Post by Steve Gardner on Jan 5, 2008 12:25:20 GMT
This is the sort of thing that really winds me up: an article, pitched as 'advice' for those in debt, is in fact full of 'advice' about ways to take on new debt and/or provide the financial institutions with a bit of action.
Every piece of 'advice' is promoting one or more financial services. And yet it opens by telling us 28,000 will become insolvent in Q1 as the result of debt.
It just goes to show how critical the creation of new debt is to our economy.
Source: Reuters
Every piece of 'advice' is promoting one or more financial services. And yet it opens by telling us 28,000 will become insolvent in Q1 as the result of debt.
It just goes to show how critical the creation of new debt is to our economy.
Source: Reuters
By Jennifer Hill, Personal Finance Correspondent
LONDON (Reuters) - Christmas is but a fading memory, credit card statements are about to hit doormats and warnings are coming thick and fast that 2008 is going to be tough.
The fallout from the credit crunch -- the end of easy credit and prospect of higher mortgage costs for many -- coupled with a depressed housing market and higher fuel prices means this year looks set to be one of the most difficult for some time.
Add to these factors overindulgence over the festive period, and, for many, the financial hangover is going to be severe.
Some 28,000 people will become insolvent in the first quarter of 2008, chartered accountant Grant Thornton predicts, a third of whom are expected to file for bankruptcy as a direct result of Christmas debt.
"Many people are predicting that it is going to be a tough year in the personal finance world, so now is the time to get prepared for the rough ride ahead," says Julia Harris, an analyst at price comparison service Moneyfacts.co.uk.
So, what can you do to get your finances in shape for the year ahead? Here are some top tips:
* Debt
Compile full details of your assets and liabilities by writing them down or using a spreadsheet.
Work out your monthly incomings and outgoings to establish your net disposable income. Make a monthly allowance for annual expenses, such as car tax, presents and holidays.
Subtract total monthly expenditure from income to show how much debt you can afford to repay per month.
The Financial Services Authority has a useful budget calculator at www.moneymadeclear.co.uk.
Consumers with a less than perfect credit history will find it harder and more expensive to obtain credit as lenders tighten their rules in the aftermath of the credit crunch. But there are still some good deals around.
Consolidating debts onto a 0 percent credit card balance transfer deal or low-cost personal loan can prove economical.
Virgin Money offers 15 months interest-free credit, with a balance transfer fee of 2.98 percent; Egg gives interest-free credit until April 1 2009, and charges a balance transfer fee of 3 percent; and Mint gives 0 percent on balance transfers until March 1 2009, and has a fee of 2.9 percent.
Personal loans do not offer interest-free credit, but have the advantage that the agreed rate and monthly repayments are fixed for the full duration of the agreement.
Sainsbury's Bank offers unsecured loans at 6.5 percent, YourPersonalLoan.co.uk at 6.7 percent and Tesco at 6.8 percent.
Watch out for lenders' costly payment protection insurance: stand-alone cover, through the likes of paymentcare.co.uk or British Insurance.com, is invariably cheaper.
Person-to-person lending service Zopa.com also proves competitive, with an average rate of 6.6 percent, although this will also depend upon your credit rating. Unlike other "best buys", there are no early repayment charges.
Those with severe debt problems should seek free, confidential advice from their local Citizens Advice bureau or National Debtline (0808 8084000).
* Product swaps
Simple product swaps can lead to an average saving of 4,400 pounds over 12 months for a typical family, according to price comparison site Moneysupermarket.com.
"For those suffering a financial hangover from the festive period, recovery will be all the quicker after some easy and significant savings are made," says director Richard Mason.
As property is generally people's biggest investment, some of the largest savings can be made on mortgage debt.
An estimated 1.4 million people are due to come off a low-cost fixed rate deal in the early part of this year.
Cheap deals are becoming scarce, but, following the world central banks' cash injection to the money markets in December, the three-month London inter-bank offered rate has dropped to 5.89 from 6.65 percent.
"This is excellent news for borrowers," says Katie Tucker, of independent mortgage broker John Charcol. "If banks can borrow money cheaper, they can lend money cheaper.
"If the Bank of England rate also falls this month, the next few weeks should bring some very good value mortgage deals back onto the market."
Borrowers should beware of the perils of being caught on their lender's standard variable rate (SVR). A homeowner paying 7.89 percent on a Woolwich SVR would shell out 1,147 pounds per month on a 150,000 pound mortgage. A two-year 5.39 percent fixed rate with Britannia Building Society would be 923 pounds per month cheaper -- a saving of 2,805 pounds over a year.
Review your current account, car insurance, home insurance, utility provider, mobile phone and broadband contracts too.
* Savings and investments
Try to establish an emergency cash fund. Aim to have at least six months' net salary in an easy-access account for the unforeseen, urges the Institute of Financial Planning.
Following the Northern Rock debacle, the ultimate safety option for depositors is to hold no more than 35,000 pounds in cash with one provider. If you have more than this, consider spreading your assets across different companies.
Spread risk when investing on the stock market too. Making regular monthly contributions (what is known as "pound cost averaging") is a good way to build capital and diversify risk.
Take advantage of the tax benefits of individual savings accounts (ISAs) before investing in any taxable vehicle. Consider fund supermarkets or "wrap" platforms, which can provide effective, low-cost means of consolidating investments and makes reviewing holdings easier.
* Pensions
Check your state pension entitlement. Visit www.thepensionservice.gov.uk to help establish your entitlement.
Review your personal pension arrangements. Calculate what your pension will be worth upon retirement to see if you are on track. Hargreaves Lansdown has an online interactive calculator (go to www.h-l.co.uk and click on "pensions and retirement").
* Insurance
Are you covered? Review what you would receive in the event of becoming long-term sick, critically ill or what your family would receive if you were to die.
* Fraud protection
After the government's loss of data of millions of UK taxpayers, it is more important than ever to be vigilant with your personal financial data. Check your credit rating using a credit reference agency, such as Experian (www.experian.co.uk) or Equifax (equifax.co.uk). Check bank account and credit card statements for unusual entries.
