Debt & Bankruptcy Issues in the UK

Personal debt has risen drastically in the town of Bury St Edmunds in the last two years, according to the Citizens Advice Bureau.

In the last two years personal debt has increased in Bury St Edmunds, according to charity the Citizens Advice Bureau (CAB).

The amount of rent arrears in the area has increased by a full 100 per cent over the last two years to £24,251, reports the Bury Free Press.

A total of £2,286,000 of debts has been racked up by 135 people who have turned to CAB for help to manage their financial crises.

Janine Pinel of Bury CAB, told the newspaper: "I think it is going to keep increasing because of the market at the moment for consumer debt.

"The fact is that it is relatively easy to take on debt and there aren't any measures in place to prevent people getting into debt."

Tactics used by lenders to advertise loans are too "pushy" and "forward" Ms Pinel added.

According to the national statistics more people in England face the possibility of losing their home since the early 1990s.

A ban on advertising for loan offers was one tactic suggested by CAB to combat the rising tide of debt in Bury St Edmunds.

According to debt charity Credit Action, the total amount of credit lending to consumers in the UK in 2006 stood at £211.8 billion.

In a new report the Association of Payment Clearing Services (Apacs) says that credit card spending may have “leveled out” as even though credit card spending increased just 1% over the past year, the amount of transactions also decreased by 1%. During the same period, the number of people who fully paid off their credit card debt increased from 56% to 59%.

Contradicting most other reports, Apacs says that people have become more cautious about how they spend and use their credit cards.

"Our figures show that UK credit cardholders are reining in their spending and concentrating on repayments - a trend which has continued throughout this year," said Sandra Quinn of Apacs. “Nervousness about economic growth could well have contributed to the reduction in credit card spending and higher repayments, alongside media speculation about whether consumers are borrowing responsibly."

Still, the use of debit cards has continued to grow and they have continued to rise in popularity ever since they overtook the use of credit cards in 2001. In 2005, more people used debit cards to make payments, than they did cash as £89 billion was spent using debit cards compared to just £81 billion in cash.

Small businesses are increasing their debt rapidly, according to new figures from the British Bankers Association.

Small business debt is rapidly rising, according to new figures released by the British Bankers Association (BBA).

In 2005 small businesses increased their overdraft debt by a full ten per cent, approximately £8.8 billion.

Lee Tillcock of Business Moneyfacts, commented: "There is a wide range of fees and charges associated with an unauthorised overdraft on a business current account.

"Charges can range from four pounds to £30 per day or up to £30 per debit, a potentially costly mistake for any business to make.

Even if a small business does financially survive late payments, they cold create a black mark on the company's history, added Mr Tillcock.

Also, as a credit rating becomes worse, options for switching providers also narrow, Mr Tillcock continued.

Recently, a survey found that small businesses are writing off at least £14,000 every year in bad debts, reports thisismoney.co.uk.

Business loans could sometimes work out as a cheaper option for smaller businesses in need of an injection of capital.

Currently the Office of Fair Trading (OFT) is investigating the charges levied by banks on late payments on overdrafts.

The investigation will be completed by 2007, according to the OFT.

Earlier this year, the OFT forced credit card providers to lower the amount that they charged on late payments to £12.

Most of those seeking help with debt are in the red by £10,000 or more, according to The Debt Counsellors.

Of those seek help for their debt problems, at least 70 per cent owe over £10,000, according to the latest debt survey from financial advice company The Debt Counsellors.

And more than one in ten of those seeking advice have debts of over £50,000, the survey discovered.

The UK's overall personal debt is growing by £1 million every four minutes.

John Porter of The Debt Counsellors said: "We are seeing many cases where a large amount of money is owed.

"However, even the smaller debts are a cause for concern because a change in personal circumstances, such as redundancy, illness or bereavement, an economic downturn or a rise in interest rates could make the problem much worse."

Even the most dire cases of personal debt do have solutions, such as individual voluntary agreements (IVA), added Mr Porter.

The Debt Counsellors advises all those who are struggling with unbearable amounts of debt to seek advice before anything else.

Recently, Brunel Franklin set up burnadebt.co.uk, a free website which gives consumers a completely free test, which the website claims take about 60 seconds, to see if they are eligible for an IVA.

The company which set up the website, Brunel Franklin, is one of the foremost mis-sold endowment specialists in the UK.

Spiralling personal debt could mean some homeowner are dispossessed.

Homeowners could lose their homes because of mounting personal debt, the Citizens Advice Bureau has warned.

A new survey reveals that an alarming 770,000 property owners have missed their mortgage repayments over the last year owing to insurmountable debts.

The bureau has advised home owners not to take out any more unnecessary loans or credit cards and is currently calling on lenders to check that their customers have the resources to pay back their loans.

David Harker, the chief executive of Citizens Advice, says the results were expected. "These figures do not surprise us. Local Citizens Advice Bureau helped people to deal with 1.25 million debt problems last year and see many people with mortgage and rent arrears, he said.

"We are very concerned about the numbers of people who are missing payments. Missing payments on mortgages or secured loans could lead to arrears and possibly repossession. There is a clear need for more information and advice about the consequences of taking on financial commitments, particularly for younger adults."

A report conducted by the Joseph Rowntree Foundation revealed that court orders for repossession orders had doubled between 2003 and 2005 reaching a new high of 33,000. With more homeowners saddled in debt the figure is expected to increase.

The former head of Halifax Intelligent Finance credit cards, Jim Howarth, has suggested that all credit cards have "wealth warnings" on them to help their users avoid getting into uncontrollable debt.

Consumers, especially young people, are not informed enough about the sometimes exhorbitant rates of interest that they will have to pay on a credit card debt, according to Mr Spotswood.

However APACS, the UK payments association, disagreed with the need for wealth warnings, arguing that they are not needed and wouldn't have the desired effect anyway.

Spokesperson for APACS, Jemma Smith, said:"We definitely feel that they are not necessary. For a start a 'wealth warning' on your card would be so small as to be unreadable and therefore pointless."

"We would prefer that the industry collaboratively makes the lender aware of the need to borrow responsibly before they pull their card out of their wallet."

People are borrowing responsibly already, added Ms Smith.

Up to 59 per cent of cardholders pay off their credit card debt in full each month, according to APACS.

However, Lisa Taylor, spokeswoman for MoneyFacts.co.uk agreed with the need to include credit warnings on cards, as she said it is not "immediately obvious" how much interest people are paying.

The debt situation in the United Kingdom continues to worsen after a new record number of people are filing for bankruptcy and tens of thousands are at risk of losing their homes and many of their personal assets.

Lending accountants and politicians are urging people to think about their financial situation and be smart with their financial decisions as currently, 23,251 people filed for bankruptcy in England and Wales. This number has not been this high since the 1960’s.

According to the Department of Trade and Industry (DTI), the latest debt totals show a 13% increase from the last three months and almost a 75% increase from this time last year. There have also been well over 30,000 court action is both England and Wales in the 1st quarter filed by mortgage lenders threatening to take homes if debts were not paid immediately. This is a 29% from last year.

Concern over the rising numbers of people tempted to sink too deep into the red to cope was heightened by other figures showing a surge in court actions by mortgage lenders to repossess homes.

“A growing buy-now, pay-later culture has led to seriously high levels of personal insolvencies,” Mike Gerrard, of Grant Thornton, the accounting group, said. He and other accountants predicted that the number of personal bankruptcies will top 100,000 this year — with 259 people a day becoming insolvent.

Pat Boyden, of PricewaterhouseCoopers, said “We are paying the price of a spend-now-worry-later culture. Record personal insolvencies are the result of a debt culture which has become endemic in the UK.”

Even though Individual Voluntary Arrangements (IVAs), the most popular alternative to bankruptcy, is picking up steam, record numbers of people are still filing for insolvency.

Lee Manning, a partner in Deloitte, the accountants, said: “Bankruptcy has become a much easier process [and] now typically lasts only one year. Why would a person struggle the pay off a debt mountain when filing for bankruptcy is much simpler and, in many situations, a much shorter-term solution.”

Not only are people filing for bankruptcy, according to the latest reports, almost 3500 companies went bankrupt in the first quarter of 2006, a 7.6% increase from the last three months and a 17% increase from last year.

Further aggregating this problem is the constant threat of rising interest rates that will make it even harder for those in debt to pay off what they owe.

The government needs to step in and do something as this problem spirals out of control.

A pensions research institute has hit out against the government's recent white paper, saying that it will not solve current problems with the pension system. The Pensions Policy Institute (PPI) has said that the system is too complex and leaves too many people uncertain of their futures.

The paper proposed a system whereby centralised employer pension accounts for each worker are automatically set up by the government, which allow private schemes to be combined with current state benefits and thus placing more responsibility on the employer and the individual to contribute to a private scheme.

"Auto-enrolment into private pension provision has potential advantages which should lead to an increase in the number of people saving for their retirement," said Niki Cleal, director of the PPI. "But the white paper may set unrealistically optimistic expectations for what personal accounts can achieve," she cautioned.

Ms Cleal added: "The PPI would like to see more detailed analysis to establish whether alternative state pension reform options could provide a better foundation for personal accounts." In the current climate, many pensioners are finding that a homeowner loan is the best way of releasing capital and managing their income.

The Office of Fair Trading needs to strongly enforce advertising regulations for lenders and ensure more transparency, according to the National Debtline.

Debt advice service, National Debtline, has called on the Office of Fair Trading (OFT) to further enforce regulation and make lenders more transparent.

The call came in the wake of the OFT forcing The Personal Loan Phone Limited to change its advertisements in three national newspapers.

When the advert failed to give the typical APR more standing than the statement "Fast Unsecured Loans", Consumer Credit Advertisements Regulations were broken, the OFT judged.

Beccy Boden-Wilks, a spokesperson for National Debtline, said: "I think from the money advice sector we would like to see these companies advertising what the implications of their financial products are as clearly as possible.

"The fact that they (OFT) have pulled these adverts is a really good move.

Hopefully other companies will take notice of the decision and change their advertisements, Ms Boden-Wilks added.

National Debtline would not support an all-out ban of the advertisement of personal loans, however the advice line does wish for more transparency in such advertisements.

Currently Britain's level of personal debt stands at over £1 trillion.

Recently the OFT forced banks and credit card companies to lower the fees they charged for late payments to £12.

Before this, many had been charging as much as £25 or £30.

A new guide for students on how to use credit cards has been published by the Institute of Chartered Accountants of Scotland.

As a wave of new students embark on their academic careers, many will be in charge of their own finances for the first time ever.

With this in mind, a guide to using credit cards has been published by the Institute of Chartered Accountants of Scotland (ICAS) and the National Union of Students Scotland, reports the Glasgow Evening Times.

The guide is an attempt to help students avoid the crippling debt brought on by irresponsible use of credit that has affected so many of their contemporaries across the UK.

NUS Scotland president Jill Little, told the newspaper: "Dealing with queries on crippling student debt happens all too often in student unions but this guide is required reading for students."

Meanwhile, according to research from Scottish Widows, the majority of those aged 18 to 23 fear for their financial future, while the older generation is more confident.

Some 61 per cent of those aged 55 and over feel confident about their finances, while 73 per cent of young people are fearful that they may end up in debt or bankrupt.

In September, total personal debt in the UK exceeded £1.25 trillion and total credit card debt stands at £55 billion, according to debt charity Credit Action

CAB has highlighted the worst offenders for sending out unwanted credit offers by post.

The Citizens Advice Bureau (CAB) has named and shamed the top offenders for sending consumers unwanted credit offers through their mailboxes.

MBNA, Lloyds TSB and Capital One were all named by the charity as "serial offenders".

Capital One was the most prolific creator of junk mail, according to CAB, sending out some 20 million credit offers a year, of which an average of one per cent are responded to.

A spokesperson for CAB said: "The letters can encourage people who may not really be able to afford the credit they have been offered to take that particular product.

"We see evidence of people who perhaps have a history of problems with credit being sent these types of unsolicited letters by lenders who specialise in loans and credit for those who have these particular problems."

Consumers can sign up to the Mail Preference Service which will remove one from the list of junk mail recipients, added the spokesperson.

CAB stated that it wants consumers to get a "fairer deal" when it comes to credit.

Recently new research was performed by Datamonitor which discovered that the UK has the highest level of personal debt in Western Europe, at almost double the average of other nations.

The Post Office has made commission-free credit available for those using its credit card overseas.

Consumers who use a Post Office credit card can now enjoy credit overseas with absolutely no strings attached.

The Post Office announced today that they have lifted all charges for using their credit card beyond the UK's borders.

It has become normal for many credit cards to charge hidden fees and large interest for any credit transactions being carried out overseas.

Additionally, the Post Office has also extended its interest-free period for balance-transfers from six to eight months.

Gary Fitton, Head of Post Office Credit Card, said: "Most credit cards charge 2.75 per cent on every transaction made overseas.

"People become frustrated when they see it is costing them more to use their credit card abroad. We have listened to this and we have acted – now our customers have got one of the best deals going."

As the UK's largest provider of foreign currency, the Post Office currently offers a zero per cent commission 78 currencies.

Spain still remains Britons holiday destination of choice, according to the Office of National Statistics (ONS).

The number of visits abroad made by residents of the UK has tripled in the last 20 years, according to ONS data and two thirds of visits abroad were for holidays.