Planet Funds

A year-long budget that includes all annual expenses might help Britons who resolved to gain control of their finances this year.

The Consumer Credit Counseling Service (CCCS) advises people to plan ahead to cover regular expenses throughout the year.

People who take the time to write down a budget for every month of the year will benefit, says Frances Walker, a spokesperson for the CCCS.  The exercise will let them identify ways to maximize the money at their disposal.

If people are using more than 20 percent of their annual income to make repayments on loans, they have borrowed too much, says Ms. Walker.  A debt consolidation loan with a single monthly payment may help remedy this situation.

Data collected by Credit Action indicates that debt in the UK amounts to £1,400 billion.

Many families felt the pinch of tighter budgets last year and consequently did not pay all their bills, according to recent research.

The most frequently overlooked of all household bills was the council tax.  Research conducted on behalf of MoneyExpert.com by YouGov indicates that 2.3 million people paid late or did not pay at all.  Energy bills proved to be a problem for 1.3 million people.

As the price of gas and electricity climbs and credit becomes tighter, Britons may have an even more difficult time making their repayments.  The financial advice website warns that this can have serious consequences for consumers.

According to Sean Gardner, chief executive of MoneyExpert.com, it is not disastrous to pay one bill late.  However, regularly making late payments is a sign of trouble.

People who miss a payment may lose access to a service or even end up in court, warns Gardner.

Moneysupermarket.com reports that approximately three million people in the UK failed to make payments on time, resulting in an additional £35 million in late fees, according to data collected by YouGov.

Predictions that personal insolvencies could increase this year may be accurate, according to one industry expert.

The number of persons declaring themselves insolvent in 2008 is likely to rise, says James Falla, director of advice service Thomas Charles & Co., proving experts right.

Rising debt levels have gained wide attention recently.  Mr. Falla points to data collected by KPMG that suggests a 30 percent increase in the number of personal insolvencies this year.

Mr. Falla points out that personal insolvency may take one of three forms:  bankruptcy, individual voluntary arrangements (IVA), or informal debt management plans.

While it is possible to find statistics on bankruptcy and IVAs, data about informal debt management plans is not available.

Some people trying pay back loans may find an answer in debt consolidation loans, according to the price comparison firm uSwitch.

One-quarter of 16- to 44-year-olds surveyed by uSwitch admitted that they were concerned about paying bills that will come due in the New Year.  The study, funded by the Financial Services Authority (FSA), found that more than 50 percent of them could not say how much they spent during the holiday season.

Britons’ interest payments have soared to a record high £93 billion, an increase of £12.7 billion.  The numbers suggest that many may find themselves unable to manage their debt load as family finances continue to tumble out of control.

Britons have enjoyed easy credit over the past few years.  As lenders start to tighten their standards, however, consumers need to be prepared.

In the past six months, 9.5 million adults spent to the limit on at least one source of credit, according to uSwitch.  Nearly one-quarter report that they can no longer manage their debt.

Credit applications are being rejected, according to research which shows that 38 percent of those who applied for a credit card were denied.

The increase in mortgage interest rates has resulted in higher monthly payments, putting many borrowers in a difficult position.  The average household will pay £3,744 in interest charges, including mortgage interest, an increase of £517 over a year ago, according to uSwitch.

Britons have been able to rely on cheap credit for quite some time, says Mike Naylor of uSwitch.  Although the recent drop in interest rates will help, Mr. Naylor worries that it may have come too late to help those in serious trouble.  He advises people to act immediately to prevent a disaster.

A further interesting finding of the uSwitch survey:  13 percent of those surveyed said they planned to get their financial situation under control, while 26 percent admitted that they will probably book a holiday or take up a new hobby.

High expenditures during the holiday season will lead an estimated 130,000 people to bankruptcy, according to accounting firm KPMG. The figure for 2007 was slightly less than 110,000.

Large credit card charges and increasing mortgage payments are adding to the problem.

KPMG expects that some people will be declared bankrupt, while others will complete Individual Voluntary Arrangements (IVA). People with an IVA repay a part of their debt to credit card companies and banks and are able to start anew with a clear financial record.

Many people currently facing financial disaster will attempt to transfer debt to low-interest credit cards or consolidate their loans. Tighter lending standards, however, may force them into insolvency.

In the past, people have found it very easy to borrow more money by taking out a second mortgage on their homes, obtaining a consolidation loan, or getting another credit card, according to KPMG’s Mark Sands. For many, these tactics have been a life-saver.

Mr. Sands expects that access to these products will be limited in the future. He reports that credit card companies are rejecting nearly half of the applications they receive, an increase of 30 percent from pre-crunch days.

High interest rates and the expiration of fixed-rate mortgages have contributed to peoples’ debt burden, says Mr. Sands. These people are now faced with ballooning payments that add an additional £400 to £1,390 per month on a £150,000 loan.

Many people are complaining that banks are using belligerent tactics to prey on those in debt, according to the Citizens Advice Bureau (CAB).

Borrowers who entered into an agreed debt repayment plan through a debt counseling charity are being urged to take out expensive loans to ease their debt load.  The BBC verified that banks have been contacting customers again and again to talk them into loans.  Debt advice charities counsel against this move.

Although he said “no” to his bank’s offer of a “managed loan,” one HSBC customer reported that the bank continued to telephone him in an effort to change his mind.  The managed loan draws interest of 13 percent, two times the interest he is currently paying.

The bank has sent many letters to the customer advising him that they can help with his financial difficulties, a claim he does not believe.  HSBC has agreed to a monthly payment amount, but the bank will lend the money only as a managed loan.

The HSBC insists that it is a responsible lender, and offers managed loans to customers only when all other avenues have been exhausted. 

The CAB reports that many people with considerable debt have attempted to set up a repayment schedule but their bank has demanded more than they can pay.  Some bank customers have asked their bank to work with a debt advice agency, yet the bank continues to call and send menacing letters.

Many people who turn to the CAB have attempted to set up arranged payments with their banks.  The bank has seemingly disregarded the customer’s circumstances and asked for payments higher than the customer can afford.

The British Bankers’ Association insists that banks will gladly work with debt advice charities.  According to the CAB, customers continue to receive calls and letters from their banks even after arranging to work with them.

Banks simply negotiate with intermediaries like money advice trusts, according to a spokesperson for the BBA. 

The average Briton carries nearly twice the debt burden today as in 2000, according to PriceWaterhouseCoopers, the international accountancy firm.  A person who with debt of £17,000 seven years ago is likely to owe £30,000 today.

Rising housing prices and high monthly mortgage payments account for the increase in debt, and experts warn that borrowers could see trouble in the future if the global credit crunch continues.