life. Without debt, very few people would be able to go to university or buy a house, and if used correctly it can be an invaluable tool. The distinction is with bad debt, which really began to emerge during the economic downturn and subsequent recession.

A spiral of bank collapses and redundancies began in September 2008 with the collapse of US financial services company Lehman Brothers. Many people who lost their jobs began to really struggle with their debt after losing their incomes, a situation that can rapidly turn into a living nightmare. But if you’re in a stable job and still experiencing debt problems, what can you do to curb your expenditure?

The danger with credit cards is that people use them to supplement their everyday spending, something that is easily done because of the lack of structure surrounding this particular form of borrowing. While this has obvious advantages in terms of flexibility, those less responsible can soon become reliant on their plastic friends. How many times have you seen the person in the queue in front of you at a clothes outlet, restaurant or music store pay using a credit card rather than a debit card?

If you want to use your credit card correctly, make sure that any expenditure is planned, budgeted for and as inexpensive as possible. A sign of an impending debt problem is reaching for your credit card to ease the outgoings from your bank account. If you find yourself in this situation, stop and think whether you can really afford or need what you want to buy, and whether you may be able to a few weeks or a month further down the line.

Every credit card holder should strive to be a responsible borrower, and this isn’t simply a case of borrowing as little as you can and drawing up a budget. You might be the most prudent spender among your family and friends, but this will mean very little unless you’re able to pay the debt back quickly. It’s also true that the faster you pay it back, the less expensive it will be – and if you’re saving money, you’ll be able to afford more things. Simple.

Arguably the best way to keep track of your credit card expenditure is online. You could wait for your monthly statement to fall through your letterbox, but with lenders stepping up their efforts to be more environmentally-friendly and use less paper, this is becoming a less common way of finding out how much money you’ve borrowed and how much you owe. Instead, register your credit card and bank account to be available online and have access to both via your bank or lender’s website.

While this is great way to keep tabs on how much you’re spending, customers are encouraged to be vigilant against phishing emails. These special types of spam emails are designed to steal your money. How do they work? Well, it’s pretty sneaky – they trick you by being cleverly disguised to appear from your bank or financial services provider before encouraging you to type in and submit your details. Once the phishers obtain these, they have full and unrestricted access to your cash.

The good thing is that there is no need to be caught out. The golden rule is to never, ever click a link and enter your password, even if you believe it to be from your bank. If it appears genuine, it’s always a good idea to give your bank a call to check or visit their website directly.

With these tips, you can look forward to living a life free of debt problems, providing you follow the few simple steps. Once you’re able to track your spending online, you’ll become more confident about sticking to your budget and, in time, begin to reap the financial rewards.

M C Hammer was bringing in millions during the early 1990’s and when he eventually decided to file for bankruptcy in 1996, he had squandered his way through $33 million. His trademark was the parachute pants that he wore on stage. These were huge around the hips and tight at the ankle, and he is said to have spent a great deal of money on these alone. He was certainly a lavish spender and never stopped to make sure that there was more money coming in than was going out.  Maybe some credit counselling would have helped.

Andy Gibb had a lot of success in the late 1970’s and moved in a top social set with other celebrities, but ten years later he had become addicted to drugs and was performing wherever he could get work, just to keep some money coming in. In 1987 he went bankrupt and died just under a year later.

Top country singer Willie Nelson who is known all over the world, made millions of dollars, but faced quite a shock in 1990 when the IRS slammed him with a bill for unpaid taxes. $16.7 million is no small amount and his amassed fortune was not enough to pay it. Willie released an album entitled ‘The IRS Tapes: Who’ll Buy My Memories’ which paid off his tax bill and left him free to start again. He was one of the lucky ones who avoided bankruptcy.

Statistical data showing debts in UK –
•    Total personal debt in United Kingdom during July 2009 end was £1,457 billion.

•    Total secured lending(dwellings) at the end of the 7th month 2009 stood at £1,226 billion

•    Household debt (average) in UK is approximately £9,226. This however doesn’t include mortgages. And this figure (£9,226) escalates to £21,457 if the average is calculated on the basis of households that have unsecured loans in some form or another.

•    During the same period (end of July 2009), consumer credit lending was recorded as £231 billion.

•    If we include mortgage, the average household debts in UK stands at £58,280.

Some of the commonly availed debt help options in UK include the following –

1.    Debt Relief Order (DRO)
Earlier if you had huge debt load to wrap up, you could so by filing bankruptcy. This was till early 2009 and especially if you had no cash back up and had a huge debt load of unsecured debts. But that wasn’t a cost effective method of debt help. So, the DRO or Debt Relief Order was introduced in April 2009 that works in a similar manner as bankruptcy but is meant for debtors having “limited financial means”. Debtors from Wales and England are eligible for DRO.

2.    Debt consolidation
When you opt for debt consolidation, you merge all your debts into one loan. You can either opt for an unsecured or a secured loan to make payments for your debts.

3.    Bankruptcy
Bankruptcy is a debt help option that can allow you to start managing your finances afresh. In this a trustee will sell off the “permitted” assets so that the creditors can be paid off.

4.    Administration Order
This is similar to debt consolidation in which you consolidate all your debts into a single debt account. The only difference between debt consolidation and Administration Order is that in the latter, you are required to pay the court which in turn pays off your creditors.

5.    IVA or Individual Voluntary Agreement
Enforced by the Insolvency Act 1986 in UK, Individual Voluntary Agreement or IVA is a debt help option that allows debtors to stay away from bankruptcy. In this the debtor shells out an amount that he can afford to pay every month. This is done for a stipulated time period within which the debtor has to pay his debts (the amount that has been agreed upon) in full.

6.    Debt management
This form of debt help will allow you to pay off your debts as per a repayment schedule that is worked out between you and your creditor. You can get rid of your unsecured loans with a DMP. You have to make monthly payments.

7.    Trust Deed
A voluntary agreement between you and your creditors, it is a bankruptcy alternative and works similar to an IVA. But this is restricted to residents of Scotland. Hence, it is also referred to as Scottish Trust Deed.

The above debt help options have many debtors get out of debt and enjoy financial freedom. Choose the one that suits your need best and regain your financial stability.