Category Archives: Personal finance

This category contains information on how to deal with personal debt. It is based on the fact that I went through a serious debt crisis in the late ’90s. I was very close to filing for bankruptcy but I found another way, so I am always keen to pass on what I learned from that experience.

HIGHER EARNERS USE PAYDAY LENDERS TOO

Posted on by

1

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?

Posted on by

1

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

Posted on by

3

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:

***

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.’

_______

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.

________

WANT TO READ THE FULL STORY?

 Here it is!

_________

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.

_____

 

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

Posted on by

1

Here’s the latest post from our guest blogger “Ms Silver Screen Suppers.”
_____
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.

Posted on by

0

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.”

*****

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?

***

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

Posted on by

0

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.

 

 

ATTACK ON THE NAIL-VARNISH MOUNTAIN: CONFESSIONS OF AN IMPULSE BUYER

Posted on by

0

(Another guest post from Ms Silver Screen Suppers*)

I am not a very well groomed woman.  I rarely paint my nails for example but somehow or another I seem to have accumulated over 40 bottles of nail varnish.  This is a tangible example of the fact that I am a total impulse-buy junkie.  I must stop being such a spendthrift.

This month has been all about fact finding and I have given myself quite a scare over the state of my finances. Michael’s book arrived in the nick of time and it has given me faith that I can tackle things head on rather than continuing to live beyond my means and get deeper and deeper in debt.  I am ON IT.

As Michael suggests in his book I sat myself down and worked out the extent of what I owe and decided on my goal.  I am going to try and reduce my debt by 50% by the end of 2013.  This will involve me doing two main things:

1 – Living within my means – using my salary to cover my living expenses and not overspending.

2 – Bringing in some extra money to pay down the credit card and overdraft debt.

I made myself a little spreadsheet showing everything I spend monthly on rent / bills / travel and things that are “must do” items.  When I subtract these from my salary I am left with £550.  So weekly that’s only £126.  Gadzooks – this isn’t much for a clothes-horse like myself who likes pretty things to wear and nice food and drink…

It has shown me that there is no way I can put my head in the sand over my impending rent rise of £87.  If I just carry on regardless, spending willy nilly and having a fine old time that would leave me with £39 a week to live on.  Impossible.

My debt is going to grow and grow unless I take massive action right now.  I need to bring some money in, fast.  I also need to cut back on my spending somewhere.  As I seem to be spending over £100 a week on groceries this is the place I am targeting first.  There are about 1500 pasta shells in my food cupboard so I am going to use up the cheap staples that are stockpiled – pasta, rice, bulgar wheat and some strange green stuff called freekeh.  I’m going to get organised about taking lunch to work so I’m not spending a fiver on something that would cost me a pound to make myself.  I’m going to stop buying so much booze, and I decided last month not to drink at home on my own. (see note ** below)

I will need to bring in at least £87 a month to even maintain the status quo once the rent goes up in May.  Ebay here I come – I am planning a blitz.

Luckily this month has been a bountiful month.  My figures will be skewed as I got a a bonus from work and some money for DJing but I’m pleased to see that my overdraft and credit card debt has gone down by £1,398 to £5,107.  Not really of my doing, but the next month is the NEW FRUGALITY!

Aims for next month are:

1 – Start ebaying with a view to making at least £100 a month.

2 – Reduce groceries bill.

3 – Work through all the fact finding and goal setting steps in Back to The Black chapters 1-4.

4 – Paint my nails once a week to whittle down the nail varnish mountain.

Signing off now!

Ms Silver Screen Suppers

 

Editor’s notes:

* Many thanks to Ms Silver Screen Suppers for being so open in her posts. We’re very grateful for this.

** Our guest blogger’s resolution to avoid drinking at home – see last month’s guest post – reminds me of the old joke. “My doctor has told me to stop having intimate dinners for four, unless there are three other people present.”)

WANT TO KNOW MORE?

For Ms Silver Screen Suppers’ last post on this site, click HERE.

For a link to her own wonderful website and blog, about the favourite recipes of the movie stars of yesteryear, click HERE.

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

INVESTMENT FEES CONFUSING – EVEN IF YOU’RE IN THE BUSINESS

Posted on by

0

More on that Sunday Times Money story, urging the new regulator to simplify investment fees. Further to my recent post about confusing investment fees, here’s an insider view.

David Rogerson, from Glasgow, is an equity trader of several years’ standing. He runs investor training courses. You’d think he finds this stuff easy. But no, even he says that investment fee structures are complex.

He says: “It’s not easy to navigate through the various charges. Even for someone like me who works in the business, it can be unclear how much you’re paying. (And to whom)”

If that’s what an industry insider says, we rest our case. The people at Sunday Times Money appear to have a good case in urging the recently-launched regulator (the FCA) to look into this.

WANT TO KNOW MORE?

For the full Sunday Times Money “demands for the new watchdog” feature click HERE. 

 

 

 

NEW WATCHDOG URGED TO REVIEW INVESTMENT FEES

Posted on by

1

Here I go again, commenting on that feature in last weekend’s “Sunday Times Money.”

The new financial regulator, or watchdog as we have to call them nowadays (just as Train Manager is “Newspeak” for Ticket Inspector), is the FCA. It replaces the mostly-unlamented FSA. When I told a friend about that, he said, very logically, “Why did they have to set up a new body? Why couldn’t they fix what was wrong with the FSA?”

One of the things the newspaper urges for attention is that of “complex” and “harmful” fund charges. It slammed asset managers for making their fee structures unnecessarily complicated in such a way that price comparisons were difficult.

Do they do that? I am reminded of the time-honoured line from British actor Ian Richardson’s most famous character: “You might very well think that. I couldn’t possibly comment.”

Utility companies tarred with same brush

Just yesterday (03.04.13) I was listening to a news item on BBC Radio 4, about the fact that a major gas and electricity provider had been fined for devious practices, one of which was similar to what we’re discussing here; creating confusing numbers of tariffs that made sensible decision-making by consumers difficult. So the financial services industry is not alone; and to the list that includes asset managers and utility providers, we could add mobile phone companies.

The FCA’s first business plan (which must have been written before they opened for business, which is impressive in itself) also slammed asset managers for “downplaying the long-term impact of apparently small increases in annual charges.”

Here’s the strange thing. The rules have changed so that commission for financial advisers is now banned. I thought that would make the market more transparent but, according to the feature, this has made the situation worse. In some cases investors could be paying different charges for the same fund.

What can you do?

The feature says you can save thousands in charges by investing online. Well, yes, provided you get impartial information to guide your investment decisions. The term “caveat emptor” has long-term implications when you have to decide which funds to invest in. It will not surprise you to hear that the intermediaries who manage your funds will sometimes promote those investment products that suit them, not you. The Sunday Times recommended candidmoney.com and that site seems to be full of comprehensive and, presumably, impartial advice.

WANT TO KNOW MORE?

For the Sunday Times Money feature “Our demands for the new consumer watchdog”, click HERE. 

For the investment section of the candidmoney site, click HERE.

NEW WATCHDOG URGED TO CHALLENGE UNFAIR MORTGAGE TERMS

Posted on by

0

Yesterday (01.04.13) saw the official launch of the new Financial Conduct Authority (FCA). Many people in the UK media have expressed the hope that it’ll be more effective than the FSA that it replaces.

It was unfortunate that the chosen launch date was (a) April Fool’s Day and (b) a Bank Holiday, when it was a good bet that nobody would be at work; neither in the new authority nor in most of the organisations over which it was supposed to be watchdogging.

As I flagged up recently, Sunday Times Money (31.03.13) published a list of ten demands for the new watchdog. I am featuring three of them on this blog.

Unfair mortgage terms

According to Holly Thomas, who wrote the Sunday Times Money feature, the small print in bank and building society contracts is a source of problems.

[It was ever thus! Which of us reads the small print? I know I don’t. Maybe that’s one of the reasons I got into my own financial troubles]

Questionable tactics

Thomas writes that in 2010 a well-known building society (I’m not going to name them, for fear of legal action; my legal budget is not as large as that of the Sunday Times) scrapped the ceiling on its SVR (standard variable rate). By doing that it reneged on its promise that customers would never pay more than 3% over Bank base rate.

And a bank sparked outrage (I’m not surprised) when it announced rate rises for some so-called “lifetime tracker” mortgages … although the aforementioned base rate had stayed unchanged at 0.5%. In some cases rates would double, adding thousands a year!

Happy ending … for some?

There might be a happy ending for the tracker mortgage story; at least for some customers. The impressive Andrew Tyrie, chairman of the Commons Treasury subcommittee, raised concerns with Martin Wheatley, head of the new FCA. As a result, the FCA says that “the bank … volunteered that they would exclude customers from the change where there is evidence … that the customer could have been led to believe that the differential was for the ‘life’ or ‘lifetime’ of the product.”

Back to the ‘small print’ issue. That bank claims that all the affected customers were issued with contracts “clearly stating that it could change the margin.” However, they have declined to show examples of the terms and conditions to the newspaper. I wonder why.

I don’t know as much of this case as I’d like but, if half of this story is true, I’m tempted to ask the bank a variant of the time-honoured question. For example: “Which part of the phrase ‘lifetime tracker’ did we misunderstand?”

What does this mean in practical terms? For example some customers will see their rate jump from base rate plus 1.75 points to base plus 2.49 in May and it will jump again to base plus 3.99 points in October. If that’s true then only one word fits: outrageous.

Finally?

Of course commercial organisations can charge what they like  … provided they didn’t promise something totally different; and that seems to be what happened here. A class action against the above bank is being pursued by Justin Selig, of law firm The Law Department. So far 170 complainants are being joined to the action.

All of them thought they were on a lifetime tracker and the lawyer says he’s “seen nothing to indicate otherwise.” Enough said.

 

WANT TO KNOW MORE?

For the Sunday Times Money article by Holly Thomas, “10 priorities for the new consumer watchdog”:

http://www.thesundaytimes.co.uk/sto/business/money/Consumer/article1237772.ece?CMP=OTH-gnws-standard-2013_03_30