CUTTING ENERGY COSTS

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In the last week or so, I’ve heard and read lots of advice from those in authority about how to control household energy costs. Some of the advice has prompted responses such as: “they are living on another planet.” (Otherwise known as “they’re having a larf.”)

At the risk of prompting the same response, I’ll wade in with my own “two penn’orth”; two bits of advice that might help people to (a) monitor and (b) reduce their energy costs.

TIP 1: PAY BY DIRECT DEBIT … BUT FOR ACTUAL USAGE, NOT ESTIMATED

“Back in the day”, I used to cover my utility costs by the time-honoured method of paying the monthly or quarterly bill as it came in. This had the benefit that I saw the amount regularly, thus I had the option to do something about it if the costs seemed too high. (e.g. reduce thermometer settings and / or switch suppliers, just as the experts are telling us now.)

The downside: I might forget to pay; in the worst case ignore the bills so long that I’d be at risk of being cut off. It never happened; but it could have.

Then the suppliers came up with Direct Debits coupled with estimated usage; and offered a discount for paying that way. That made budgeting easier; but you can guess the downside; once you got used to that amount going out every month, you were less likely to query it.

But then, if unit costs increased (as they are about to do, again, by an average of 9%; in fact four of the “Big Six” have already increased) and the supplier didn’t advise you quickly, you might suddenly get a letter saying that your payment has to go up by a large chunk. (For example, a couple of months ago, mine went up overnight from £61 to £74 per month, which is a 21% increase; and I’m sure that it’ll soon go up again)

The other downside is that the estimate is often in the supplier’s favour, so that you are paying more than you need to, especially in the summer months.

The solution is maybe obvious to you, but it wasn’t to me. It came from a friend of mine who has lodgers. She needs to know her energy costs on an actual basis, so she can divide them up. So she has a Direct Debit (with the discount that goes with paying that way) for the ACTUAL amount, not the figure that the energy supplier estimates. I don’t know if they all offer this, but it’s worth asking. It seems the best payment solution for all of us.

TIP 2: GET A SMART METER

My energy provider offers a FREE smart meter and I am sure that others do the same. They can help you save money by giving you information, minute by minute, about how much energy your home is using. Here’s their video. (LINK)

“78% of customers say smart meters have changed their energy habits,” according to research undertaken by my supplier, who is one of the “Big Six” energy suppliers that supply 98% of the UK domestic market.

They also say: “Using a smart meter, you could save on average 3% a year on your energy costs. This works out to around £42 a year.” (for the average household)

Only 3%? I have never had a smart meter; but I plan to order one right away. My feeling is that if I know from day to day how much energy I am using at home (this little gadget monitors not only electricity but gas too), then I can save much more than 3%.

The meters make sense. Get one now! I’ll be ordering from my energy supplier, which is E.On (LINK), because theirs is free. If your supplier doesn’t provide one free, then do an online search, as you can get a wide range of energy monitoring gadgets elsewhere. For example go to Nigel’s Eco Store (LINK) or Amazon (LINK).

It is worth shopping around, as prices do vary and there are deals to be had. “Which?” have done a review: LINK.

 

 

PAYDAY LOANS SUMMIT: BUT NO ACTION YET

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Payday loan providers have attracted column inches from many writers, including yours truly. Now these firms have been summoned to a “summit” hosted by Government ministers.

Will concrete action follow?

Here’s a précis of a story in the Independent today.

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 Payday lending: adverts to face ban?

Payday lending advertising could be banned, under hard-hitting new rules being considered by the new City Watchdog the FCA.

The high-cost credit industry (that’s a new term to me) also faces a crackdown on the number of times they can rollover loans; and they may be forced to introduce time-lags, so borrowers don’t end up choosing a lender on the basis of how quickly it can get the cash.

This emerged from a Westminster summit yesterday. Consumer Minister Jo Swinson, who hosted the summit, said there is a need to control the number of loans borrowers are allowed to take out. She intimated that lenders could be forced to set up a central register of borrowers to cut the practice of multiple loans. One borrower reportedly had 34 different loans at the same time.

Ministers were told of far-reaching proposals that could ban daytime adverts on television that target the unwaged and vulnerable people. However the FCA’s Martin Wheatley didn’t rule out a blanket ban on lenders. “That power will be available to us,” he said.

Delroy Corinaldi of debt charity Step Change called for all payday loan advertising to carry a health warning that includes information about the risks of using high-cost credit. “In particular, companies must be clear that loans need to be realistic and affordable and are not a way to deal with long-term financial problems,” he said.

Citizens Advice’s Gillian Guy was keen to see new action on advertising. “Payday lenders need to be clear about who they are targeting. We see daytime television adverts with glamorous celebrity endorsements, targeted at the unemployed and those on low incomes.”

The FCA also announced at the summit that a consultation will be launched in September to decide its approach to controlling payday lenders.

However Richard Lloyd of Which? said: “Positive noises about tough new rules have come out of the summit … but these must now be backed up with more concrete actions than we’ve seen today.”

 

DO YOU WANT TO KNOW MORE?

Here’s the full story from The Independent.

Here’s my last post on this issue.

PAYDAY LOANS IN THE FIRING LINE AGAIN

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Payday lender Wonga has increased its APR by 1600%! It was already eye-wateringly high; it’s now 5853%, according to The Guardian.

That’s prompted lots of media attention and calls for increased regulation. No surprise there.

Simon Read has campaigned extensively on this. In his recent piece in The Independent , he says we don’t need to ban payday loans, just ensure that anyone taking one out should have chosen to do so, rather than “being flogged a deal they can’t afford.”

How do we ensure that? Anyone contemplating such a risky step should get good and impartial advice about their options; and should take a little time before deciding, instead of being rushed into a decision. However, these loans are by definition emergency loans: the borrower either has, or thinks they have, no alternative and no time.

I would never recommend payday loans; but banning them or capping rates would remove, or at least limit, a finance source that for some borrowers and some situations might be the only alternative. More and better advice is probably the answer.

DO YOU WANT TO KNOW MORE?

See some of my previous blog posts on this thorny subject:

HIGHER EARNERS USE PAYDAY LENDERS TOO

SHOULD PAYDAY LOAN FIRMS “FACE INSTANT CLOSURE”? YES AND NO.

“ACCEPTABLE FACE OF PAYDAY LOANS”?

PAYDAY LOANS IN THE NEWS AGAIN

 

HIGHER EARNERS USE PAYDAY LENDERS TOO

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According to the Financial Ombudsman Service (FOS), even higher earners are  falling foul of payday lenders nowadays.

Martin James of the FOS – quoted by Holly Thomas in the Sunday Times on 2 June –  said that “in some cases, lenders (that’s both payday lenders and mortgage providers – Ed.) were found to be unsympathetic with borrowers on higher earnings, assuming they were not in financial difficulty because of the high value of their homes. Many asset-rich people are cash-poor.”

In cases of payday lenders “assuming they were not in financial difficulty”, that sounds like a good excuse. But I don’t imagine too many people would seek funds from a payday lender unless they were in financial difficulty, even if it were only a temporary cashflow problem. And the lenders must know that.

Holly Thomas’s article continues with advice from a variety of impartial experts on how to clear debts:

  • Don’t prolong the situation.
  • Consider downsizing your home if it’s feasible. (That of course assumes you can sell in today’s market.)
  • Ask your lender to vary the terms of the loan; e.g. to extend a mortgage term, or even switching to interest-only. (but the latter only for a period – Ed.)
  • Negotiate a debt management plan with the help of one of the free advice services. (National Debtline, Citizens Advice or StepChange)

WANT TO KNOW MORE?

For the full Sunday Times article (but note there is a paywall), click HERE.

 

 

WHY ARE OVER-60s HARDEST-HIT BY DEBT?

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In my last post I talked about a claim that over-60s are particularly hard-hit by debt nowadays. The claim originated from a report from the charity StepChange, which was picked up by the “This Is Money” website.

I’ve just seen an endorsement of this statement from someone else with financial credibility. Peter Hargreaves is Chairman of financial service provider Hargreaves Lansdown and he writes in their monthly magazine as follows:

“Most of the industrialised world is enduring interest rates lower than inflation.

“There are material implications for savers, especially for people who rely on their savings for income. The problem is further aggravated for the retired, as their personal rate of inflation is probably greater than the published figure.

Official figures take into account many items which have come down in price but which are discretionary purchases. These include consumer durables such as PCs, cameras and other hi-tech gadgetry.

On the other hand staples and essentials – food, power, water, council taxes (??) etc are all increasing in price, meaning that retired people on fixed pensions or dependent on income from their investment capital are the hardest hit by the current situation.”

Hargreaves makes a good point. I have often written that we should not get too hung up on the official inflation rate, because that is an average, based on a “basket” of goods and services. We might not need or want to spend money on all these items in the “average” way, so our own personal RPI (retail price index) is what counts. But he stresses that for older people (and I am one of them) their personal RPI might well be above the official figure.

That’s true; I haven’t bought a PC or a camera lately but I have definitely noticed energy and food getting more expensive. Some of those cost increases I can mitigate by changing my buying choices; but some of them I can’t.

 

WANT TO KNOW MORE?

1. To read the full article by Peter Hargreaves, click HERE.

2. To read the StepChange story from This is Money, click HERE.

Editor’s note: StepChange was formerly known as Consumer Credit Counselling Services, one of the three national independent debt advisory organisations, so they know whereof they speak.

Photo Credit: Public Places via Compfight cc

OVER-60s HARDEST HIT BY DEBTS, CHARITY CLAIMS

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A recent story from “This is Money” surprised me; but I can see now that it should not have been a surprise.

Here’s a summary:

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According to debt advice charity Stepwise, the effect of rising living costs is pushing more and more over-60s into debt. The numbers in the report were pretty dramatic.

The number of over-60s who contacted them for debt advice had increased by 39% from 2009 to 2012.

And in 2012 the average debt of those over-60s was higher than any other age group.

For example, on credit card debt alone, the over-60s had average debts of about £15,000, which was 50% higher than the average of all age groups.

StepChange’s director Delroy Corinaldi talked of a key reason: that ‘those in this age group who are struggling with debt are particularly vulnerable, as their earning potential has diminished’

Another explanation: age campaigners have complained that ‘rises in living costs hit older people harder because they spend a greater slice of their income of everyday essentials such as food, heating and electricity. These have risen in price more quickly than the overall rate of inflation.’

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COMMENT FROM THE BACK TO THE BLACK TEAM:

The facts speak for themselves. And the explanation is totally logical.

The “living costs” part of the explanation was emphasised in a recent article from “Investment News”, the monthly magazine of the investment supermarket Hargreaves Lansdown. I’ll cover that in a future post.

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WANT TO READ THE FULL STORY?

 Here it is!

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THE SILVER DEBT CRISIS: OVER-60S REPORTING HIGHER CREDIT CARD DEBT THAN ANY AGE GROUP AS LIVING COSTS BITE

By ED MONK, This is Money

Published 9 May 2013

Levels of credit card debt are higher among the over-60s than the population as a whole and increasing numbers are resorting to debt advice, a debt charity has reported.

The alarming warning contradicts the stereotype of younger people being the most indebted and highlights the financial difficulty many older people are suffering even after they retire and are unable to easily boost their earnings.

It comes as another charity, Age UK, launched a campaign today to ensure older people claim all state benefits owed to them to alleviate rising living costs. (See below).

Age old problem: Over-60s looking for debt advice have more on credit cards than younger people.

StepChange, the debt advice charity, reported that the over-60s clients that it advises have average debts of £22,999 each, versus an average of £17,635 across all clients. The figures relate to unsecured debt and do not include mortgages.

It is credit card debts that are weighing most heavily on older people. StepChange clients above the age of 60 had an average £15,152 of credit card debt, versus £10,006 for all age groups.

(that’s 50% higher! – Ed.)

The same trend is evident for catalogue debt – £2,026 for the over 60s compared to £1,808 for all age groups – overdrafts – £2,467 compared to £2,026 – and store cards – £2,005 compared to £1,196.

Step Change said that 13,148 people over 60 contacted it for advice last year, up 39 per cent from 9,628 in 2009.

Delroy Corinaldi from StepChange said: ‘Whatever someone’s income level during their working years, most would expect to be in a stable, if not comfortable, financial situation when they are older. Unfortunately those in this age group who are struggling with debt are particularly vulnerable as their earning potential has diminished.’

One possible explanation for the trend may be that older people are unable to easily increase their income, meaning that any debt they have when they stop work becomes unsustainable more quickly than for working people, pushing them to seek advice sooner.

Additionally, this generation had access to higher levels of borrowing prior to the credit crunch.

Age campaigners have complained that rises in living costs hit older people far harder because they spend a greater slice of their income of everyday essentials such as food, heating and electricity. These have risen in price more quickly than the overall rate of inflation, currently just 2.8 per cent.

Charity Age UK reported today that almost a third, 32 per cent, of older people admit to struggling financially, with more than half, 56 per cent, worried about basic living costs such as buying food and keeping warm.

Age UK said that its research showed a third of older people are feeling financially worse off than this time last year, a quarter admitted they had cut back on luxuries and a fifth said they had bought cheaper or less food.

One in five had cut back on heating their home this winter

The charity has launched a campaign to encourage older people to claim all the state benefits they are entitled to. The campaign is being backed by high-profile money saving expert Martin Lewis.

Despite over four million pensioners being entitled to pension credit, Age UK said, a third of those who are eligible don’t claim it. Yet if all those who are entitled to Pension Credit put in a claim, it could boost their income by an average of £1,716 a year.

Michelle Mitchell, Age UK’s Charity Director, commented: ‘At a time when so many people are struggling financially, it is a huge concern that vital benefits are failing to reach some of the poorest and most vulnerable older people in our society. This is money that could make a real difference to their quality of life.’

The call is at odds with Government noises that wealthy pensioners should give up universally available benefits such as the Winter Fuel Payment and free TV licences.

Age UK has just published a new guide – ‘More Money in Your Pocket’  – to help older people claim the benefits they are entitled to. To order the booklet, call Age UK Advice free on 0800 169 65 65 or visit www.ageuk.org.uk/letstalkmoney, where there is an online benefits calculator to show what extra support may be claimed.

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NOTES

1. The debt advice charity StepChange was previously known as Consumer Credit Counselling Service.

2. For more articles on personal finance from “This is Money,” go to www.thisismoney.co.uk

3. For information about my book “Back to the Black: how to become debt-free and stay that way”, click HERE.

Photo Credit: Public Places via Compfight cc

OUR GUEST BLOGGER REPORTS GREAT PROGRESS

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Here’s the latest post from our guest blogger “Ms Silver Screen Suppers.”
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There is good news this month on paying down the debt. My annual bonus from work came in. This would ordinarily mean bathing in champagne, going out for lavish dinners and buying new frocks but as I am serious about getting back to the black I did something very sensible.As Michael advised in his book, I took stock of all my debts and worked out which were most important to pay off. Firstly I owed three friends bits and pieces of money so I paid them. That felt good. I now don’t owe anything to my chums in the monetary sense. I owe them a lot in the spiritual sense of course, but they all now have their dough.

Then I paid off my credit bill. This is a phenomenal step for me. NO CREDIT CARD DEBT – what a feeling! A very weird feeling indeed. I am now going to avoid using the credit card except in the case of emergency and I have requested a form from the bank that will make it automatic that any outstanding balance each month automatically gets paid off from my current account. Clever eh?! This should stop it building up to a ridiculous amount again with me somehow not noticing.

So my immediate debt remaining is currently my £1967 overdraft which is feeling much more manageable.

Next rent day will be the first month that includes the extra £87 so my plan for next month is:

1 – make at least £87 on eBay to cover the rent increase
2 – economise to start reducing my overdraft

For point 2 the main step I am going to take as suggested in Michael’s book is to start living on a cash budget. I will work out my discretionary income, take a cash amount out once a week and live on it. Let the fun begin! I will report back…

MANY THANKS FOR THIS, JENNY!
*****
WANT TO KNOW MORE?
For more info on my book, click HERE
For a link to Ms Silver Screen Suppers’ own blog (it’s not about debt; but about eating and drinking like the stars of yesteryear!), click HERE

WHICH DEBT SHOULD I PAY DOWN FIRST? Free “snowball” program works it out for you.

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There are various ways of calculating how to pay off your debts; and one of them is called the ‘snowball’ method.  I first heard about it on Martin Lewis’ ‘Money Saving Expert’ site.

I was looking for a version to post here; and I saw a version on a site called ‘Living Today Forward’. The site says of snowballing: “This simple methodology was popularized in the US by Dave Ramsey. His strategy focuses on the behavioural part of personal finance, delivering quick wins by paying off smaller debts first and tackling larger debts once you’ve established some momentum.  To get started, all you need to do is list your debts, sort them from smallest to largest balance, and start tracking your progress.

To that end, we are very pleased to offer you a free, downloadable debt snowball spreadsheet in Excel format.  On the worksheet, you will find comprehensive instructions and a simple layout that is easy to follow.  This can be expanded to track your entire debt payoff experience and can also serve as a powerful reminder so you can avoid adding more debt to your life.”

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There’s a link below if you’d like to try that one. However, when I see Excel spreadsheets my brain hurts. So I found another version of the snowball that I particularly liked, on a UK site called ‘What’s the Cost?’

The idea of this site – and again I quote – is “to build a number of free, easy to use, on-line calculators to help you calculate the cost of various financial products such as loans, credit cards and mortgages. Rather than going to a debt management company, or consolidating your loans, this site contains financial tools to help you get debt free yourself!

“You’ll find tools here to help calculate the real cost of loans, the real cost of borrowing on credit cards, how much you could save by overpaying on your mortgage and more.

If you want to find out how much your loan or credit card is costing you, click on the link. This will allow you to enter your debt details and see a full breakdown of your estimated payment details.”

The calculators on the ‘What’s the Cost?’ site seem to be very user-friendly. The site has several; I tried out the one called ‘debt reduction’. It takes account of the fact that on some debts your monthly payment is fixed, whereas on others it’s your decision. The calculator gives you the optimum overall solution, which it will compute based on the data you enter, from up to 20 different debts.

However, before you use it, you need to make an important decision. How much of your spare cash (or ‘discretionary income’, as we say in the trade) are you going to use per month to pay down debt? How much of it will you use for non-essential expenditure … and how much for debt repayment?

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WANT TO GET STARTED ON YOUR DEBT REDUCTION PROJECT?

1. Here’s a download LINK to the Excel spreadsheet from the ‘Living Today Forward’ site.

2. Here’s a LINK to the snowball program (my personal favourite) from the ‘What’s the Cost?’ site.

3. Here’s a LINK for info about my book ‘Back to the Black: how to become debt-free and stay that way.’

ARGO STAR BEN AFFLECK LIVING ON £1/ DAY

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Hats off to actor / director Ben Affleck. His star is in the ascendant again after the success of “Argo” at the Oscars; but this week he’s living on a poverty diet, not a celebrity diet. Along with thousands of others he’ll take part in the ‘Live Below the Line’ challenge, to raise awareness of global poverty.  He’ll subsist for five days this week on $1.50 (£1) a day.

Over on this side of “The Pond”, there’s been a high-profile petition aiming to shame Cabinet Minister Ian Duncan Smith (Work & Pensions Secretary) into living for a while on a newly revised benefit limit of £53 / week, though I’m not sure for how long. Ben Affleck’s pledge is only for five days; but it was made voluntarily, so fair play to him, I say. It seems to me a good way to use one’s celebrity.

WANT TO KNOW MORE?

For coverage of this story in “The Independent”, click HERE.