The cost of hiding your debt
A recent survey has shown that about a quarter of people have credit card debt, an overdraft or some kind of other loan debt that they choose to keep a secret from their family and friends. On average, people in the UK owe just over £4000 in covert debt. A third of people admitted to doing so because they felt that outstanding debt was embarrassing and almost a quarter of people feared their family’s reaction. This environment of shame and fear is resulting in mounting stress and unnecessary stigma surrounding what is a surprisingly common scenario.
A fifth of those people surveyed said that they only felt a compulsion to hide their debt when it became clear that it was getting out of hand. This is the point when you should talk to someone about it, not pretend it’s not happening. The sooner you inform your creditors of payment difficulty, the greater the likelihood that they will be able to come to terms with you on a re-evaluated payment schedule.
The survey found that women are more likely to try to hide their debts than men. However, it was also discovered that men are, on average, about £500 deeper in debt than women. Across both sexes, debt is the third most likely thing for people to lie about, behind the number of sexual partners they’ve had and the amount that a purchase cost.
Essentially, it all translates to somewhere in excess of 12 million people in the UK deluding those close to them about their level of debt. This is putting families at risk of losing their homes and heaping even more stress on top of an already traumatic situation. It is vitally important to the security of your family and to your own state of mind that you face up to debt and confront your finances. Don’t be afraid to seek out the support and debt help that you need. Consciousness of the stigma surrounding financial arrears is understandable but a declaration of bankruptcy is published in your local press.
Avoid this by seeking out professional debt help and advice, or take the test with our loan wizard, which will present you with a list of options to consider.
Debt Consolidation: Borrowing for recovery
Is borrowing a good way to get yourself out of debt? Well, it seems a bit counter-intuitive, but that is the claim put forward by the Chancellor of the Exchequer. Alistair Darling has issued a statement claiming that the most effective way to support the long-term security of the UK economy is government borrowing. His argument hinged on the fact that, as a country, the bills we face will be lower and the repayments easier to service. This is the same principle as is behind the debt consolidation loan for private borrowers. Admittedly, the repayment period will be longer but the monthly payments will be easier to service and there will be extra funds available for other necessary expenditures. On a national scale, this equates to funds for public spending in an environment where it would be politically unpopular to raise tax to pay for them.
Of course, no solution is going to suit everyone. Some people are of the opinion that the overall level of government debt is already too high and that tax rises and a few years of austerity, particularly in terms of cutting public spending, are what is needed to steady the ship. A similar argument may be employed when discussing personal finance. However, private individuals don’t have the recourse to raise taxes. Their income is fixed, assuming they are lucky enough to still have one in the face of rising unemployment. With a fixed income, credit is the only option open to those who urgently need additional funds in order to pay the bills, meet outstanding debt repayment and afford unforeseen expenses.
The argument against extra government borrowing does not seem an encouraging one. Mr Darling suggests that the alternative to extended government borrowing is a decade of low growth and high unemployment caused by a frugal approach to public spending. Again, the Chancellor argued that such a stoic approach to the nation’s finances would put financial recovery in the UK at risk and forsake those most in need during this difficult economic climate. He feels that there will be significant opportunities for growth in the wake of global recovery and the UK would be best served in extending the government debt to invest in the UK economy now. On a personal level, compare this sentiment to a desire to use the favourable cut in interest rates to fund investment in your home. Although the UK housing market is slow, signs of recovery are becoming more evident. To ensure that you are in the best position to take advantage of a return to the boom time, making improvements to your home now could have you ahead of the game.
In an effort to stimulate growth in the UK, the government has channelled billions of pounds into the economy. The technique here has been two-fold. Firstly, by cutting VAT and secondly, through the £175bn quantitative easing programme, which is essentially just the printing of more money. Sadly, this isn’t something we can do as individuals. If we are in a position when we urgently need more money for an unforeseen expense or just to cover the monthly outgoings that seem to be piling up, credit is the only option. With all of the press surrounding national economics and personal debt, it is understandable to be wary of further extending yourself. However, easing your monthly debt burden, making your debt easier to service and freeing up some extra cash is a perfectly reasonable argument for consolidating your debt.
If you are worried about your personal debt problems, try talking to one of our specialist debt advisors. Go online to use their debt wizard, which will help you decide upon a personal debt solution that suits your circumstances. They are also available over the phone to discuss debt consolidation loans, debt management plans and other potential debt solutions.
No such thing as a quick-fix debt solution?
A legal precedent has been set that could well give thousands of British borrowers the ability to renege on their outstanding debt. In this case, a Judge has denied a credit card company the right to demand payment of a debt run up by one of their customers due to their inadequate record keeping.
The Judge found that a credit agreement had been tainted by the manner in which the borrower had been sold payment protection insurance on her credit card purchases. The borrower had not, in the eyes of the Judge, been furnished with the appropriate documents relating to payment protection. Interestingly, these are the very documents that the lender would have commonly relied upon to settle disputes of this manner. For each case that comes up in county court, there is an understanding that it will be tried on the specific factual circumstances pertaining to it and neither set or follow any legal precedent; this is reserved for High Court judgements.
Payment protection insurance enables the borrower to settle their repayments even in the event that they were to fall ill or lose their job. However, complications arose in this case when the lender failed to inform the borrower that they would be receiving commission on the insurance payments from the insurances provider for brokering the deal. The borrower’s barrister argued that the commission being paid to the lender contravened the Consumer Credit Act as it was essentially being kept a secret. In these circumstances, the Judge agreed and found in favour of the borrower. This has given cause for concern amongst lenders as there is now potential for this precedent to undermine other lending agreements that have involved payment protection insurance being sold along with the loan. This could have an effect on a great number of credit agreements, including those for car finance, personal loans and even mortgages.
There has been a great deal of effort on the part of the Competition Commission to curtain and prohibit the sale of payment protection insurance alongside credit. This drive has been in effect, albeit under the radar, since it was outlined in their report of January 2009. This, however, was not the only reason that the judge found the debt to be unrecoverable in this case. A far more damning indictment of lender practice was their inability to provide the court with a copy of the signed loan agreement. This is an established requirement set out by the Consumer Credit Act.
The claims management industry is a relatively modern phenomenon. This year, authorities like the Office of Fair Trading, Ministry of Justice and the Solicitors Regulation Authority have aimed to deter these firms from making exaggerated claims about their abilities when it comes to writing off debt through apparent technical or grammatical errors in the lenders’ documentation. In fact, since April 2007 the Office of Fair Trading has shut down over 100 of these firms. With this in mind, aiming for any quick-fix debt solution is a highly risky business. For anyone struggling with debt, their first action should be to seek professional advice about the best way to deal with their finances.
Britain’s Bumpy Road to Economic Revival
Forecasting group Ernst and Young predict that the wheels may come off Britain’s fiscal revival a couple of times before normal service is resumed. They are projecting a prolonged “VW-shaped recovery,” with the nation’s economy bouncing two or three times before being able to haul itself skyward. This will be largely due to the frugal spending habits of UK consumers post recession and the British government’s ongoing belt-tightening; namely the cutting of VAT and the break from stamp duty.
In the anticipation of government figures which are due to be released at the end of the week, many are predicting that we will see an official end to the recession. However, the nature of the recovery will suggest that we will continue to flirt with recession until 2012. Economic growth will be further dampened by the expected squeeze on public sector spending due to follow the next general election.
The Bank of England’s policy of quantitative easing, that’s printing up more cash in layman’s terms, has gone some way in helping to increase share value but has not yet encouraged general spending. Rather than buying things with their extra cash, consumers are instead using it to pay off their debts. This marks a change in attitude from the heady days pre-credit crunch. The hot topic has definitely switched to economy and this is engendering the nation with a savings culture.
The hotly anticipated release of the latest GDP figures are expected to show a return to growth for the period between July and September. This would bring an end to the run of five contractions so far experienced by the UK economy and draw the worst recession in 30 years to a close. We will have to wait and see if the projected “VW” pattern comes to fruition.
Does the Premiership Face Financial Ruin?
The seemingly untouchable clubs of the Barclay’s Premiership actually run the serious risk of financial ruin in trying to emulate the mammoth spending power of title pretenders Manchester City. This is the claim of UEFA’s general secretary David Taylor.
Since the club’s purchase by Abu Dhabi’s multi-billionaire Sheikh Mansour bin Zayed Al Nahyan, Manchester City have embarked on a high profile spending spree that would put even the most hardened WAG in the shade. City’s astronomically rich owners have funded the signings of a host of big name players, including Carlos Tevez, Roque Santa Cruz and Emmanuel Adebayor.
However, David Taylor feels super-rich Manchester City and a handful of other teams, most notably the Spanish giants Real Madrid, could well be setting an unattainable standard that, should other clubs try to emulate their stratospheric spending, could prove to be a very dangerous precedent indeed. Particularly in relation to the current financial climate, it could well have a destabilising effect on a global scale, not only on the market surrounding the beautiful game but much further afield too.
Liverpool Football Club’s parent company, Kop Holdings, owned by American businessmen Tom Hicks and George Gillett, last year announced losses totalling £42.6m. This was chiefly due to the interest payments being made to service the debt they had taken out in order to buy the club in the first place. Malcolm Glazer, Manchester United’s American owner, had also borrowed heavily to complete his takeover of the English Premier League champions in 2005.
This could well be a lesson for the rest of us. You don’t need to be the millionaire owner of a football club to feel that pressure to keep up with the Jones’. It’s all relative after all. Instead of spending millions on football players, it might simply be the pressure to consistently buy your own budding Beckham the best kit, or to drop tiny Tevez off at training in nothing less that the latest model.
So, could a debt consolidation loan be the answer? It has long been a primary recourse for borrowers facing the gradual build up of unserviceable credit card debt. But could it work for Hicks, Gillett and Glazer? They are no-doubt well used to a multitude of monthly outgoings, so allowing them to consolidate their borrowings into a single, often more affordable monthly payment may or may not be a huge draw. The most common means of facilitating a debt consolidation loan has traditionally been either through a personal loan or by remortgaging. This releases equity tied up in their property.
This procedure of releasing equity from property will be particularly relevant to Arsenal FC at the moment. Arsenal recently announced that their full year profits had risen 24 per cent to £45.5 million. This was bolstered by the sale of additional apartments from its redevelopment of former ground, Highbury. Since then, they’ve reduced their loan from £133 million to £47 million. They achieved this partially through close contact with their bank and also coming to an agreement on a revised repayment date for the remainder pushing it back from April next year to December.
This is a lesson for us all. Keep a close relationship with your lender, reassure them that you’re trying to make the repayments and when the situation becomes difficult, they could be more inclined to help.