Financial Reality
Just days ago Chancellor Allistar Darling gave us the most gloomy pronouncement of the economic times ahead for UK residents when he said that economic times for the UK are "arguably the worst they've been in 60 years" and that this economic downturn is going to be "more profound and long-lasting than people thought."
Articles about financial doom are more prevelant simply becuase the danger of less than hoped for economic times are becoming a reality. In the face of growing numerical warning signs, consumers have yet to reach a point of acceptance of their true financial situation.
Real inflation is running at 8% or higher for many people due to the combination of bills that they have. For those on fixed incomes and who spend a large percentage of their income on lifes necessities like petrol and food, the real inflation rate they are experiencing would be even higher. This creates worry and concern because while the necessary bills of life rise, fixed incomes don't.
Real costs for petrol have risen by 24% in the last year while food is up almost 11%. And when these base costs increase, the cost of everything produced moves upward as well. I guess the exception to rising prices would be the sharply declining home prices, down 8% since last year, but that is hardly a good thing either.
Declining property values and tighter controls over lending make it even harder now for people to turn to their homes like a cash machine in tough times. Beginning with the collapse of Northern Rock, the housing market and lenders have tumbled to a point today where it is harder for the average family to find a lender, at a reasonable rate, that will lend and that they can afford.
While consumers have heads in sand at the moment about the reality of their financial situation, it won't remain that way for long. It is a fact that wages are stagnant, inflation is rising fast, housing values are falling and the forecast for increasing basic costs is up, up, up.
It won't be that long into the future where we should see a sharp and steady rise in the number of bankruptcy petitions. Consumers are presently still hopeful or in denial about the reality of their situation and when they sit down to tally up their true levels of debt and face their ability to repay that debt within their lifetime, the shock of reality will be merciless.
Recent bankruptcy filing statistics from the Insolvency service even show a 2% decline in the number of bankruptcies from Q1 2008 to Q2 and even a 3% decline in Individual Voluntary Arrangements (IVAs) during the same period. It is surprising that in the face of the facts of the current economic reality that less people are seeking binding solutions to their debts than before. Even since last year, before the sharp rise in basic costs, bankruptcies are down nearly 6% and IVAs down 12% from the same period last year.
It would be a terrible mistake for consumers to turn to debt solutions like a Debt Management Plan (DMP) at times like these. Without any expectation that they would be able to satisfy their debts completely through a DMP, consumers are most likely only wasting time and money making reduced voluntary payments that will never lead to debt elimination. A Debt Management Plan can take years to complete and if consumers make a couple of years of payments into a DMP and then are unable to continue because the cost of living has continued to rise then they have wasted that time and money. Instead, consumers should think about an IVA and if that is not sustainable or reasonable, then bankruptcy now is the more logical choice.
It would not be unreasonable to project that following the Christmas holidays this year that we should see a sharp rise in consumers unable to meet their bills and debts. From now until post-Christmas consumers are typically lulled into avoiding their consumer debt reality so they can purchase the gifts they feel they need to give for Christmas. Guilt is a powerful motivational force to spend more than you can really afford to.
But with unaffordable guilt comes debt and depression. It isn't surprising that for those that have awoken to the truth of the debt reality that more people are thinking of death and suicide as a way out.
Articles about financial doom are more prevelant simply becuase the danger of less than hoped for economic times are becoming a reality. In the face of growing numerical warning signs, consumers have yet to reach a point of acceptance of their true financial situation.
Real inflation is running at 8% or higher for many people due to the combination of bills that they have. For those on fixed incomes and who spend a large percentage of their income on lifes necessities like petrol and food, the real inflation rate they are experiencing would be even higher. This creates worry and concern because while the necessary bills of life rise, fixed incomes don't.
Real costs for petrol have risen by 24% in the last year while food is up almost 11%. And when these base costs increase, the cost of everything produced moves upward as well. I guess the exception to rising prices would be the sharply declining home prices, down 8% since last year, but that is hardly a good thing either.
Declining property values and tighter controls over lending make it even harder now for people to turn to their homes like a cash machine in tough times. Beginning with the collapse of Northern Rock, the housing market and lenders have tumbled to a point today where it is harder for the average family to find a lender, at a reasonable rate, that will lend and that they can afford.
While consumers have heads in sand at the moment about the reality of their financial situation, it won't remain that way for long. It is a fact that wages are stagnant, inflation is rising fast, housing values are falling and the forecast for increasing basic costs is up, up, up.
It won't be that long into the future where we should see a sharp and steady rise in the number of bankruptcy petitions. Consumers are presently still hopeful or in denial about the reality of their situation and when they sit down to tally up their true levels of debt and face their ability to repay that debt within their lifetime, the shock of reality will be merciless.
Recent bankruptcy filing statistics from the Insolvency service even show a 2% decline in the number of bankruptcies from Q1 2008 to Q2 and even a 3% decline in Individual Voluntary Arrangements (IVAs) during the same period. It is surprising that in the face of the facts of the current economic reality that less people are seeking binding solutions to their debts than before. Even since last year, before the sharp rise in basic costs, bankruptcies are down nearly 6% and IVAs down 12% from the same period last year.
It would be a terrible mistake for consumers to turn to debt solutions like a Debt Management Plan (DMP) at times like these. Without any expectation that they would be able to satisfy their debts completely through a DMP, consumers are most likely only wasting time and money making reduced voluntary payments that will never lead to debt elimination. A Debt Management Plan can take years to complete and if consumers make a couple of years of payments into a DMP and then are unable to continue because the cost of living has continued to rise then they have wasted that time and money. Instead, consumers should think about an IVA and if that is not sustainable or reasonable, then bankruptcy now is the more logical choice.
It would not be unreasonable to project that following the Christmas holidays this year that we should see a sharp rise in consumers unable to meet their bills and debts. From now until post-Christmas consumers are typically lulled into avoiding their consumer debt reality so they can purchase the gifts they feel they need to give for Christmas. Guilt is a powerful motivational force to spend more than you can really afford to.
But with unaffordable guilt comes debt and depression. It isn't surprising that for those that have awoken to the truth of the debt reality that more people are thinking of death and suicide as a way out.
