The Bright Times

‘Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery’
Mr Micawber in David Copperfield by Charles Dickens

My grandmother told me this many times and it is a very true statement, especially in the recent times of high personal debt.Why do perfectly sane people find themselves in situations of spiralling debt? The financial institution must take some responsibility for providing the credit facilities, ever trying to better the competition, coming up with new ways to initiate customers. I believe this started with the 0% transfer, many of us have been tempted by this ‘great way’ of reducing our debt, but do we? Many people transfer their credit card balances to the ‘new’ card and then continue to make minimum payments as the interest on this card is nil. They then continue to use the old card for day to day things. Before long they are back to the same balance with the old card and the 0% transfer rate has run out. Now they have to pay interest payments for both cards, this continues year in year out. It is easy to be completely coned into expensive credit by taking out short term cheap credit.

Now that lending institutions are more than likely going to find it difficult to secure money on the Money Markets, we the customers are going to be squeezed to repay our debts. We can be forced to repay our debts more rapidly by either having higher monthly payments or by increasing the interest rates in order to pay for the customers that default on their payments. In my experience the lender never loses, even if it takes them a bit of time.

At this time of the year we are receiving bills, invoices and statements which confirm we have over spent again this Christmas, what do we do? I have many clients that still haven’t paid for last years and a few haven’t paid for the year before that!

While house prices were increasing we all felt better off, money seemed to be cheap and incomes seemed to go a lot further. But with the last years interest rate rises and the American Mortgage debt crisis we all started to feel the crunch and things started to tighten up.
We must look at ‘cost effective’ ways to reduce our debts in a quick and organised manner.
Ask yourself: -

• What income do we receive into the home each month?
• Look at the cost of your debts i.e. credit cards, personal loans, secured loans overdrafts etc….You will quickly see the expensive ones………...usually credit cards.
• What can I afford to go without?
• What can I afford to pay each month?
• Can I transfer one balance to a cheaper interest rate

You must try and avoid ‘consolidating’ your debts into one larger loan over a longer period. This just increases the interest payable and you will pay more in the long term which usually means you pay for Christmas over 2, 3, 5, years. Not good for long term financial planning!

You must also try and pay more than the minimum. By doing this you will feel much better as the minimum payments will reduce much quicker, therefore in a short space of time there will be less pressure on you to try and meet the initial figures.

I do appreciate that some individuals will struggle to go meet their commitments and other consolidation methods will be necessary, be careful though. Some companies will be calling you at times when you feel there is nowhere to go. They will work out how to reduce your out goings reducing your debt repayment by £100’s per month……..very tempting if you have just paid all your commitments and have still been left short.
You may find your self tied into an expensive loan, secured on your property over a 20 year period with ‘additional’ insurances, plus a huge arrangement fee, for the loan or mortgage arranger to enjoy. There is only one winner here and it won’t be you!

You will hear people say things like ‘I called my credit companies and they have agreed for me to pay £10 per instead of the £250 I was paying…’ Yes this does happen but it is at a cost to you, your credit rating will be severally affected. If you need to buy a new car or have some necessary home improvements carried out, the normal credit facilities will not be open to you. You will have to approach a ‘sub-prime’ lender who in turn will make a very good profit from your hard ship.

Being an Independent Adviser, I will always support any individual who approaches me and discuss their situation. No we are not a charity and will charge fees but you will know what these are before you commit yourself. Sometimes the lender pays us a procuration fee this covers our fees and often it is simpler and cheaper than you think.

I would also recommend you look at what options are available before debt becomes a problem. Too many times I am introduced to clients who have tried to sort things out themselves, it has become too much to cope with and burying their heads in the sand has allowed small problems become major issues.
Paul Barnes Halcyon IFA email : paul@ halcyonifa.org