Debt consolidation vs. debt management: a comparison
January 11, 2012
There are solutions for dealing with all kinds of debt, whether you’re on the verge of bankruptcy or simply trying to make managing your finances easier.
Two of the most common debt solutions in the UK are debt consolidation loans and debt management plans. Each solution is designed to help with very different circumstances.
Debt consolidation loan
A debt consolidation loan is a new loan used to pay off existing debts. This means you’ll effectively be replacing several different debts with just one, which can make budgeting a lot simpler. You should also be able to reduce your monthly payments by repaying the new loan over a longer period than the debts you’re consolidating.
Unlike many debt solutions, a debt consolidation loan won’t harm your credit rating - in fact, it could improve it, as long as you keep up with your payments. However, if you do choose to extend your repayment period, you’ll probably pay more interest in the long run.
Read more about debt consolidation loans on this site.
Debt management plan
A debt management plan is a new repayment plan for people with unaffordable debt repayments. It works by reducing your unsecured debt repayments to a level you can afford once you’ve covered your other essential costs (e.g. food and bills).
Your lenders don’t have to agree to this, but are likely to do so if you really can’t afford your debt repayments. All being well, your reduced payments will continue until you can afford to make full payments again (or if that doesn’t happen, until the debts have been paid off).
Because it involves paying less than you originally agreed, your lenders will only accept a debt management plan if you really need it. For the same reason, it will affect your credit rating, with records of your lower payments staying on your credit history for at least three years.
Read more about debt management plans on this site.
Low earners owe 20 percent more than they earn each year
July 18, 2011
It has been revealed in a recent report that people on lower incomes tend to owe around 20 percent more in unsecured debts than they earn each year. This includes debts such as credit cards and loans, with many lower income earners struggling to stay on top of repayments for their debts.
Whilst there are now many people who are struggling with their debts, including some middle earners, it is still the low earners that are having the biggest problems according to the debt charity, the Consumer Credit Counselling Service. Many of these lower earners have become increasingly reliant on credit cards and loans due to the financial climate, which has seen living costs soar, wages being frozen or cut, and bills rising.
The debt charity said that people who were earning less that £13,500 per year tended to owe around 20 percent more on unsecured debts than they earned annually. For example, someone earning £10,000 per year owes around £12,000 in unsecured debt, which is 20 percent more than they earn.
According to the CCCS there are also many people who are earning between £13,500 and £25,000 per years who have contacted the charity because they do not have enough money left each month to deal with their debt repayments, suggesting that the problem is also getting worse amongst those earning slightly more than lower income earners.
The Consumer Credit Counselling Service stated: “Unfortunately, these figures confirm our fears - that troubled times lie ahead for many people in the UK. This pain is going to spread wider and affect many more people than commentators previously assumed.”
Another industry group said: “Many people who scraped through the recession are going to find the next few years even harder.”
Many will struggle with finances for years
May 30, 2011
There are already many people across the UK who are struggling with their finances and are finding it very difficult to cope with the increasing outgoings and their problem debts. However, according to a recent report the situation could continue to get worse for many working people in the middle and lower classes as a result of the amount that they earn compared to the amount that they are having to pay out.
A leading think tank, Resolution Foundation, has recently claimed that it could be another few years before workers in the middle and lower classes see any form of increase in their salaries. However, whilst workers are left languishing on frozen salaries the cost of living continues to soar, which means that more and more workers are going to find themselves in a situation where they cannot stretch their finance far enough to cope with their essential living costs and debt repayments.
The cost of food, energy usage, petrol, car insurance, and other living costs has been soaring over recent months, and many expect these increases to continue. However, if workers are left without a sniff of a pay increase until at least 2015, which is what the report claims, it is going to become increasingly difficult for them to manage. In addition to this, if the base interest rate increases many homeowners could see their repayments rocket, making a bad situation even worse.
James Plunkett, who authored the report, said: “We all know that the recession has hit living standards hard. But something deeper has changed in our economy — even during the so-called boom years, ordinary workers weren’t seeing their living standards rise. The big question now is what will happen when growth resumes — will ordinary workers reap any of the benefits? This report suggests that is far from certain.”
Many cannot sleep because of their debts
April 2, 2011
According to a leading debt charity there are many people that are unable to sleep as a result of their debts, which are causing them huge amounts of stress and worry. Many people are now in huge levels of debt and are over-committed when it comes to their budget. This is causing them a lot of stress and impacting on their sleep as well as on other areas of their lives, such as their health, work, and relationships.
The charity also said that there was a good chance that these problems could continue to get worse as a result of possible rising interest rate increases, pay freezes or wage cuts, government cutbacks, and continued rising living costs, all of which have impacted on the budgets and finances of many people. More and more people are now turning to debt charities because of the problems that they are facing according to reports.
The debt charity, the Consumer Credit Counselling Service, said that in one night alone they had received 50,000 calls between the hours of midnight and seven in the morning. Out of these calls around fifteen thousand of them had been received between midnight and one in the morning.
One official stated: “Consumers have seen their pay frozen for the last few years while the cost of running a home and getting to work has soared. This means that we have less pounds in our pockets. But with inflation now hitting 4.4 per cent and almost six in ten of the workforce is seeing a pay freeze, households are facing an uphill struggle that may only get tougher next year. By this time next year, the squeeze on our spending power could look a lot worse.”
More people likely to need debt advice this year
February 18, 2011
Over the past few years more and more people have fallen into a debt trap, and have been left struggling to try and keep their heads above water financially because of the challenging financial and economic climate that is hitting so many people across the country. The demand for debt advice over the past couple of years has soared, and with a rising number of challenges set to hit consumers this year there are fears that this demand could continue to rise.
A number of industry experts and groups have painted a bleak picture when it comes to personal finances in 2011. Recent reports have suggested that the number of personal insolvencies is set to rocket despite the fact that there was a drop in insolvency numbers if the last three months of last year. The Consumer Credit Counselling Service has also said that it has already seen a surge in the number of people using its online credit counselling tool, and that this demand is likely to increase sharply over the course of this year.
In January around 8591 people are said to have used this online debt counselling tool, and this was twice has many as the previous month. It was also the higher than any month in 2010. Many of those using the service may have been struggling with their Christmas and New Year debts, but there are many other factors that are to affect consumer finances this year, including higher living costs, increased VAT, job losses, and possible interest rate hikes.
Delroy Corinaldi, CCCS External Affairs Director, said: “The next year will be very difficult for many people and I am concerned that those struggling with debt will end up being charged for debt advice because they are unaware that free advice and support is available. I hope that the availability of this free service which can be used at any time online will help prevent people paying for debt advice unnecessarily.”
Financial education vital for younger people
February 1, 2011
A group of MPs from different parties have formed an alliance to try and get financial education in schools. The MPs say that this education should be mandatory, and that it could help many younger people to avoid the same financial pitfalls and problems that many people are facing at present. Personal debt problems have soared over the past couple of years, and many are now facing dire problems with their finances.
It is hoped that if the initiative is successful younger people would leave school with a far better grasp on finances and how to manage money. This could help them through many financial challenges in life, and enable them to steer clear of debt and ensure that they have savings. With youngsters these days facing huge difficulties when it comes to things such as student loans or getting a mortgage it is thought that this sort of education has become vital as part of the curriculum.
There are many groups and organisations who are backing the group of MPs, who have formed the All Party Parliamentary Group, which has become the biggest of its kind. Amongst the groups and organisations that are backing the APPG are the Citizen’s Advice Bureau, Which?, and the Personal Finance Education Group.
The APPG stated: “Young people are entering an increasingly complex financial world of store cards, mobile phone tariffs, credit agreements and financial marketing. Through my MP casework, I have seen first-hand the implications for those who have made poor decisions, too often through a lack of understanding. I am passionate that financial education is the best way to equip all young people with the relevant skills to make informed decisions and empower them as consumers. I have been working hard to secure cross-party support to help champion this cause, so the next generation is equipped to confidently address the financial challenges ahead.”
A quarter of consumers struggle with credit card debts
December 28, 2010
According to recent reports around a quarter of borrowers are struggling to repay their credit card debts, and this is a figure that could get worse following the intense spending that has been done on plastic over the Christmas period and during the ongoing sales.
A report was released by the Bank of England showing that around 25 percent of credit card users were already struggling to cope with their credit card debts, and with so much spending having been done on credit cards over the Christmas period, and more expected over the New Year and during the sales, the number of people struggling with credit card debts could increase sharply.
Credit card companies are set to come under new regulation from this weekend, and this could go some way towards helping those crippled with interest costs charges by their providers, as it means that the credit card firms will have to allocate repayments to the higher interest debts on the card first rather than to the cheaper debts, as is the case with most providers at present.
For many people credit cards are the only form of credit that they can get due to factors such as their credit or financial status, and many therefore have no other option when it comes to borrowing. However, it is possible for those with decent credit to switch to a lower interest card, or even transfer their balance to a 0 percent balance transfer card, in order to make their credit card debt more manageable.
In its report the Bank of England stated: ‘Interest rates on unsecured debt tend to be much higher than mortgage interest rates and appear to have been less sensitive to the changes in monetary policy (interest rates).’
Many still paying off loans and credit cards from last Christmas
November 30, 2010
Industry officials have said that many people in the UK are still paying off their credit card and loan debts from last Christmas, but many are planning once again to borrow for Christmas spending again this year, despite already being in debt. For people that still owe money from last Christmas and who then take out a loan or credit card for this year could find themselves facing spiralling debt issues.
Nearly two and a half million people are said to be still repaying their debt from last Christmas, and many therefore do not have any available cash to pay for this Christmas. It is thought that a large number of people will be relying on credit again this year to help pay for things like Christmas gifts, entertainment, clothing, and going out, and this will leave many with a financial hangover when January comes around.
It is thought that many people will be paying for Christmas this year by borrowing money, and according to research around 55 percent plan to borrow on credit cards to pay for this Christmas whilst around 3 percent are planning to try and take out a loan in order to fund the cost of Christmas. Roughly 25 percent of consumers in the UK are hoping to be able to cover the cost of Christmas by using their savings.
An official from ConsumerIntelligence.com said: “Christmas is only one day in the year but the financial effects appear to last all year for a substantial number of adults. Around 14% of adults got into debt as a result of Christmas spending last year and many are still paying for that. Using a credit card for Christmas spending makes perfect sense as long as you have a repayment plan and are not just running up debts which you will not clear.”
Use the internet to get debt advice
November 20, 2010
Many people these days have a lot of debt that they are dealing with, and in the current climate it has become increasingly difficult for those in debt to maintain repayments and make their finances stretch far enough. With high levels of debt to deal with, and the difficult financial climate making it harder to manage debt, many people have flocked to get advice from debt charities and agencies with regards to how best to ease the financial strain.
However, the number of people seeking debt advice from agencies and charities has soared over the past couple of years, and these charities simply don’t have the resources to deal with the increase in demand for their services. This has resulted in those seeking debt advice having to wait for weeks or longer to get to see someone about their financial worries rather than the few days that they may have had to wait in the past.
Having to wait all this time can be a problem for many people, as many may need advice much quicker than this because their financial situation is spiralling out of control. Rather than sitting there fretting about your debt whilst you are waiting to see a debt professional it is worth taking steps to get more information yourself.
The Internet is a great place to start when it comes to learning more about how to handle your debt problems. Of course, you may not find all of the answers online, as this is not the same as speaking to someone that has specialist knowledge and can address your specific situation. However, you should find a range of tips and a lot of advice that may be general but could still prove helpful.
By going online for debt advice you can learn more about the different options that may be open to you and whether you would qualify. You can also find out more about different debt agencies and charities, so if the waiting time with one is too long you can try others to see whether you may be able to get an appointment to see someone sooner.
You may even find the solution to your debt problems online, as you can find out more about saving money on your monthly outgoings, courses of action you may be able to take yourself such as contacting your lenders, or how better to manage your finances to make it easier to keep on top of your financial commitments.
More people could need help with debt problems
October 15, 2010
A recent survey has suggested that a greater number of people are likely to need debt and advice and assistance now than three years ago. The conclusion was reached following a survey of household finances, which looked at the amount people saved, spent, and had left over each month compared to three years ago.
The results of the survey showed a much bleaker picture than three years ago, with millions of households now worse off in terms of their finances. The global financial crisis and the recession has played havoc with the finances of many people and for many debt problems are becoming more and more of an issue.
The research was carried out by Legal & General to form part of its MoneyMood Survey, and the results showed that nearly three million households across the UK were no longer able to save money like they were just three years ago. It showed that around 2.8 million households were now in a worse financial position than they were in 2007.
The survey also showed that there had been a significant reduction in the expense cover, which is used to describe the number of families who had cash left over to spend once all of their bills and financial commitments were paid.
In September 2007 research showed that around 60 percent of households had money left over to spend once household bills and other financial commitments had been paid each month. However, in September of this year this had fallen to around 50 percent.
Mark Gregory, executive director of savings at Legal & General, said: “Right across the country, no matter where they live, people are reporting that they’re worse off now than just a few years ago.”
Many consumers aware of debt levels
September 16, 2010
It has been suggested following recent research that many consumers in the UK are aware of their debts and taking care to manage them as effectively as possible. A recent report suggested that many people were aware of their debts, including credit card debt, and were taking steps to manage their debts.
The recent survey was published by Accountz, and over 92 percent of those that were polled as part of the survey were said to have been fully conscious of the amount of debt that they had to handle. An official from the company said that it appeared that many consumers considered their debt levels to be a serious issue, and were keen to get it sorted out.
As part of the survey the group also looked at overdraft facilities being used by consumers, and the results of its survey showed that just over 30 percent of consumers had not used their overdraft facilities recently. Quentin Pain from Accountz said that it appeared that repaying debts was becoming an increasingly major issue for many people, and something that a larger number of consumers were looking to focus on.
Pain stated: “Interestingly over the past 12 months this level of debt has only increased by 0.8 per cent which is relatively flat year on year.” He also said: “This high level of awareness over personal debt indicates that now more than ever us Brits are becoming more astute in money management.”
He also went on to address the issue about consumers owing the taxman money as a result of computer problems at HM Revenue & Customs, stating that tax officials needed to ensure that they were lenient and understanding with those that were trying to focus on repaying their debt.
What route to take to sort out your debt problems
August 30, 2010
There is little doubt that these days many people are experiencing severe debt problems, and given the difficulties faced by consumers over the past few years with the global financial crisis and the recession taking their toll, it is not surprising that so many people now have huge debts that they are struggling to repay.
However, it is important to ensure that you look at all of the different options if you are in this situation before you plunge in headfirst to a solution that may not be best suited to you. There are many companies that prey on consumers in debt by trying to convince them that insolvency measures such as IVAs or bankruptcy is the best option, but this is not always the case.
Before looking at options that will have long term financial implications such as insolvency consumer should consider the other options available to them to assist them in sorting out their debts. Some of these are outlined below:
Going through finances
Some people think that their financial situations are worse than they actually are, and many are surprised to find that they are able to save a fair amount on their outgoings simply by making some simple cutbacks. Whilst it is nice to be able to spend whatever you want it is important to know when to cut back, and if you have debts to pay then this is the time to make these cutbacks. It is therefore advisable to go through your finances and see where you can cut back on your spending.
Speaking to your creditors
Often creditors are more understanding that they are given credit for providing they are informed of the situation in plenty of time. Therefore if you are struggling with repayments on a loan or debt it is important to speak to the creditor right away rather than hoping that the problem will resolve itself. This way there is plenty of time for the creditor to go through your situation and find a solution that will suit both of you.
Speak to a debt management professional
Another option is to speak to a debt management professional or charity, as they will often go through your finances with you to see where you can save money, and can also speak to your creditors to see whether more favourable terms can be negotiated to cut your repayments.
Income and outgoings set to cause consumers problems
September 22, 2008
The governor of the Bank of England, Mervyn King, has recently highlighted how below inflation wage rises coupled with soaring food, petrol, and living costs are set to cause many households severe problems over the foreseeable future. Mr King warned households in a recent speech to brace themselves for some of the most challenging times that many may have yet faced in terms of their finances, with outgoings set to far outweigh income levels in the current economic climate. Read more
Landlords falling into serious arrears
September 4, 2008
According to a recent report a rising number of landlords are falling into serious arrears with their buy to let mortgages, with the number of landlords now three months behind with their repayments rising to over ten thousand. Since the onset of the global credit crunch borrowing costs have gone up, availability of mortgage products has come down, and credit conditions have become far more difficult, and this has hit lenders, homeowners, buyers, and now landlords. Read more
Debt management firms may be able to write off debt
June 2, 2008
As most people are aware the level of personal debt amongst consumers in the UK is very high, and with borrowing costs rising, the cost of living on the up, and increases in a range of bills, many households have found themselves facing severe financial strains over recent months. As a result of this an increasing number of consumers are looking for ways to try and ease their financial problems, and those with a high level of debt have found themselves having to look at various solutions in order to be able to stay afloat financially. Read more
Don’t look upon insolvency or equity as an excuse to get into debt
May 26, 2008
A recent report from the Personal Finance Research Centre has suggested that many people in the UK may be looking upon equity or insolvency opportunities as an excuse to get into high levels of debt, as they think that they can easily get themselves out of financial problems by bailing out using either the equity from their homes or through declaring themselves insolvent. Read more
Drop in insolvency numbers
April 11, 2008
A recent report has shown that the number of people that are being declared insolvent in the UK has fallen across England and Wales. The third quarter of the year saw a drop of 3% on the previous quarter in terms of personal insolvencies. The third quarter of the year also saw a drop of 5% in the level of personal insolvencies compared to the third quarter of last year. Read more
Debt advisors prepare for increased enquiries
March 11, 2008
With thousands of homeowners in the UK due to come off fixed rate mortgage deals in the coming months, debt advisors are preparing themselves for a massive influx in enquiries, as consumers see their mortgage repayments rocket and try to keep on top of their finances. Those affected are homeowners that took out fixed rate deals in 2004 and 2005 for a two or three year period. Many enjoyed a low fixed rate of just 4.24% but with their fixed rate period coming to an end will now see their interest rate shoot up to the lender’s standard variable rate. Read more
UK sees rising repossession levels
February 24, 2008
According to recent reports the UK continues to see rising repossession levels after millions of homeowners with variable rate mortgages were left struggling to repay their mortgage following a series of interest rate rises over the past year. The base rate has gone up five times since last August, and has resulted in the base rate shooting up from 4.5% to 5.75% after five rises of 0.25% each. For homeowners with variable rate mortgage this has meant a massive overall rise in repayments. Read more
Avoid getting into too much debt if you are a student
January 30, 2008
Experts are warning today’s students to make sure that they do not get themselves into too much debt, and to keep the long term effects of debt in mind when taking on finance whilst at college or university. Being a full time student can be difficult in terms of finances, and many students end up getting into high levels of debt whilst at college or university, which can make life difficult when they leave education and go out into the ‘real’ world. Experts are therefore urging students to be careful about getting into debt for frivolous reasons. Read more
Lenders may be able to flag up struggling borrowers more easily
January 27, 2008
Bad debt levels in the UK have caused huge problems for lenders and finance companies over recent years, and lenders have been increasing stringency and looking for new and inventive ways to not only recoup the losses from these bad debts but also to avoid taking too high a risk when it comes to offering finance. In the past this has proven difficult for many lenders, and they have fallen victim to bad debt despite running credit checks and credit scoring on potential borrowers. Read more
Is the insolvency road about to get busier?
January 19, 2008
Over recent years more and more people have been turning to insolvency in order to escape mounting debt that they can never hope to repay. The past couple of years has seen an increase in the number of glossy advertisements relating to IVAs (Individual Voluntary Arrangements) and this has raised awareness amongst consumers with regards to this possible course of action. Read more
Avoid insolvency in 2008
January 18, 2008
It is at this time of year that many people suddenly realise just what a mess their finances are in, having spent far more than they could actually afford to over the Christmas and New Year period, and having suddenly realised that they are in huge levels of debt that they cannot possible hope to pay back. Read more
Bankruptcies could be fuelled by Christmas spending
January 17, 2008
Many consumers in the UK are still taking stock of the amount of money that they have spent over the Christmas period, and industry officials are now concerned that the level of overspending by some consumers could now lead to a rise in bankruptcies. Many officials have expressed concern that the first part of this year will see bankruptcy levels rocket, and many people are expected to declare themselves insolvent as a direct result of overspending over the Christmas period. Read more
Bankruptcy hell during first few months of the year
January 15, 2008
Some experts have stated that the frivolous spending that many consumers indulged in over the Christmas months will now result in bankruptcy hell over the first few months of this year, with the first three months seeing the level of bankruptcies fuelled by over the top Christmas spending. Read more