Tag Archives: the independent

DEBT-FREE CHRISTMAS? YOU MUST BE JOKING …

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A couple of recent stories by Simon Read in the UK’s “Independent” newspaper  (see below) reveal that UK consumers are once again extending their credit card debt, after a period when the trend seemed to be reversing.

What’s more, they are using cards not for luxuries (i.e. “discretionary spending”) but on essentials.

Christmas is coming: the debts are getting fat

The situation for many of those “hard-working families”, as our politicians like to call them (surely that’s discrimination against single people and lazy people?) will probably get worse in a month or two. Why? Not just because of the underlying economic situation and rising inflation, but because of the “retail eternity” (to quote my hero Loudon Wainwright III) that we call Christmas.

Peer pressure

 We have been conditioned to believe that one can’t celebrate Christmas properly without spending a load of money. So those in debt are going to get deeper in debt. If you have young children, peer pressure and the blandishments of advertisers will try hard to ensure it.

US blogger promotes debt-free Christmas

That’s why I gave three hearty cheers when I found that an American blogger called Brad Chaffee had started a discussion thread called “Debt-Free Christmas”. I communicated with Brad and told him how much I liked the idea; he got back to me promptly, saying that the concept was very much alive and well in his family, even if the blog thread is less active right now.

Practical solutions?

What I take as the meaning of his “Debt-Free Christmas” was not so much to get right out of debt at this time of year – that would be a very tough aspiration – but how to find practical ways of having a great Christmas without getting further into debt; despite inflation and peer pressures.

Gift spend limit

In future posts I’ll be talking about how we’ve done it in my family. The most successful method was putting a limit on the gift spend per person. That forced a rethink, compared with the previous procedure of: “Oh God, only a week to go and I haven’t finished my gift shopping; must throw some more money at the problem”.

The new rule didn’t just save money, it unleashed lots of creativity.And we had just as much fun, maybe more.

Over to you

I’d like to throw this open. All contributions welcome!

 

WANT TO KNOW MORE?

 

For Simon Read’s article in the Independent, 6 Nov 2011:

 

http://www.independent.co.uk/money/spend-save/simon-read-ditch-the-plastic-before-youre-forced-into-distressed-borrowing-6257400.html?origin=internalSearch

 

For info on my e-book “Back to the Black: how to become debt-free and stay that way”:  

 

Kindle version: http://www.amazon.com/dp/B004PLMAQM.

Other versions: http://www.smashwords.com/books/view/22886

CALL FOR MORE FINANCIAL ADVICE

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Today I read a great piece from Simon Read of the Independent, calling for the wider availability of financial advice. I posted a comment as follows:

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Great piece! More strength to your pen! I absolutely support your call for wider availability of quality financial advice; ten years ago I narrowly avoided personal bankruptcy and found a better solution with the help of two excellent advisers at the local CAB; but not everyone is as lucky and I know what the queues are like at the CAB in Bristol.

Have RTed your tweet.

I too quoted Mr Micawber in a book about my debt experiences (“Back to the Black: how to become debt-free and stay that way”). The version of Micawber I used was worded slightly differently from yours, in that mine was income / expenditure, ending: “Annual income twenty pounds, annual expenditure twenty pounds, ought and six, result misery.”

The debt-to-income comparison you mention is interesting. I found some alarming debt / income ratios in the Times a year or so back, which I interpreted in my book as follows:

As Credit Action’s website succinctly puts it: “Individuals owe more than what the whole country produces in a year.”

The trend of increasing personal indebtedness, a by-product of our consumer culture, certainly contributed to the financial crisis.

In early 2010, a typical UK household containing one wage-earner on average pay has, according to the Halifax (a division of the Bank of Scotland plc), outstanding mortgage debt that’s equivalent to 507% of income (i.e. of the ONS figure for average annual income). By way of comparison, the UK Government’s ratio of debt to income – a ratio that was widely castigated as unsustainable during the election campaign of spring 2010 – was “only” 170%. (“Worried about national debt? Mr & Mrs Average are in a far worse state”: Ian King, Deputy Business Editor, The Times, 19 Feb 2010) Go figure, as my American friends might say.

Most personal debt is of course, at least in the UK, secured mortgage debt: levels of home ownership have traditionally been higher here than in most other European countries. It has always been considered that mortgage debt is safe debt; that was true for as long as the housing market continued its customary rise but at times of recession in the housing market …. Etc, etc

One could also add the risk of rate increases leading to a rise in the numbers of mortgages in arrears, repossession or forbearance … a number that’s already high, as you mention.

 

WANT TO KNOW MORE?

To see Simon Read’s original piece (The Independent, 16 July 2011): http://www.independent.co.uk/money/spend-save/simon-read-rising-poverty-worries-means-advice-is-crucial-2314442.html

To sample or purchase (£0.70 / $0.99) my eBook on managing debt:

POPULAR NEW (ISH) LENDERS GAINING GROUND

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A while ago I blogged about the new(ish) peer-to-peer lending websites, such as Zopa, the largest in the UK. I also said I’d be looking into the matter further.

So I decided to read what the established financial journalists (the people who are paid for their expertise) are saying.

I’ve looked at a few of them, following the principle of Lobachesvky, who famously said: (according to the legendary Tom Lehrer): “To steal from one source; that’s plagiarism. To steal from many: that’s research.”

Firstly, I’ve learned that Zopa stands for the “Zone Of Possible Agreement” and its aim is to cut out the middleman by putting lenders and borrowers directly in touch. The site acts as a facilitator and makes sure debts are repaid.

“Personal finance just got a whole lot friendlier”

In an earlier post on this subject I mentioned Maryrose Fison’s article with the above title (January 2011) in the Independent. See below for a link, as it’s still on their website. Here’s my inexpert précis of what some other writers have said.

Rosie Murray-West, Daily Telegraph

She says that “(new-style) Peer-to-peer lending websites and old-style credit unions have been major beneficiaries of public anger against the banks, seeing a huge level of growth in 2010.

“ …Zopa … allows ordinary people with savings to lend them out at an average rate of 8pc and has now lent a total of £110m. Its rising popularity has led to four new peer-to-peer lenders being created in 2010, and the industry is now working on becoming properly regulated and establishing a code of conduct.”

Credit Unions

“Meanwhile credit unions, which are co-operative organisations offering affordable loans and accounts without bank charges, have also grown.

A spokesman for ABCUL, the credit union association, said the amount of savings in British credit unions had risen by 27% in the two years to March despite the fact that many British people were struggling to save in the current economic climate. The number of new members of credit unions rose by 18.4% in the same period.

“Mark Lyonette, ABCUL’s chief executive, said that Credit Unions continue to grow as more and more people seek a fair and affordable alternative to the high street banks. He added that if the Government made good on its interest in making credit unions accessible through the post office network, there was the potential for many more people to join them.”

Martin Lewis’s ‘Money-Saving Expert’ site; opinions on Zopa

The ‘MSE’ site was sceptical about Zopa at first. But now they are saying that under certain conditions, it makes sense. As of today, the site’s view is:

“… for those with a good credit score, there’s an alternative. Zopa is a unique internet marketplace which couples people who want to lend with those who want to borrow. On application it gives you a credit score, and if you get its top A*, A or B ranking, you can borrow.

Loan rates vary daily and are determined by the amount needed and length of borrowing. For A* or A grade credit scorers wanting cash over 36 or 60 months, it can beat some loan rates, particularly on smaller amounts; currently, 9.6% APR is available for loans of £4,000, for example.”

View of a Zopa customer

By way of a change from the financial journos, here’s a quote from an actual Zopa borrower. (5 July 2011)

“Just thought I would let you all see my finished kitchen :o) All tiled and just about back to normal now. Thank you all to those who have helped me pay for this, you have no idea how happy I am it’s finally been done! :0} xxxxxx”

Editor’s note (that’s me): there is a video on Zopa’s Facebook page too but I’m not able to reproduce that, because I haven’t done the training course to insert video.

For your guidance, their loans are apparently mostly for the purpose of home improvement (like the above), cars or debt consolidation.

Moneywise “Most Trusted” awards

… and finally, I must congratulate this peer-to-peer lender for having achieved an important award. According to Moneywise magazine, Zopa is the UK’s Most Trusted Personal Loans Provider 2011. This was for the second year running and was against a shortlist that also included First Direct, Nationwide, Tesco Bank, Sainsbury’s Bank and Natwest.

WANT TO KNOW MORE?

1. For Rosie Murray-West’s article from the Daily Telegraph: http://www.telegraph.co.uk/finance/personalfinance/savings/8214641/Savers-spurn-banks-for-Zopa-style-peer-to-peer-lenders.html

2. Peer-to-peer lending: how to choose the right site by Emma Simon. (also in the Telegraph)

3. For the article in The Independent by Maryrose Fison: http://www.independent.co.uk/money/spend-save/maryrose-fison-personal-finance-just-got-a-whole-lot-friendlier-2173935.html

4. For the Money Saving Expert site and newsletter signup: http://www.moneysavingexpert.com/

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For a free sample of my book, “Back to the Black: how to become debt-free and stay that way”:

Kindle format: http://www.amazon.com/dp/B004PLMAQM

Other e-formats, including .pdf: http://www.smashwords.com/books/view/22886

You can follow me on Twitter: @michaelmac43, on Facebook: Michael James MacMahon, or on Linked In.

 

CAN YOU BORROW MONEY THROUGH FACEBOOK?

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I recently attended an excellent conference in London, on Facebook marketing. Somebody, I can’t remember who, made the claim that “Facebook will at some point become the world’s biggest bank”. I didn’t know whether to believe that. However, I did hear many presentations at that event from entrepreneurs apparently earning serious money through Facebook and other online resources.

What I didn’t hear that day, but I know now, was that hundreds of individuals now lend money to each other through Facebook. “Cutting out the middleman”, we used to say; and Facebook is facilitating it. I came across this interesting fact while trawling through my “newspaper cuttings awaiting reading” pile and found an article by Maryrose Fison in The Independent. It was a couple of months ago but no matter.

Debt rescheduling / consolidation / relocation?

People who are concerned about their debts often ask advisers if they should look for ways to move the debt elsewhere, for example through a debt consolidation loan. The pros and cons of that route have been discussed many times so I won’t go into it here, except to say that the general advice is always to avoid this kind of loan if it has to be secured against your home.

A zero percent balance transfer is another way of getting “free” credit. Even allowing for the fact that there’s always a fee of around 3%, it’s cheap money, provided your credit record is clean enough to get it.

Borrowing money from individuals, however, is something that was new to me; except, of course, for friends and family, who are often a source of funds from which debtors make offers to their creditors for “full and final settlement”. However, this new trend is borrowing from individuals who are total strangers.

Here’s an extract from what Ms Fison said:

“As hundreds of thousands of Britons struggle to get a foot on the property ladder, with banks continuing to crack down on new lending, social networking applications have become a lifeline. Who would willingly choose to pay through the roof for an unattractive loan package when there are millions of social network users gagging to lend you their money for less?

“The average rate of interest on a loan at the Lending Club over the past 36 months has been 9.22 per cent. On Zopa, the typical APR on a loan of £5,000 over three years is 8.3 per cent, and on Funding Circle a £15,000, three-year loan has an APR of 9 per cent -well below the 12 per cent a typical bank would charge.”

That sounds attractive, although there are lending offers on the market nearer 9% than 12%; some of them were listed on the same page of the paper under “best buys”. The issue, again, would be whether one’s credit record would be good enough to qualify. A private lender would also need reassurance but might be more flexible than a bank, as they are getting a relatively high return (much better than the high street, anyway) on their money.

Facebook apps

You’ll note that Ms Fison (excuse my formal mode of address: I’m old-fashioned and I’ve never spoken to her, though I shall be following her on Twitter from now on) mentioned The Lending Club; she says it was one of the first applications to be added to Facebook in 2007. She also mentions Zopa:

“UK-based social lending service Zopa is another provider, and the number of communal lending and borrowing sites with applications on social networks is growing at a staggering rate.”

Ms Fison concludes:

“Social networking applications may still be in their infancy, but given the popularity of personal finance and online peer lending, their influence on our day-to-day activities looks set to take off this year.”

Well, there is nothing to be lost and lots to be gained by investigating this further. I’ll certainly be doing some research into peer lending sites: watch this space!

WANT TO KNOW MORE?

For a copy of the full article in The Independent by Maryrose Fison: http://www.independent.co.uk/money/spend-save/maryrose-fison-personal-finance-just-got-a-whole-lot-friendlier-2173935.html

For a free sample of my book, “Back to the Black: how to become debt-free and stay that way”, go to:

kindle: http://www.amazon.com/dp/B004PLMAQM

Other e-formats, including .pdf: http://www.smashwords.com/books/view/22886

You can follow me on Twitter: @michaelmac43, or Facebook: Michael James MacMahon.

UK RAIL LINES IN THE HEADLINES AGAIN

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Just when British rail travellers thought they had seen the end of travel miseries caused by the ice and snow in the weeks up to Christmas, they’ve been hit with steep fare increases. The average fare hike is double the inflation rate and some fares will rise by 12.8%. Meanwhile promised improvements to services are in most cases nowhere to be seen, although to be fair punctuality has improved. (By British standards, that is; we say that a train is punctual if it’s less than 10 minutes late, whereas in Spain, the land supposedly of ‘manana’, if one of their high-speed services is five minutes late your fare is refunded.).

Rail’s share of “total miles” small?

A recent article in last weekend’s Independent on Sunday (2 Jan 2010) by Alexandra Woodsworth, of the Campaign for Better Transport, says that even steeper rises are planned from January 2012, as the government wants to reduce the taxpayer’s contribution to the cost of running our much-criticised rail network. In itself a justifiable aim, if you consider it unfair to subsidise so heavily a mode of transport that represents 8% of the total distance travelled in Britain, (The Economist, 1 Jan 2010) compared with “85% by cars and vans”. That last phrase makes me wonder whether the statistic included freight miles; time to call in Tim Harford and his team at Radio 4’s wonderful “More or Less” programme with their genius for unpicking the headline statistics so beloved of many journalists and so often misleadingly used. It was Gore Vidal who said, “The worst thing I can say about my fellow-Americans is that they don’t like any question that can’t be answered in ten seconds” and sometimes I think we are going the same way.

Captive market

The Economist article points out that UK rail fares have grown by 50% in real terms since 1980 and it’s already well-known that our fares are the highest in Europe by a massive margin. Despite that, many commuters have no real alternative and “many rail firms enjoy a virtually captive market, (and regional monopolies too) hence passenger numbers continue to increase: we complain but many of us cannot vote with our feet because we need the trains to get to our jobs. The claim is often made that trains are “favoured by the better-off” but this is somewhat misleading: trains are not so much the favoured solution as a necessity for those who work in London, where wages and salaries are higher but so are living costs.

Subsidies and profits

The same magazine has often made the claim that the taxpayer subsidy of rail (currently £4.4 bn / annum) is four times higher than it was before we privatised the network in the mid-1990s (a decision taken by the then Tory government but implemented by Labour) but it’s not clear if that’s inflation-adjusted. Either way, can this massive subsidy be justified in view of rail’s small share of the travel market? And can it be consistent with the highest fares in Europe? (and in many people’s opinion the worst services?)

In a recent post I quoted a letter scoffing at a claim by a senior manager in the train operating companies (TOCs) that there would be fares “to suit everyone’s pockets”. The writer guessed whose pockets would be best suited by the new fares and it would not be the traveller. These new fares will be better news for the taxpayer and best of all for the TOCs themselves. The partial justification of the increases is planned improvements to the services provided by these privately owned train operators; that’s equivalent to Tesco, for example saying: “we want to open new stores next year, which will of course increase our market share, our turnover and our profits; that’s a good economic decision for us but to pay for it we need you, the consumer, to make the investment, so we will increase all our prices now.”

Off-peak more expensive?

“And another thing …” Why are our rail fares so complicated? Last week I travelled from Bristol to Exeter. Even though I knew exactly which train I wanted to get, there were seven different single fares available, just for that particular train, according to www.thetrainline.com, all with slightly different conditions attached. If I had not been sure which train to take, there would have been dozens of different fares.

Of course advance booking is usually cheaper than walk-up and off-peak is cheaper than peak, i.e. “anytime”. However, here’s the most ludicrous thing I noticed last week: the walk-up fare for an “off-peak single” on my train was slightly more expensive than the equivalent fare for an “anytime single.” As Jeremy Clarkson might say, if he’d ever written about trains (which I doubt), “you couldn’t make it up.”

WANT TO KNOW MORE?

“What’s green about encouraging us to drive?” The Independent on Sunday, 2 January 2011. http://www.independent.co.uk/opinion/commentators/alexandra-woodsworth-whats-green-about-encouraging-us-to-drive-2173948.html

Alexandra Woodsworth, The Campaign for Better Transport. http://www.bettertransport.org.uk/

“After the deluge, the pinch: Britain’s expensive trains are set to get even pricier.” The Economist, 1 January 2011. http://www.economist.com/node/17800351?story_id=17800351&CFID=158635719&CFTOKEN=67846156

“ … Britain’s definition of punctual includes trains up to ten minutes late”. From The Economist 4 June 2009: “Pay up, pay up, and board the train.” http://www.economist.com/node/13788573