Help My Debt

The ongoing situation in the credit card sector is convincing consumers to withhold their plastic in favour of funding their holiday purchases with cash instead. 

According to figures released yesterday by cash machine network operator LINK, daily ATM withdrawals for the first ten days of December are up by 7.1% over the last month - previous years’ figures have been closer to 5%. 

This trend goes against predictions made last month by payments association APACS. The company predicted an increase of £53 billion or 4% in total festive retail spending over last year’s figures, which it claimed would be driven by increased card spending, accompanied by a 5% fall in cash spending - dropping from £19.8 billion in 2006 to £18.9 billion in 2007.   

The drop in credit card spending appears to be confirmed by overall retail spending figures released yesterday. Credit card giant MasterCard says shops recorded weak sales for November, causing a decline in the annual retail sales growth rate from 4.5% to 4%.

Christmas credit card debt continues to be a problem for heavy spenders. 

According to new research, one in five Britons will still be paying for their Christmas spending in June. 

One in ten will be paying off their debts in September, and a further 3.9 percent will be celebrating Christmas next year with a hole still in their pocketbooks from 12 months ago. 

Figures released last week by MoneyExpert.com supported the stats, showing 4.4 million people are still paying off credit card bills from last Christmas.

“It never ceases to amaze me how Christmas continues to sneak up on people and how ill-prepared financially they are to deal with it,” said Cesarina Holm-Kander, presenter of Channel 4’s Your Money or Your Wife and speaker at this year’s Your Money Matters Show.

“To those who are spending without thinking about the bigger picture this Christmas, I would like to offer a little reminder - a credit card binge is not just for Christmas, it’s a legacy that could be with you for most of next year, too.”

Despite the increasingly high cost of gifts expected over the holidays, only 50% of Brits put aside any savings in preparation for Christmas. 

The biggest savers are in the north-east, but perversely these are the same people who are most likely to get into debt this holiday period.

Unsurprisingly, London is home to the most aggressive festive spenders in the country, with one in five shoppers dishing out more than £1000 in holiday bills.  Contrast with East Anglia, where frugal spenders average half that - spending £500.

Overall, £53 billion is expected to hit retail counters over the Christmas period - £11.7 billion of that on plastic.

Travelling abroad this Christmas could cost you more than you think. Many credit card companies charge an extra 2.75% in commission for purchases made overseas – a fact most shoppers are unaware of, according the Post Office.

The Post Office is warning consumers to be aware of “hidden” fees. With holiday travel a favourite pastime for thousands of Britons, many people could be hit hard over the Christmas period. The first they will learn of it is when they see their credit card bills in the near year – too late to do anything about it.

Consumers can avoid unnecessary stress by doing all their holiday shopping at home. This advice is strongly voiced by Post Office Lending Director Gary Fitton: “For many people, going abroad for Christmas is a great way to relax and not have to worry about cooking Christmas dinner. However, many people could be returning from their Christmas break with a lot more than just ‘memories and mementos’ due to hidden card charges.

“Regardless of where people are travelling this Christmas, we are urging holidaymakers to ensure the only baggage they return with is the luggage they are carrying and not unnecessary card charges.”

The top three destinations this year are Spain, the US and France, making up 17%, 8% and 6% respectively of the total travelling trend. According to the Post Office, 49% of these festive voyagers will be pulling out their credit cards while on vacation.

Research firm Abbey has released poll data revealing that 46% of women and 41% of men are ‘financially overweight’. Their spending habits are irresponsible and lazier than necessary, which can lead to excessive debt and unwanted fees if left unattended. 

Just 1% of consumers scored ‘financially fit’ on Abbey’s survey when it came to banking habits, credit card usage and shopping around for the best deals. 

The survey tracked financial fitness on a percentage scale, with zero indicating an athletic level of financial discipline, and 100 showing ‘financial obesity’. 

These worrying trends are borne out most clearly during the Christmas holiday shopping rush.

Sue Hayes, Director at Abbey, offers this advice: “We encourage people to review the financial products they hold and to shop around to ensure that they are getting the most competitive deals available. Like exercise, a financial workout can take a bit of effort but for most people the rewards are well worth the exertion.”

Overall, the study found Wales to have the fittest average population, recording 42% of people overweight, while northern England showed the most dramatic statistics, with 46% suffering some degree of financial weight crisis.

Older people often find it more difficult to obtain loan approval than their younger peers. 

The justification given by banks and lending agencies stems from concern over whether older applicants will live long enough to pay back the loans offered. 

An independent review of the Banking Code conducted by banking consultant and former Bank of England executive Mike Young recommends that banks take pains to avoid such discrimination. 

Meanwhile, a representative of the British Banking Association gave the opinion that the Code should not be altered on this matter – factors, such as age, that contribute to a proper assessment of loan viability should not be dismissed out of hand, nor should they become obstacles to good lending policies. 

Mike Young’s report, which was received last month to mixed reactions, recommended greater clarity on loans and savings accounts and a more responsible attitude towards consumers who represent a credit risk to banks. 

The report was criticized by consumer groups for not being tough enough on issues such as bank charges. 

The right of lending institutions to practice age discrimination has been upheld, the BBC reports.

Interest rates, which have been on the rise since August 2006, are expected to be cut today by the Bank of England following the monthly meeting of the Monetary Policy Committee (MPC).  Analysts predict the cost of borrowing will drop from 5.75% to 5.5%. 

Global Insight’s Howard Archer has commented that this month’s rate decision is “one of the tightest calls ever”. 

One of the primary factors behind a likely cut, according to experts, is that the rate at which banks lend to one another has recently shown significant growth.  This has led to a sharp economic downturn and a repeat of the summer’s credit crunch. 

Reuters reports that the decision rests on a “knife edge” as the MPC is forced to balance conflicting economic pressures.

The British Bankers’ Association (BBA) has agreed on a new set of industry standards for people applying for Individual Voluntary Arrangements (IVAs) to help control their debt.  Banks and providers have worked out agreements that standardise advertising, advice, information and documentation relating to IVAs.

The standards, due to be implemented by Feb 2008, are intended to make the IVA application process more “streamlined”, the BBA says. 

BBA Chief Executive Angela Knight explained that the new standards would help to reassure people in debt that they are making the right choices for their financial futures. 

“People need to know that when an IVA is proposed, it is the most appropriate solution,” she said. 

During the second quarter of 2007, 26,956 people were declared insolvent in England and Wales.

The Citizens Advice bureau is advising people to plan ahead for holiday shopping in order to minimise higher than usual expected debt due to high interest rates, slow wage growth and rising prices.   

Last year, the most common Citizens Advice enquiries were about arrears on loans and hire purchase, catalogue and mail order debts, credit card debts and overdrafts.

As director of policy at Citizens Advice, Teresa Perchard appreciates the growing debt problem better than most.

“It is very easy to get carried away at Christmas and spend on the spur of the moment, especially if people leave it until the last minute. But every year, we see a huge increase in debt problems immediately afterwards.

“With a little forward planning, Christmas panic buying can be avoided. We hope that these top tips will help people take control of their money as Christmas approaches so they do not start the new year with a debt hangover.” 

Citizens Advice, in conjunction with Barclaycard, has released a set of tips reminding people to be smart with their money this festive season: 

Plan early for Christmas

Be realistic and budget. Work out how much you can spend on each person – and stick to it. 

Do not forget everyday bills

Remember rent, mortgage, utility bills, food bills, council tax and other existing debts must still be paid. The consequences of missing these bills can be severe. 

Do not bank on an overdraft

Do not run up an overdraft without talking to your bank first. Unauthorised overdrafts are an expensive way of borrowing. 

Avoid shop credit offers

Avoid extended credit agreements, such as ‘buy now, pay 2009′ unless they really do work out cheaper. Aim to pay outright for goods by cash, cheque, or debit card. 

Read the small print of any credit offer to make sure monthly installments are within your budget before you sign. 

“Interest-free credit can seem attractive, but if you don’t pay on time, or miss a payment, you might have to pay a lot more,” Citizens Advice warns.

Shop around

Price comparison websites make it easier than ever to find the best prices for goods. With shops expected to slash prices this Christmas, shopping around could really cut costs. 

Consider extended warranties

The cost of a repair could be less than the cost of the warranty. Don’t forget you have the right to reject goods that are faulty. 

With a little forward planning, the new year won’t seem so daunting.

By the new year, the credit crunch will be in full swing, and people seeking a personal loan or mortgage are being urged to apply before Christmas. If they wait, they risk losing out entirely. 

Loans are becoming more difficult to secure – one in ten lenders abandoned the market after GE Money, Leeds BS and LV= announced they would no longer be offering unsecured loans. There is no sign of a letup and people are being warned to prepare for increasingly turbulent market conditions. 

Esther James, personal finance analyst for Moneyfacts.co.uk, is advising anyone considering a personal loan to act quickly. 

“With less choice, a more cautious lending strategy and the impending decision on payment protection insurance sure to shake up the market, the 2008 loan market could look very different,” she said. 

Not only is the borrowing process becoming more stringent, but wait times are also increasing. Lenders are making people wait. 

Katie Tucker, technical manager at mortgage broker John Charcol, offers the following explanation: “The credit crunch means that even the balance sheet lenders who have funds available are in no hurry to price themselves into popularity because it could bury them in business and ruin their service levels.” 

At the Woolwich, for example, calling for an update means queuing for an hour, and getting a new application even looked at involves a wait of at least a week. 

Tucker emphasized that it is vital for borrowers to allow extra time for applications.  The temptation to delay until after Christmas could cost remortgage customers an unexpected month on an unfavourable high rate if they revert to their lender’s SVR while they are waiting.

Potentially thousands of credit applications may be rejected by banks during the holiday season.

According to accountants PricewaterhouseCoopers (PwC), repayments are becoming a problem for an increasing number of consumers, leading to profit slumps for many credit card providers. Also contributing to the slump is a rise in competition in the sector. The firm’s Precious Plastics 2008 report claims that £4 billion has already been lost by credit companies as a result.

The figures provided by PwC represent just a small part of the problem. The UK continues to experience worrying debt trends, with the average British adult owing £33,000 in unsecured loans – twice what it was in 2000.

Richard Thompson of PwC warms that the situation is not likely to improve any time soon. “Banks are continuing to take action in response to the rise in consumer debt by tightening their credit acceptance policies. Many consumers will find it increasingly difficult to obtain credit in the run-up to Christmas.”