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.’



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.



 Here it is!



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.




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

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

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?



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.’


A recent report by the debt advice charity StepChange points up two main issues:

  • Regional variations in debt burden
  • The special risks for self-employed people.

There are bound to be regional variations in almost anything. What was notable, though, is that the region where people are spending the highest proportion (30%) of their disposable income on debt interest payments, is the South East.

However, the section in the summary that hit me in the face was this:

“Self-employed struggling: partly because of high levels of secured borrowing – possibly taken out to keep businesses afloat – self-employed people advised by the charity owed on average £300,000.

“Clients in part-time or full-time employment had an average debt load of 4.1 times their income. For self-employed people this rises to 18.6 times their income.”

[Note: The figures apply to debtors who are or were clients of the charity. They are not necessarily typical of the population as a whole.]

The difference between 4.1 and 18.6 is remarkable; and I can empathise, because I was in the same situation fifteen years ago. I had a business that had done well for five or more years but then “fell on hard times”, to put it euphemistically. Like the clients of StepChange, I increased my borrowings (secured or unsecured, they were still debts) in an attempt to keep the business afloat. By the time I decided that would not work, closed the business and concentrated 100% on solving the debt problem, my total borrowings were several times my income. Not eighteen times, but a lot.

How I solved the problem is told in my book “Back the Black: how to become debt-free and stay that way.” (Amazon: paperback and Kindle eBook)


For a copy of the report by StepChange:



ALL COSTS ARE OPPORTUNITY COSTS: shall I buy that pair of shoes or pay down some debt?

All costs are what? Who says so?

I’ve recently started reading books about economics. OK, OK, I know: I’m a sad person, I should get out more.

But it happens that I do get out a lot. Everywhere I go, and everything I read, reminds me that I don’t know enough about the theory and practice of economics, the so-called “dismal science” that underpins our society. Hence my decision on reading matter.

Luckily, the first book I found in my local library’s very small economics section was called “The Instant Economist”, by an American professor called Timothy Taylor. Luckily, because this book is so clear and so well written. The back-cover blurb says “the only economics book you’ll ever need”. That’s quite a selling point.

All costs are opportunity costs: what does that mean?

Prof Taylor gives this simple example. Suppose you are thinking of having your house cleaned in future, rather than doing it yourself. You’ve researched it and find it will cost you $300 per month, i.e. $3600 per year. But instead of thinking of just that figure, think of what else the money could buy. His example was a holiday in Mexico. You might change the destination if you lived in Europe (or you were already located inMexico) but you get the point. That holiday is the opportunity cost. Or, as he puts it, the true cost is not the money you spend (and $3600 is “just a number”) but the thing(s) you give up.

Here’s Wikipedia’s definition:

Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen).

Is that assertion qualified by an assumption?

Well, I’m no economist (yet) but I think it must presuppose that resources are limited. But that’s no problem, because they almost always are.

Any other examples?

Yes indeed. I’m planning a party this year to celebrate a significant birthday. (since you ask, I’ll be 40. Again).

A couple of weeks ago, I got enthusiastic about a certain venue that seemed perfect; great environment, wonderful location. Then I found out the cost: over £1000 to hire the venue, excluding catering and booze.  That should have ruled it out immediately but I’d already fallen in love with the idea. I thought “That’s expensive but maybe I can find that.” The money could have been found (and justified to myself!), but I didn’t think about the opportunity cost.

It was brought home to me by a friend (a very good friend, as this example proves) who said “Michael, you don’t need to spend that much. Your friends don’t need to be in a fancy place to enjoy a party (never a truer word was spoken), so why not find a cheap venue and spend the rest of that money on giving yourself a nice holiday?”

She was right; I could have that holiday, or give the money I might have spent to my daughters, to help them with a deposit on a flat. Opportunity cost again.

Any examples in the news?

Here in the UK, the cover story in my paper today (29 Jan 2013) is rail investment; the front page headline is “North and south unite against HS2.” If you live in the UK, you’ll know that HS2 is the planned new high-speed rail link; today’s news is that the routes for Part 2 of the project have been announced, linking Birmingham with Leeds and Manchester at a planned cost of £30+ billion.

There are environmental objections, of course, and these will probably delay commencement of work for ten years. But there are other objections, especially this: if the aim is to “spread the UK’s wealth”, as claimed, are there better ways of spending £30bn? Especially in a situation where many parts of the existing rail network are of third-world standard.

So, again, opportunity cost is the way to think of this issue. It’s about choices.

So what’s the connection with Back to the Black?

I’m glad you asked. It’s in Chapter 7, where I discuss discretionary income, i.e. what’s left after taxes, utilities and other essential costs. What you are left with is available for discretionary spending (i.e. on non-essentials) … or for paying down debt. Here’s an extract:


The Oxford English Dictionary defines that part of a person’s income remaining after essential living costs as “discretionary income”; however, you’ll often find the term “disposable income” used for the same purpose. Strictly speaking, though (again according to the OED), disposable income is simply gross income minus tax.

These days the two terms are used interchangeably – especially in the UK – for what we’re discussing here. I prefer the term “discretionary”; it’s a good description because these are the funds over whose use you have “discretion”, i.e. you are the decision-maker. You, and no-one else, can decide how much of your discretionary income you’ll spend on non-essentials and how much is available to pay down debt.


Thus, as I said at the top of this piece, “all costs are opportunity costs.” It’s apparently a key principle in economics; but it also has very practical applications in our daily lives.

It’s all about choice.



Want to know the answer? It’s paying down debt.

In the current issue of “Moneywise” there’s one of their regular “Money Makeover” features. Wendy Edwards from Surrey and her partner Marc were being advised by Ian Anderson of G C Stevens Financial Services in Weybridge.

Apart from their mortgage, they had loan and credit card debts totalling over £21,000, to be serviced from a combined net income of £2300 / month. However they also had £9000-odd in various savings accounts “earning them little interest.”

One of the first tips from the adviser – which “Moneywise” highlighted in a text-box – was to use the savings to pay down part of the card and loan debt.  By doing that he calculated they’d save £790 / year, which amounts to about 3% of their net income.

This reminds me of something I wrote in my book “Back to the Black”. Here’s an extract:


Don’t keep rainy day money

Do you have any savings? You might answer: “are you crazy? I’ve used them up long ago.” However, many people who are facing severe debt problems, and are “maxed out” on their credit cards, turn out to have money squirreled away in another account, “for a rainy day”. (I was one of them) Well, as this is a rainy day, (and right now you are earning very little interest on those savings) it makes no sense to hold on to savings at the same time as you have unsustainable debts.

That statement is not original. In 2007, an article in the money pages of the “Daily Telegraph” concluded with the simple phrase, which I found it hard to argue with but hadn’t realised before:

“Paying down debt remains the best risk-free, tax-free investment in town.”

I suspect this is always true.




AVOIDING REPOSSESSION: dealing with mortgage arrears

This week I read in the papers that there’s a risk of increased repossessions in the UK, as mortgage costs are predicted to rise next month. Several lenders have already announced rate increases and others will probably follow.

Obviously mortgage is a priority debt and any arrears need to be sorted as soon as possible. In “Back to the Black” I felt I could do no better than quote what Citizens Advice say on the subject.


DEALING WITH PRIORITY DEBTS: mortgage arrears (source: Citizens Advice: see below for link)

If you are in mortgage arrears then your first priority must be to find a way to clear them. If not, your lender can take legal action to have you evicted.

However, if the lender knows that you are making a serious effort to sort out your debts, they might allow you more time. Once more, the key is early communication: don’t sweep the problem under the mat.

Reducing your costs

There are several options for cutting down your mortgage costs. Depending on the type of mortgage, you might be able to:

  • switch from repayment to interest-only mortgage
  • increase the term
  • reduce your monthly interest payments
  • shop around for a cheaper deal with another lender. However, you may have to pay charges for the switch and you’ll still have to pay off the arrears.

Sadly, none of these is entirely pain-free. Solving the short-term problem could either involve fees, in the case of changing lender, or it could increase your interest payments long-term. Consult an independent financial adviser first if you are thinking of taking any of these steps and, once again, consult the lender. They may be able to help; but only if you get in touch with them.

Paying off arrears

Before you do discuss paying off the arrears, you should first work out your discretionary income; see elsewhere in this book for how to do that.

You will also need to decide how to pay off those arrears. You may have several options for doing this:

  • pay extra towards the arrears each month on top of your regular payments
  • have the arrears added to your capital and paid back over the remaining term; this will, of course, increase your overall interest costs
  • give up your endowment policy, if you still have one, or sell it to an investor, and use the lump sum towards your arrears; however, you will need to find another way to pay off the capital and you might also need to find alternative life insurance cover, so consult a financial adviser first.

Dealing with your lender

Once you have worked out a way of dealing with your mortgage arrears, write to your lender and set out your offer. It should be one which you can keep to and it should clear the arrears within the period of the mortgage. Include a financial statement showing how you have worked out the offer. If the lender resists at first, stress that an affordable offer is in both of your interests, because you are more likely to keep to it.

You should start to make regular payments against the arrears, even small ones. Even if your lender doesn’t accept the offer, it may help your case if you are ever taken to court.

If you haven’t been able to reach agreement on how to pay off your arrears, they will probably take you to court and try and get possession. However, the good news (if there is any good news in all this) is that, before they take you to court, they have to follow a fixed procedure called a protocol. This involves their taking a number of steps, such as discussing the reason for the arrears with you and giving you notice that they will start legal action if you have broken a payment agreement.

If you do go to court, the judge may allow you to stay in your property as long as you keep to an agreement to pay. The judge will take into account whether the mortgage lender followed the protocol. If you are in this situation, get help from an adviser.

If you can’t pay your arrears

If you aren’t able to clear your arrears, a court will probably give your lender permission to evict you from your home and your lender will sell the property. If they don’t make enough from the sale to cover the money you owe on your mortgage, you will have to pay the difference, which is called a shortfall.

If you can’t find any other way of clearing your arrears, it might be better to try and sell the property yourself, rather than wait to get evicted and let your mortgage lender sell it. This is because they are likely to get a lot less for it than you would, leaving you with a debt to pay. Properties which have been repossessed often sell for a lot less. Also, lenders often sell at auctions where sale prices tend to be lower.

Selling the property yourself and downsizing, or renting for a period, would give you a lump sum which you could use to pay off your mortgage; if you have enough left over, you may even be able to use it to pay off other debts.

Another option you may want to think about is a mortgage rescue scheme. These schemes are also known as buy back, sale and rent back or a sale and lease back scheme. These are schemes which offer to buy your property and rent it back to you. However, be very careful about signing up to a mortgage rescue scheme run by a private company. Not all these schemes are trustworthy and some companies will buy at below the market value. Schemes run by local authorities or housing associations are generally better, but there aren’t many of these.

Don’t be tempted to just leave the property and hand back the keys to your mortgage lender unless you’ve sold the property or there is a court order to evict you. You won’t gain anything because you will still be responsible for mortgage payments and buildings insurance until the property is sold, and will still have to make up any shortfall if the sale doesn’t make enough to cover what you owe.

If your lender asks you to give up the keys, you don’t have to do so unless they have a court order.

NOTE: This section on mortgage arrears has been based on an extract from the Citizens Advice organisation’s “Adviceguide” website. Readers who are in mortgage arrears should check that site for any changes to protocols.



Citizens Advice “adviceguide” website: LINK









A summary of the last six (what, six?) posts on this topic .

  •       Our thoughts influence our behaviour, which influences our results.
  •       It’s vitally important to stay positive when facing a debt crisis.
  •       Act as if you’ll be able to work your way out of this – and act this way consistently and persistently – and your behaviour will influence your creditors.
  •       Henry Ford: “If you think you can, or you think you can’t, you’re probably right.”
  •        “The Harvard Experiment”: the students were chosen at random, so were the teachers. The improved results were achieved because the teachers believed the children were more gifted than average.
  •        The traveller at the gate: “I think you’ll find they are the same here.”
  •        To minimise stress: create a clear positive picture of the result you want. Then keep it in the forefront of your mind.
  •        Create your own space: Seve Ballesteros and the bubble. Eliminate the negative influences of other people’s thoughts.
  •        Conduct all negotiations in writing. Avoid discussing on the phone: if you must answer it, simply note what is said, refer to previous correspondence, if any, and then respond … but in writing, not on the phone.
  •        Beware: letters apparently from “solicitors” and “debt collection companies” are sometimes really from the creditor. A neat tactic to put extra pressure on you without their going to the trouble and cost of involving third parties.
  •        Harassing debtors is illegal. If it happens to you, get help immediately. You can make a complaint to Trading Standards (via Consumer Direct, 08454 04 05 06), to the police if the harassment is severe or, if it is your landlord demanding money, your local council.
  •        Rules for correspondence: Prompt (replying). Polite, Professional & Persistent. (“If at first you don’t succeed, try, try and try again”)



The above is the concluding extract from Chapter 2 (“Mind Over Matter”) of “Back to the Black: how to become debt-free and stay that way”. [LINK]