A leading bank has advised Eco conscious consumers, who have been put off from choosing green financial products for fear of accumulating debt, that such products are unlikely to pose a significant debt risk.

A recent spate of media awareness has changed many people’s views towards environmental issues for the better. As a result, a large amount of consumers are opting for green products when sourcing mortgages and other types of finance. For those not in the know, any financial institution that tags the term “green” to any of their products does so on the understanding that a fee will be donated to certain eco institutions.

However, consumers perceive green financial products to be considerably more expensive that there non-green counterparts and are being deterred from buying them as a result. One of the more prevalent banks in this particular arena has defended such claims, saying that additional costs walk hand in hand with the additional benefits of such plans.

Despite consumer concerns, demand for green products is increasing. In an age where the effects of environmental damage are touted as the responsibility of everyone, green mortgages offer climate conscious consumers an ideal means, “to do their bit”.

Credit cards have always been a popular way of attaining credit, however new research reveals that the average UK consumer is likely to spend over £160,000 pounds on cards throughout their lives.

A leading insurance company is responsible for the research and has discovered that as a collective, over 5 ½ trillion pounds will be spent on credit cards alone. On average, each cardholder will spend £3500 per year on a varying range of items and services. Over 25% of people use cards as their primary form of payment for everyday items such as food, petrol ECT.

The research stands as testament to the increased popularity of credit card spending and the overall reliance people put in their plastic as a means to live. However, analysts fear that consumers are increasing their potential debt threshold by using cards for day to day living. Credit cards are extremely expensive if used in such a way, and consumers may come unstuck in later years.

Traditionally, credit cards have provided a convenient means for consumers to make major purchases such as a new car or home improvements. Experts suggest that cards should be used sparingly (if at all) as they can deceptively push people into debt.

Experts have branded a newly released report defining Britain’s attitude towards debt as “scary”.

Its certainly not new information to learn that Britain is in something of a pickle when it comes to consumer debt, what is new however is the way in which we are accumulating debt. One of the most alarming new pieces of information drawn from the report refers to credit card ownership. According to the report, there are more active credit cards in the UK than there are residents. UK consumers are so reliant on using plastic to fund their purchases that they no longer rely on just one card, and in many cases are admitting to using up to 3 or 4 at a time.

Another piece of unnerving information relates to financial planning. Apparently if an unforeseen event were to occur, restricting income (such as unemployment) the average consumer would only have enough financial resource to survive for a maximum of 2 weeks.

The final less serious fact, yet potentially probmatic at the same time, was the response given to surveyors by younger people, when asked about the IVA (Individual Voluntary Arrangement). According to the survey, almost ¼ of those quizzed thought the IVA was a type of accessory for a popular MP3 device. Although young people are obviously unlikely to need an IVA, the fact that they are unfamiliar with the term is slightly worrying.

The reports conclusion, again stresses an apparent ignorance among UK consumers with regards to there finances and suggests that almost 1/3rd of people do not have adequate savings, preferring to “live out” negative financial events with credit.

According to the latest statistics, consumer debt may finally be showing signs of reducing.

No single factor can be directly attributed to the shift in trend, although increased pressure from consumer groups and government departments is thought to have caused the greatest awareness.

Some other primary influences include: -

• Numerous interest rate hikes over the last few months making credit less attractive.
• Greater awareness in the number of people succumbing to serious debt, illustrated through an increase in IVA and Bankruptcy cases.
• Average debt tolerance per individual at an all time high, reducing the chances of consumers being able to acquire new forms of credit.

The actual basis for the decline is drawn from the following: -

• BBA analysis suggests that consumers are spending less on credit cards as a direct result of current interest rates.
• Credit card spending has reduced month on month by approximately £170 million.
• Bank overdrafts and loans have decreased by around £95 million.

Although the UK’s debt crisis is far from over, the news is certainly positive. However, another possible reason for the decline could be due to increased mortgage costs. As a result of interest rises, many people have been stretched to their absolute limits managing mortgage repayments. Unsecured credit may have dropped, simply because there is no way people can commit to anything else.

When it comes to money, making an occasional mistake or rash decision can be easily done. Financial errors are common and most people will make at least one, at some point in their lives. The trick is to learn from your misjudgement in order to ensure that you don’t get caught out again.

However, one of the biggest, repeated “mistakes” made by UK debtors is causing more people to struggle financially than any other, it is commonly referred to as being “financially presumptive”.

What does financially presumptive mean?

In essence, the term refers to people who spend money before they actually have it. A good example would be an individual who purchases a product, with the intention of covering the debt by using either a bonus payment or working overtime. If for whatever reason they are unable to attain the additional funds (overtime is cancelled, or a bonus is withdrawn) they are then unable to cover the cost of the purchase and are subsequently left indebted.

How many people are affected?

Recent studies suggest that some 3 ½ million people are affected financially as a result of spending money they do not have. Approximately 20% of UK debtors can be classed in this way, with the average debt equating to around £2,000.

The solution?

The best solution for the problem is to just use common sense. It is never wise to run up debts, in the hope of clearing them with prospective funds. It is important to plan for any eventualities concerning your finances (bad or good), in order to avoid future complications. In short, you should never live beyond your means and you should never rely on credit or “hope” to take care of your debts.

Monday 14th May 2007 marked the start of Credit Awareness Week. The event, devised to help people understand the implications of credit, has discovered that almost 50% of UK consumers admit to making financial blunders and do not feel in control of their finances.

According to the findings, over 2/3rds of people are prone to overspending and have considered an IVA or even Bankruptcy as a matter of course. A large amount of people blame over stretched debt consolidation loans and “spree” spending as the primary cause of their financial distress.

The data also confirms that around 10% of people have entered into an IVA within the last 12 months, with a further 20% using additional forms of credit to manage their existing debts. 1 In 10 people admit to frequently defaulting on mortgage, loan or credit card repayments.

The general consensus taken from the findings, is that many people have little to no understanding as to how to manage credit, resulting in countless, simple financial mistakes which should have been easy to avoid. Worryingly, large amounts of people are turning to IVA’s as a quick fix to their problems without researching the long-term consequences.

Are department stores and large retail chains contributing to the UK’s debt crisis?

Based on recent findings, conducted by a respected price comparison site, one of the UK’s leading home department stores has been accused of issuing credit cards to customers, who have not requested them.

Government officials are calling for a change in the consumer credit act, in order to prohibit companies from issuing unsolicited credit. As it currently stands, it is perfectly legal for companies to issue credit in the form of cards to known customers, even if they have not directly applied. Officials believe that freely offering credit in this way encourages consumers to spend inappropriately, which in turn fuels further debt. At a time when consumer debt is reaching uncontrollable levels, many deem such acts as being irresponsible.

Currently the large majority of store and loyalty cards are issued through one primary lender, who is responsible for mailing the cards to customers on behalf of their retail chain partners. A Lib Dem spokesman has branded the lender as irresponsible and has reiterated there still pending call for a change in the law, made back in 05 to protect consumers from such practices.
 
Since the call for reform, many more consumers have received credit cards that they neither ordered nor wanted. Consumer’s request card’s for specific purposes and it is wrong for them to be issued in this way. The biggest concern among officials and consumer groups are the rates of interest tagged to such cards, which are typically very high. If consumers do decide to use them as alternatives for spending, they are more likely to run up serious debt.

The best way to completely avoid getting into an unmanageable debt predicament is by “knowing” how to avoid arriving there in the first place!

What would seem like an obvious statement is apparently unobvious to many UK consumers. New research shows that almost 25% of adults are completely perplexed when it comes to managing their personal finances effectively and avoiding the temptation to overspend resulting in debt. It is suggested that many people are unable to plan/manage a personal budget and are constantly turning to credit as a means to fund financial oversights.

It is suggested that the only way to combat the UK’s increasing debt problem, is by attacking at the root of the problem. The UK’s School of Finance has called for a mass re-education on the subject of money management, in a bid to help people avoid the perils of debt. Lessons such as practical budgeting, using cash rather than credit and encouraging people to learn to save on a regular basis are all at the top of the agenda.

A number of recent surveys have discovered that a large proportion of the British population have a misguided view towards their personal finances, and as the debt mountain continues to grow, so to does the need to find a practical solution. Education is actually a very practical way to deal with the problem, but its success is hindered by the fact that many don’t realise they have a problem, until its to late.

In our opinion, re-education should be the second part of a two-tier solution. The first, and altogether more complex issue would be to identify individuals at the early stages of debt accumulation. Once a potential serious debtor has been identified, it is then possible to steer them away from the pitfalls of unmanageable debt. Which unfortunately, is easier said than done!

There are many uncontrollable factors which can cause companies to go Bankrupt, maybe demand for a product or service reduces or changes in the economy make trading conditions to harsh. However, new research reveals that one of the primary (controllable) reasons forcing companies to file for Bankruptcy should be avoidable, as customers delay payment on invoices.

According to a leading payment analyst group, UK business’s become indebted by almost £20 billion each year as a result of late payers. Astoundingly, 25% of all business’s declaring insolvency have stemmed from this reason alone. Research reveals that companies are delaying payments by 8 days longer than when the PPA was introduced in 1998.

At any given point, an estimated 50 per cent of all outstanding invoices are overdue, resulting in substantial job losses as companies struggle to trade. This is in spite of changes made to the late payment act, devised specifically to tackle such issues.

It is also noted that the number of business professionals applying for IVA’s, accounts for a sizeable chunk of the total number of new IVA cases per annum.

According to new reports, debt management organisations are actively targeting heavily indebted borrowers, by paying substantial fees to lenders in order to acquire their details.

It is suggested that DM companies are willing to pay anywhere up to £1,000 pounds per potential candidate who has been identified as non-credit worthy. Reports indicate that DM co’s stand to make large profits from potential IVA candidates, to the tune of almost £8’000 over a 5 year period.

The way in which some companies identify genuine IVA cases has raised cause for concern, and it is believed that a large percentage of active IVA candidates have entered under false pretences. Debt charities are accusing loan companies of farming out potential cases to IVA firms, and are questioning the ethical conduct of such practices.

One of the UK’s leading debt charities reports that a mere 4% of all its enquirers genuinely qualify for an IVA. The bulk of its clients are directed towards a Debt management plan, or Bankruptcy.

Although the data only refers to small percentage of the industry, it is still important for individuals struggling with debt to seek professional, impartial advice before committing to any debt tool.