Like it or not, economic life runs on the supply of credit. UK consumers, like those in the US, are addicted to it. But you don't expect those providing advice and treatment for the addicts to be criticised by those supplying the drug.

So it's hard to know what to make of the recent comments from the new chief executive of HSBC to the effect that those firms offering debt consolidation and advising on Individual Voluntary Arrangements (IVAs) are somehow culpable.

It's true that IVAs were originally intended to stimulate enterprise and risk-taking by removing the stigma from old-style bankruptcy. They may have done that. But even if one unintended consequence was to allow debt-laden consumers a way out of crippling interest payments on personal loans and credit cards, opting for an IVA is not a soft option.

The banks are as responsible as anyone for the explosion in personal credit to the problem levels of today. The remarks from HSBC's Mr Geoghegan come hard on the heels of an announcement from Morgan Stanley. It is to launch a product aimed at allowing homeowners to borrow much more money than is currently feasible, in exchange for the bank taking a slice of the equity in their property. Then there's the usual 'silly season' story in a weekend newspaper of someone's wire haired fox terrier being given a credit card with a £15,000 limit.

The debt management industry is maturing. It is made up of several reputable public companies who offer a good service and whose activities are tacitly backed by government as a way of providing a way out for distressed and overextended borrowers. There may be a few rogue backstreet operators taking advantage of the vulnerable by offering unsuitable debt management packages - but that's also reflected in the lending community too.

The banks have expanded their lending and credit card activities beyond all recognition since deregulation - and there is also plenty of evidence that those offering 'sub-prime' lending to less affluent borrowers have been expanding their activities too. Not surprisingly, loans like this carry higher rates and, if they work, are more profitable for the lenders.

Pressure groups, and of course banks and mortgage lenders, have complained that the debt management industry as a whole appears to offer consumers a simplistic proposition: an easy way to consolidate their debts into a single monthly payment. It may do so by taking a charge over their home's equity and often manage the lower payment simply by spreading payments over a longer period. But that's only one option. Most bona fide debt management firms offer a range of solutions tailored to individual circumstances.

It's true, of course, that debt management companies are not subject to the same regulatory controls as credit card issuers, mortgage banks or other lenders. They pay only a modest fee to be licensed.

You could argue, however, that that is all that is needed. Insolvency practitioners, including those who have to be employed by debt management companies, are regulated and have to jump through a variety of compliance hoops to do their jobs.

Unsurprisingly, the banks and credit card companies are in the forefront of those calling for these companies to be regulated. In fact, some debt management and IVA companies claim to conduct their businesses according to the spirit of FSA regulation anyway, or else have ancillary activities that are formally regulated.

But for the banks to claim that the 'IVA factories' pose a threat to their recovery of debts is wide of the mark. Banks generally do markedly better in terms of debt recovery under an IVA than they do if they try and collect the debt themselves by more traditional means.

Debt management companies reckon that recovery rates for IVAs are 25-45% versus around a 10th of this level through traditional means. Not only that, but the banks save on costs. The debt management companies who promote IVAs represent an outsourcing of the recovery process for the banks.

Instead of calling for regulation of the debt management industry, many would argue that banks and credit card issuers need to reform themselves. They need to rein in the way they market their lending, to ensure that those they lend to understand fully what they are getting themselves into, the charges involved, and the alternatives and the risks involved.

The reasons for the explosion in credit provision are complex. In part it's the instant gratification aspect of modern life, in part the relentless promotion of high margin branded products as though they were essentials, and in part the Thatcher-era deregulation of the credit markets, not to mention surging property prices, which have themselves been brought about by freely available credit.

Lord Griffiths, the former Bank of England director who 25 years ago recommended in an official report that bank credit be made more freely available to the man in the street, is on record more recently as saying that he could never have envisaged the proliferation of debt being offered to consumers, and that if he had done, he would have urged greater caution.

So if the banks are really sincere about seeing some improvement in their bad debt experience, then rather than criticising those providing debt consolidation advice and IVAs as a worst-case option - why not fund educational initiatives and curriculum development in schools, to teach new consumers about the realities of life in debt.

In the meantime you have only to look at the long-term relative share price performance of HSBC versus the likes of Albemarle & Bond, a pawnbroker, and the likes of Compass Finance, Debt Free Direct and Debtmatters to see which way the wind is blowing. Managing the consequences of debt is a big industry, and set to get bigger still.

Interactive Investor
http://myvesta.org.uk

I had a tune running through my head when I was thinking about debt and then had an epiphany: Not since Paul Simon advised couples on "50 Ways to Leave Your Lover" has there been such a need for a new list.

I'm always telling people that they should deal with debt, and not "slip out the back, Jack," but maybe I don't dwell often enough on the sugar that comes after you take your medicine by paying off those bills.

So I began listing all the good things that come from being out of debt, and before you know it, I had a Simonesque list of 50.

Perhaps the time has come to advise Bea to learn the key. It's truly never too late to get a new plan, Dan!

Here are 50 good things about being debt-free.

Avoid trouble with cards, Gerard

1. No longer having to decide how much you can afford to pay on credit cards.

2. No ghosts of Christmas debts past haunting you during holiday shopping season.

3. Never being refused for credit.

4. Never being required to spend money you have not yet earned.

5. Having the control that accompanies buying things with cash.

6. Never having to use one credit card to make a payment on another.

Stash a buck, Chuck

7. Having a savings cushion for emergency expenses.

8. Understanding the different kinds of savings needs.

9. Having enough money for both needs and many wants.

10. Watching your balances grow, and that's a good thing.

11. Having fewer fights about money with your sweetie.

12. Experiencing the advantages of a higher credit score.

Plan an attack, Mac

13. Knowing what to do before a marriage.

14. Knowing what to do to prepare for a divorce.

15. Being prepared for a job layoff.

16. Knowing how to create a realistic budget.

17. Understanding the advantages of planned spending.

18. Getting better interest rates when you borrow.

Save for school, O'Toole

19. Having back-to-school costs covered.

20. Setting a good example for your kids.

21. Having the flexibility to shop for the best deal.

22. Knowing you will be prepared to pay your children's college tuition.

Answer the phone, Jerome

23. Not screening for credit-collection calls or letters.

24. Looking forward to opening your mail.

25. Never having to meet Judge Judy.

26. Reading a statement that reads "paid in full."

You're never a schlemiel, Lucille

27. Recognizing money scams a mile away and avoiding them.

28. Knowing when and where to ask for financial assistance.

29. Never having to pay late fees.

30. Never robbing Peter to pay Paul.

31. Keeping your own identity.

Don't worry, Lorrie

32. Sleeping better at night.

33. Never having to worry about repossession.

34. Never worrying about being upside down in a car loan.

35. Finally having your entire financial life working together in harmony.

36. Not worrying about paying for the family vacation.

37. Not having to locate a good credit-counseling agency.

38. Not needing a reference for a good bankruptcy attorney.

Keep ahead, Fred

39. Never being behind on your mortgage.

40. Knowing your checks will never bounce.

41. Keeping financial records that work best for you.

42. Having all the resources to satisfy the IRS.

43. Experiencing the joy of living below your means.

44. Not spending your weekend having a garage sale to help pay bills.

Be in the know, Joe

45. Being able to prevent financial problems before they happen.

46. Knowing you can withstand anything financial life throws at you.

47. Knowing how to and when to revise your financial plan as your circumstances change.

48. Knowing the difference between wants and needs.

49. Knowing when you will have money enough to retire.

50. People ask you for financial advice so often you become the next Bankrate.com Debt Adviser.


Myvesta UK IVA Advice

Citizens Advice Bureaux across the North West are being reorganised to cope with budget cuts at a time when a soaring debt crisis is placing greater demands on their services.

Services are under threat or are being scaled down amid calls by politicians and councillors for a more efficient and organised service.

In Manchester the city centre CAB came close to disintegrating after weak management left a gaping hole in its finances.

Its telephone counselling service now looks set to be suspended and the office shut down with services being relocated around the Manchester area.

In Lytham St Annes a bureau was closed down after failing an audit.

In Wirral two offices are under threat as managers review service provision across the district.

In Flintshire, North Wales, the CAB will have to renegotiate service agreements with the local authority as it grapples with a £49,000 budget deficit.

CABs in Bebington, New Ferry, Wythenshawe, and Withington – among the most impoverished areas in the region – are also threatened with closure.

Citizens Advice North West interim regional manager Nick Bussey said: “Where a bureau implodes, as almost happened in Manchester, it is always down to poor management and trustees, and an inability to adapt. Some of our North West managers are simply not up to the job.

Thrive

“We are now moving away from a situation where CAB are handed grants to one where they will tender aggressively for contracts from local authorities and primary care trusts. Bureaux which saw this coming and prepared themselves will thrive, while others will fail.”

Politicians are calling for a wide-ranging review of the way CAB services are funded. Wirral South MP Ben Chapman said: “The question is one of core funding and sustainability, and about the regional and national structures of Citizens Advice itself. It provides a crucial impartial service, particularly in deprived areas with high debt levels, and we need to protect it for the future. But we need to urgently examine how the service is funded and look at how it is structured to safeguard it for the future.”

The North West has 56 CABs which operate as separate charities and are members of the national umbrella group.

All depend on local authority funding, grants from the Legal Services Commission and cash from the Lottery and similar funds. Volunteers make up about 80 per cent of staff and advice is free and impartial. Forty-six have closed in the last decade under restructuring and now more services are under threat as reduced grants push some bureaux into a financial crisis of their own.

The problems have emerged against a background of spiralling debt, which is forcing thousands more clients to turn to CAB. Consumer borrowing has passed £1 trillion, while the average British resident owes more than £26,000, including mortgage debt.

In one case, advisors in Wigan supported a man whose £1,800 home improvement loan spiralled to £14,400 after he lost his job and struggled to meet repayments. Some clients are so desperate they threaten suicide in front of counsellors.

From next year, the Department for Trade and Industry will fund dozens of extra debt advisors, to be employed by CABs across the North West. But many bureaux only went for the contract after being assured full costs would be factored in and that they would not be left out of pocket and in even worse financial difficulties.

Salli Edwards, chief executive of Flintshire CAB, said: “The danger is that if core funding from local authorities and other sources continues to be reduced like this, there will be no one to deliver the services. If many bureaux are forced to close, what will be left?”

Cuts made last year in Preston were only reversed when councillors re-instated £22,000 of funding. South Lakes CAB has also found itself in difficulties as local authority funds were cut.

Critics claim the fragmented set-up of CABs is inefficient and unaccountable. Councillors in Fylde slashed funding when two bureaux refused to merge, and core funders are pushing offices across the region to reorganise as a condition of support. Cumbria County Council has promised to raise funding for financial advice by £15,000 to £329,000 in 2008 but expects a county-wide presence to be established.

CAB managers warn a system of one-year grants is creating instability and say a balance must be struck between efficiency and meeting community needs.

North-West Enquirer

Myvesta UK IVA Advice

Many women are going bankrupt due to credit card debt and increasing household bills, figures showed this week.

The number of female bankruptcies has gone from 42% to 44% over the past year, according to accountants Wilkins Kennedy, which surveyed 1,200 bankrupts across England and Wales. Since 2002, the figure has risen from 32% to 42%.

Keith Stevens, insolvency partner at the firm, said if the trend continues at the current rate half of all people going through the bankruptcy process will be women by the end of the decade.

"It is difficult to see the situation getting any better because so many people are already teetering on the brink of the precipice," he said. "A modest rise in interest rates or a fall in income could be enough to tip them over the edge."

Mr Stevens said the problem stemmed from the fact that women's salaries have failed to keep up with their need to be financially independent. Research by Halifax shows the proportion of new mortgages taken out by single women has more than doubled in the last 20 years and now accounts for 23% of the total market.

"Women are taking on a much greater debt burden than they used to, but their income still lags behind," Mr Stevens said.

The Consumer Credit Counselling Service (CCCS), a charity that helps people unable to cope with their debts, said the proportion of women contacting the service for help had risen to 53.4% last year, up from 51.9% in 2003. The charity's founder, Malcolm Hurlston, said the organisation had also seen an increase in the size of women's debts, particularly among women between the ages of 25 and 30.

"Women have always made up a large proportion of our clients because they have traditionally been more prepared to seek help," Mr Hurlston said. He added that women have a greater capacity to borrow now than in the past, and so the likelihood of getting into trouble had also increased.

Last week, research showed that people in their 50s have the worst credit card debt problems, with one debtor owing a total of £412,000 on 57 credit cards.

The unnamed 56-year-old is the largest debtor on file with the CCCS, which said that although credit card spending has slowed since 2005, those over 53 were increasing their spending.

Meanwhile, recent government figures showed personal bankruptcy has risen year-on-year. The number of individual bankruptcy petitions filed in the High Court and county courts in England and Wales between April and June rose 10% to 15,796 compared with the same quarter last year, the Department for Constitutional Affairs said. The government Insolvency Service also said the number of people becoming insolvent in the spring had reached record levels.

The Guardian
Myvesta UK IVA Advice

Need Help Claiming Back Charges Or Payment Protection Insurance Fees ? – Click Here

A large industry has developed to help borrowers offset the credit risk they face. A working party led by the Department of Trade and Industry concluded that PPI can “provide valuable protection against changes in a consumer’s financial circumstances”.

Industry estimates for the United Kingdom PPI market put the number of live policies at around 20 million, with between 6.5 and 7.5 million new policies being taken out each year. PPI premiums are said to total approximately £5.3 billion per year. In comparison, property insurance premiums total £8 billion and motor insurance £9.5 billion.

Anyone can lose their job, fall ill, or suffer bereavement or the breakdown of a relationship. A change in circumstances can lead to a dramatic and sometimes permanent, fall in income. For those people with outstanding credit agreements a cut in income raises the serious possibility of unmanageable debt.

The scale and extent of PPI does not necessarily mean that PPI products provide consumers with good value for money, or that the market is working well for consumers. Most borrowers purchase PPI linked to the credit product such as a loan, a hire purchase or consumer credit agreement. Borrowers enter into these secondary sales with little opportunity to shop around and no real choice. As the Financial Services Authority (FSA) has pointed out, there is a danger that secondary sales lead to customers buying products that are poor value.

Stories of the credit industry making large, even excessive, profits from PPI premiums and commission regularly appear in the financial press. For example, the Guardian reported that Barclays made £240 million from PPI sales in 2000/01, with a profit margin of 70 per cent on payments made by consumers. In 2004, the same newspaper revealed that Barclays made as much as 20% of all of its world wide pre-tax profits from PPI, with £7 in every £10 spent on PPI going straight on to the bank's bottom line. Lloyds TSB plc report income in 2004 from creditor insurance premiums of £114 million and commissions from brokering creditor insurance at £377 million.

Two different estimates suggest that PPI premiums are about four times the cost of providing cover. This implies that borrowers generally could be overcharged by as much as £4 billion per year for PPI cover.

Evidence suggests that both the sales process and design of PPI products fail to meet the needs of many customers and often just increases their indebtedness, particularly in relation to debt consolidation. Published figures suggest that the limitations of the policy have meant that customers could only make claims for just over a quarter of the debts which they believed were covered by the insurance policy.

A Citizens Advice Bureau in Greater Manchester reported that a woman with multiple debts had taken out a consolidation loan for £20,000 to deal with them. Later the client read the documentation and realised that she had actually paid £27,000, as the loan included payment protection insurance and that interest on the PPI ran at the same rate as the loan itself. When she investigated further she saw that her monthly repayments were £284pm over 300months, which meant that she would have to pay £85,200 over the course of the agreement. By this time, the period within which she could cancel the agreement had expired.

The above example is typical. Often the consumer is not even aware that they have bought PPI or they have been told that the loan is dependent on them taking out PPI, which the Financial Services Authority makes clear should never be the case.

In June 2005 Cardiff Pinnacle, part of the global banking group BNP Paribas, wrote to 2,600 policyholders telling them that their SalaryProtect cover would be terminated. The plan, designed to pay out if policyholders lost their jobs, was closed on 20th July. Customers were given only 30 days’ notice. Policyholders who tried to claim after July 20 were turned down automatically, no matter how long they had been paying their premiums. Pinnacle told customers it was no longer prepared to provide cover because it had been overwhelmed by claims.

Hire purchase, conditional sale and loan agreements are commonly sold with PPI, which is usually sold as a one-off premium added to the credit agreement. When consumers exercise their right to terminate the hire purchase or conditional sale agreement they are told that the PPI policy cannot be cancelled. The borrower usually pays a one off, up front PPI premium funded by additional borrowing charged at the main agreement rate. Lenders are refusing to terminate these ancillary loans or bring about the refund of premiums.

Need Help Claiming Back Charges Or Payment Protection Insurance Fees ? – Click Here

Millions of homeowners are bracing themselves for higher mortgage repayments as lenders begin to pass on last week’s quarter point Bank of England base-rate rise.

Abbey, Halifax and Northern Rock and subsidiaries of Royal Bank of Scotland, including Tesco, the One Account and First Active, were among the first few lenders to announce that they would pass on the full 0.25 percentage points to borrowers with standard variable rate (SVR) mortgages or discounted deals.

A Halifax customer with £100,000 left to pay on a SVR will see his or her repayments go up from £675.21 a month to £690.91 — £188.40 a year.

For most SVR borrowers, the change will take effect from September 1. But new customers taking variable rates could start paying the extra as soon as next week. For the growing number of borrowers on tracker deals, the additional 0.25 percentage points will have already kicked in.

Borrowers with Norwich & Peterborough Building Society have been stung twice — the lender has levied the quarter point, despite already increasing its SVR by 0.19 percentage points on June 16.

But the impact will be felt most keenly by the legions of borrowers on interest-only loans. On a £200,000 loan, an interest-only borrower would see outgoings rise by £41.67 a month, or just over £500 a year. For a borrower with the same loan, making capital repayments, outgoings would rise by a more modest £28.57 a month, or £342.84 a year.

Melanie Bien, of Savills Private Finance, a mortgage broker, says: “This is especially tough on first-time buyers who have opted for variable interest-only deals to ‘save’ money.”

Even fixed-rate borrowers who thought they were immune from soaring mortgage costs could soon face higher repayments, as swap rates, the money markets that determine fixed-rate lending, have risen in response to the base-rate rise — and in anticipation of another one before the end of the year. Anyone coming to the end of their deal is being urged to snap up the last of the good value, short-term fixes.

Nick Gardner, of Chase de Vere Mortgage Management, another broker, says: “Anyone wanting to fix should do so as soon as possible.”

The lowest two-year fix still available is a 4.49 per cent deal from Alliance & Leicester, with a £999 fee. For remortgagers, Nationwide is offering a rate of 4.89 per cent, with free valuation and legal work and an arrangement fee of £798.

No lender has yet put rates up by more than 0.25 percentage points, but with some SVRs at 6.7 per cent, there is a danger that rates could cross the 7 per cent threshold.

But the overwhelming majority of lenders, including Barclays, which owns the Woolwich brand and HSBC, are yet to announce new rates. Darren Cook, of Moneyfacts, the price comparison service, says: “Lenders are being cautious. The smaller ones are waiting to see what the big players do, but we cannot rule out higher rises sneaking in later.”

There has been little consolation for savers. Only a handful of banks and building societies, including Halifax, Lloyds TSB and National Savings & Investments, have so far put rates up by the full 0.25 per cent, but most of these increases apply only to guaranteed accounts. Banks are yet to increase returns across the board.

Changes on most ISA rates are expected early next week, but most building society customers will have to wait until the end of the month to find out how, or if, returns will be affected. Janet Cane, of Moneyfacts, says: “The rise caught banks by surprise. Many have not decided how to respond.”

Over the past few months, savings rates have been slashed. Barclays, HSBC and Woolwich all cut ISA rates by as much as 0.45 per cent in June.

The Times
August 12th, 2006
Myvesta UK IVA Advice

When the precipice loomed, she went over it at high speed. Already £80,000 in debt and having just set up in business, Deborah Taylor's bank bombarded her with loan offers.

She finally succumbed and applied for £24,000. Deborah, 43, vanished into the financial abyss, eventually running up debts of £134,000. 'It was a horrendous experience,' the web designer said. 'I felt as if I was in a bubble, screaming, and no one could hear me. I ended up on anti-depressants.'

Her way out was an individual voluntary arrangement - a type of insolvency in which borrowers pay part of their debts in return for having the rest written off and avoiding the stigma of bankruptcy. And thanks to Britain's credit binge, it is a booming business - 11,105 people went into an IVA in the past three months alone.

Deborah, from Portsmouth, says her IVA is a boon. She has repaid just under 20% of her debts to her bank and though she is having to sell her house, she is still relieved. 'I feel like a different person,' she said.

Going bust has long been seen as the preserve of entrepreneurs. Famous bankrupts include TV chef Keith Floyd. But massive debt is no longer just for wheeler-dealers and is becoming more and more common among ordinary shoppers who have overspent.

High Street banks last week wrote off billions in bad debts, with £2.6bn attributable directly to consumers. The banks claimed the rise was fuelled by easy bankruptcy laws and the boom in IVAs.

The number of IVAs could rise still faster under plans to introduce Simple IVAs - or SIVAs - within the next 18 months. At present, debtors must get agreement from 75% of their lenders to enter an IVA. An SIVA will reduce that to 50%, but only if debts total less than £75,000.

Patrick Boyden, personal insolvency partner at PricewaterhouseCoopers, said: 'SIVAs will mean more business for the 'IVA factories' - as I call them - and draw more people from the poorer end of the market into using IVAs.'

Many blame the rising number of bad debts on the banks for overlending. Paul Latham, finance director at insolvency advice group Debt Free Direct, said banks could not place the responsibility for growing bad debts on organisations such as the one he represents.

'The banks spend £300m advertising lending every year,' he said. 'Blaming us for bad debts is like cigarette companies blaming doctors for diagnosing lung cancer.'

Finbarr O'Connell, president of the Insolvency Practitioners Association, claimed the rise in the use of IVAs was actually good news for the banks.

'I think it is very much to be welcomed that consumer debtors are increasingly looking to use what has become a well-established route to reaching some sort of orderly settlement with their creditors, rather than simply throwing in their hand and going bankrupt,' he said.

Even so, there are fears of a looming scandal in insolvency advice. Financial Mail and This is Money reported in April on fears that people were being advised to enter into an IVA when in their own interests they would be better off going bankrupt.

An insolvency business earns no fees from recommending bankruptcy, but can earn up to £6,000 by arranging an IVA.

Perhaps surprisingly, Latham said: 'Like the pension business 20 years ago, there are people in our industry who are not giving the best advice, either for the debtor or the lender.

'Some advisers charge the debtor upfront to arrange an IVA, which is not refunded if no IVA is agreed. That should be banned.' At present, each insolvency practitioner is regulated individually by professional bodies such as the Law Society.

Daily Mail

http://myvesta.org.uk

The Halifax, Britain's largest mortgage lender, has already passed on last week's quarter-point hike in interest rates to its borrowers, lifting its standard variable rate (SVR) to 6.75 per cent from 6.5 per cent.

The increase means the monthly repayments on a £100,000 variable-rate repayment mortgage with the halifax have risen by £15 to £690. Repayments on a £250,000 mortgage are up by £39 to £1,727. For the growing number of borrowers on tracker deals, the additional 0.25 percentage points will have already kicked in.

Alliance and Leicester will also up its rates for existing borrowers by 0.25 per cent on September 1. The One Account, owned by Royal Bank of Scotland, was among the first to respond to the Bank’s quarter-point hike in interest rates last week.

The rate on its flexible mortgage went up 0.35 points to 6.3 per cent for loans accounting for more than 85 per cent of the property. The change was a tenth of a percent higher than the base-rate rise.

Borrowers with Norwich & Peterborough Building Society have been hit twice — the lender has levied the quarter point, despite already increasing its SVR by 0.19 percentage points on June 16.

Other lenders such as the NatWest are currently reviewing their rates but are expected to follow suit in the next few days. Nationwide is due to announce changes to its mortgage rates tomorrow.

The impact of the rate rise will be felt most keenly by borrowers with interest-only deals. On a £200,000 loan, an interest-only borrower would see outgoings rise by £41.67 a month.

Howard Archer, the Global Insight economist told Times Online: "A significant minority of people have borrowed to the hilt and small increases in interest rates can have a much more damaging effect than in the past.

"Interest rates are just one more thing weighing on borrowers who also have to deal with soaring utility bills, petrol prices close to £1 a litre and modest earnings growth."

Last week, figures showed that personal insolvencies rose almost 70 per cent to hit a new peak in the three months to June. Property repossessions also recorded a steep year-on-year rise, with the number of eviction orders increasing by 20 per cent in the second quarter from a year earlier.

Mark Sands, director of personal insolvency at accountants KPMG, now estimates a record 100,000 personal insolvencies in 2006.

James Cotton, of London & Country Mortgages, advised borrowers on high SVRs to move their mortgage to a cheaper provider. Ray Boulger, a spokesman for John Charcol, the mortgage broker, said those intent on locking in to the best fixed-rate deals had to move quickly. "If borrowers are adamant about locking into fixed-rate deals they should move quickly as lenders will put up their rates over the next few weeks," he said.

The Times, August 10th 2006

According to a new report recently published by Debt Free Direct, debt that is acquired in the joint name of your partner now accounts for 28% of all personal bankruptcies in the UK.

Typically this debt is made during times when both parties to the relationship believe that the relationship will never end. More often than not, these debt has been made using joint credit cards, where the credit card has both a primary and secondary user. With divorce rates being three times higher among bankrupts, the message is clear: if you want your relationship to stand the test of time, then think very carefully before agreeing to have a joint credit card account.

Divorce increase due to credit card debtRecent evidence appears to show that uncontrolled credit card spending is now a major problem among younger women in the UK. It is not necessarily the case that women have less reason to control their credit card spending than men, but the daily situations that women in relationships face normally means they turn to their credit card to pay for household items more often than men.

Unchecked, however, and the end of the month credit card statement, which typically is in the man’s name, will likely cause a shock and possibly an ensuing argument over the amount being spent. Added to this is the fact women are far less likely to be in a position to financially get themselves out of the UK credit card debt trap without the help of the man. In some cases, concerned with the spiraling level of credit card debt means the man has to cut the woman’s access to the joint credit card off, with all the problems that follow such a move to follow.

However, even where men do not cut off access to the UK credit card, mounting credit card debt payments generally results in financial hardship of the male primary cardholder, which in turn can lead to credit card defaults and, finally, action being brought by the UK credit card issuer to reclaim the debt.

So far as the man is concerned, the woes he is experiencing here have primarily been brought about because of the UK credit card spending habits of his partner, not him. In turn, this puts intense pressure on the couple’s relationship and, unfortunately, more often than not this is now ending up in the divorce courts.

The obvious lesson to learn from this is if you are going to agree to have a joint credit card with your loved one, you need to be communicating with each other so that the other knows exactly how much is being spent on the card and so that you can mutually agree that you can afford the purchases being made on the credit card.

While mutual consent as to the amount of debt you are creating as a couple is no assurance that you won’t end up bankrupt or divorced, it should hopefully reduce both of these possible scenarios as each of you is clearly aware of what your financial position is and so there is less grounds on which to argue about how and who got you into the mess you are in.

Richard Smith
9th August 2006
http://myvesta.org.uk

Consider the scenario – you're heavily in debt, struggling to meet repayments, don't want to lose your house and don't know where to turn.

If you were offered the chance to have the debt halved or even reduced by two thirds and be debt free within five years, would you say no?

Well that's what thousands of over-indebted consumers are doing by taking out an Individual Voluntary Arrangement

According to the Insolvency Service, over 11,000 people took out an IVA in the second quarter of the year – a record number. Lloyds TSB has blamed them for its rising level of bad debts, but what are they and how can people take advantage? This is Money's Michael Clarke answers your questions.

What Is An IVA?

IVAs were established in the mid-eighties as a vehicle for sole-trader businesses that had ran into financial trouble to cut their debts but wanted to avoid applying for bankruptcy. They are essentially a legal contract between lenders and a borrower to make an agreed monthly repayment. Over the past 20 years they have become increasingly used by consumers as a way of easing their debt burden. According to accountants PricewaterhouseCoopers, an IVA application is made every seven minutes.

How do they work?

For an IVA to come into force, 75% of the creditors have to agree to the proposal put forward by the individual's IVA practitioner. The IVA company will look at a person's income and outgoings and calculate how much they can realistically pay each month.

The IVA company will typically propose that the debtor pays back between 30p and 50p in the £1 and if the creditors agree, the IVA contract will last for five years. Interest will be frozen while the debt is being repaid and after the contract has ended, the individual will be debt free. During the contract the individual will not be able to apply for any credit.

Before the IVA proposal is put to the creditors, the individual needs to sign a 'statement of truth' about the financial circumstances, which needs to be read by a solicitor. A creditor meeting then considers the proposal.

Who are they suitable for?

In most instances, a good debt management plan will be sufficient to help a person tackle their financial problems. Most IVA companies claim that only around 3% of people that phone its call centres are recommended to proceed with an IVA.

However, if you have a regular source of income and are more than £20,000 in debt then they will consider your case. It's a misconception that only poor people apply for IVAs. In fact, a typical IVA client will be a young professional in a good job that has simply borrowed too much money. Clients will usually own their own home.

What if I miss a repayment?

It depends on the frequency of the missed payments. If you have one missed payment due to exceptional circumstances then the creditors may accept it as a one-off and proceed as usual. However, if the individual stops paying altogether, then they have broken their contract and the creditors can force them into bankruptcy. However, this can cost them up to £1,500, so often they will sell the debt on to a debt collection agency and the individual will be in a worse position than when they started.

What assets can I keep?

One of the key benefits of taking out an IVA over bankruptcy is that the individual's is safe from repossession. However, if you have a large amount of equity in your property, the creditor may still expect a certain amount to be remortgaged to help meet the debt. It is likely that they will only concentrate on your unsecured debts.

How does it differ from bankruptcy?

Bankruptcy means that a person is forced to sell assets and use the funds to pay off creditors immediately. You are also refused access to financial products for a period after bankruptcy. IVAs use ongoing income to pay off debts. As mentioned above, you also get to keep assets such as your house.

Unlike bankruptcy, an IVA is not advertised in the local press and does not exclude you from running a business or lead to many professions terminating your employment.

Dealing with debt

Help get yourself out of debt by using our guides and tools. Also, see if you can save money by using our switching service.

What if my financial circumstances change during the period?

If your financial circumstances change, such as you inherit a large sum of money, then you will be expected to keep creditors updated and the may wish to make a change to the agreement to reflect the different circumstances. Likewise, if you lose your job, the agreement can be reviewed.

What companies offer IVAs and how much do they get paid?

By law, only Insolvency Practitioners are allowed to propose and manage an IVA and a number of firms have sprung up to service the market. The largest of which are Debt Free Direct and Accuma, both stock-market listed companies that have reported massive growth. IVA firms expect to make an average of £7,000 per client. They charge a 'nominee fee' of between £1,000 and £2,500 at the start of the contract and then a further £500 to £900 a year in supervisory fees. Although these fees are charged to the lender, the nominee fee will come out of the debtor's first-year payments.

People considering an IVA should research the practitioner thoroughly before proceeding as there have been cases of rogue operators in the industry recommending an IVA when a debt management plan or bankruptcy would have been more suitable.

What are Simple IVAs?

The number of IVAs could rise still faster under plans to introduce Simple IVAs - or SIVAs – by the end of 2007. At present, debtors must get agreement from 75% of their lenders to enter an IVA. An SIVA will reduce that to 50%, but only if debts total less than £75,000.

A standard application process and contract will also be introduced to speed up the time it takes to complete an IVA. However, it is believed plans to introduce another tier of IVA, which would have allowed anyone with debts below £25,000 to be automatically approved, have been rejected.

Michael Clarke, This is Money
8 August 2006

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Almost 15,000 people declared themselves bankrupt in the second quarter of 2006, a slight decrease on the first quarter but an increase of 32% on the same time last year. But is bankruptcy always the best option if you find you have borrowed more than you can afford to pay back?

What does bankruptcy involve, and should I consider it?

Bankruptcy is a serious step to take, and there are other ways of dealing with debt. If you are considering bankruptcy you should take advice from your local Citizens Advice Bureau (or similar organisation) or an insolvency practitioner.

The majority of your assets are handed over to a trustee, who controls them from that moment onwards. The trustee might be an official receiver (a civil servant and court official) or a licensed insolvency practitioner. In the initial stages of your bankruptcy you will deal with the official receiver

Their job is to find out as much as possible about what you own and what you owe, and then to make sure the people or companies to whom you owe money are repaid. You are then protected from your creditors, who can no longer pursue you for payment. You might have to make a monthly contribution to your debts, but that will be based on what you can afford.

It is not a cheap option, however. You will have to pay a deposit of £325 if you are making a debtor's petition and £390 for a creditors petition, plus a court fee of £150 (although the court will waive this in some circumstances, such as if you are on Income Support).

But after that you start with a clean slate?

Sort of. Your debts are effectively written off after bankruptcy, so for a lot of people it brings enormous relief. But it is not a decision to be taken lightly. Getting a mortgage or any other credit in future may be tough.

Does bankruptcy last forever?

No. Most bankrupts will be automatically discharged after a maximum of 12 months, rather than the two or three years it used to take. But a new regime of Bankruptcy Restrictions Orders (BRO) will impose tougher restrictions to protect the public and the commercial community from those whose conduct has been irresponsible or reckless.

In cases where conduct is found to be reckless, culpable or irresponsible, a BRO will last for between two and 15 years. For all bankrupts there are restrictions on obtaining credit of more than £500 without disclosing their status, trading in a name other than the one in which the bankruptcy order was made and acting as a director during the bankruptcy period. For those subject to a BRO these restrictions will apply for the duration of the order.

But after that period you're debt-free?

Yes, although discharge doesn't necessarily happen automatically. The courts can decide to postpone it if you do not co-operate with the official receiver or your trustee. Even after discharge, a record of your bankruptcy will be kept on your credit file by commercial credit reference agencies for the next six years, and during that time getting any sort of credit could be difficult.

Many of the irrelevant and outdated restrictions that currently apply to bankrupts and prevent them from holding certain offices are being removed. However, bankruptcy may affect a person's ability to work in certain professions and you cannot act as a company director without leave of the court.

I own more than I owe, so can I just hand over assets to the value of my debts and keep the rest?

Well, the new regulations do include a method of repaying debts from the bankrupt person's income which does not require a court order, but that will still last for three years.

And there is a fast-track voluntary arrangement system, which will mean a bankruptcy order can be annulled in return for greater or quicker payments to creditors.

But when it comes down to it, bankrupts still risk having most of their assets sold for the benefit of creditors. That means you may have to give up your car if you don't use it for work, any expensive jewellery...

Oh dear. Still, whatever happens, they can't take my home, can they?

I'm afraid they can. If you own your home, the official receiver can sell it off to go towards paying your debts. If you have a mortgage and can't meet the payments, the lender might be allowed to sell your home.

If you have a partner or a spouse, they will be encouraged to buy your half of the equity in the property from the receiver. But if they can't do that the trustee will have three years to deal with your home.

If you rent your home, the receiver clearly cannot repossess, since the property is not yours. However, they can tell your landlord that you are bankrupt.

I've been paying into a pension for a few years now. They can't touch that, can they?

A trustee cannot usually claim a pension as an asset if your bankruptcy petition was presented on or after 29 May 2000, as long as the pension scheme has been approved by the Inland Revenue.

What about IVAs? I've heard they allow you to just dump your debts and get away scot-free.

Well, the banks certainly aren't happy about the sharp rise in business which IVA (individual voluntary arrangement) companies have seen in recent years - drummed up, according to them, by "misleading" daytime TV adverts.

IVAs were designed for sole-trader businesses as a halfway house to avoid bankruptcy. They are essentially a way of making your "best offer" to creditors; if 75% of them accept the offer, it becomes legally binding on all of them.

So I'll end up losing less than I would if I filed for traditional bankruptcy?

Actually, some people are surprised at the amount they are expected to repay under an IVA, and opt for bankruptcy instead. On the other hand, your house can't be repossessed if you opt for an IVA.

So how should I decide whether an IVA is my best option?

Go to a debt counsellor first for advice

So there are no easy ways out of bankruptcy, then?

No. Bankruptcy is a very serious option and should not be taken lightly.

Sunday August 6, 2006
Guardian Unlimited

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The Bank of England has hinted that UK rates may have to rise further in coming months in order to keep inflation on target at 2%.

In its quarterly inflation report, the Bank said inflation could rise as high as 2.7% without a rate rise.

But while the Bank said it had raised its expectations for economic growth, it warned that high energy bills still posed a risk.

The news comes a week after the Bank raised rates to 4.75% from 4.5%.

The Bank's governor, Mervyn King, said the Monetary Policy Committee had opted to raise rates "against a background of firm growth and limited spare capacity and with inflation likely to remain above target for some while".

"It [the MPC] remains ready to take whatever action might be necessary in the future," he added.

However, experts said that uncertainties raised by the report made it unlikely that the Bank would opt for more than one more rise in rates.

There remains great uncertainty about future energy prices
Mervyn King, Bank of England

"There is a warning that rates may have to rise, but it will depend on the domestic and worldwide economy over the next few months," said Investec economist Philip Shaw.

Latest figures from the Office for National Statistics (ONS) showed Consumer Price Index inflation rose to 2.5% - its highest level since similar records began in May 1997.

Higher fuel bills, as a result of rising oil and gas prices, were behind much of the rise.

Looking ahead, the Bank said it expected soaring energy prices, as well as rising university tuition fees to push inflation above its 2% target.

The Bank said the pick-up in inflation was "somewhat more marked" than in its May report.

"There remains great uncertainty about future energy prices, especially in the light of political tensions in the Middle East, and inflation is likely to be volatile over the coming months," Mr King added.

The bank has had to balance controlling inflationary pressures against a possible slowdown in consumer spending with its rate rise.

But the UK economy has put in a strong performance recently, recording its strongest growth in two years between April and June, while the housing market has picked up significantly over the past year.

The report forecast that the UK economy would continue to recover as consumer spending picked up, investment recovered and trade provided a boost.

The forecast came despite figures, released earlier on Wednesday, showing that the UK's trade gap with the rest of the world had narrowed less than expected as both imports and exports fell.

The Office for National Statistics said that the world trade gap narrowed to £6.46bn in June from an upwardly-revised deficit of £6.98bn in May - against forecasts of £6.2bn.

BBC News, August 9th 2006
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Citizens Advice, the national charity, has responded to today’s figures on the number of people of became insolvent during the second quarter of 2006 with advice for people in debt. The figures show a 66% increase on the same period last year.

Teresa Perchard, Director of Policy for Citizens Advice commented:

“We are not surprised by today’s figures as we have seen an increase in the number of people coming to us with debt problems. We would say to anyone who is in debt – don’t panic, but don’t ignore the problem. Let creditors know that you are having problems – they should be sympathetic and helpful. Look at your income and expenditure – don’t just try and borrow your way out of debt. What must be clear is what it will cost you and if you can really afford it. You can get free advice at www.adviceguide.org.uk or by visiting your local Citizens Advice Bureaux.”

A report published by the charity recently called Deeper in Debt revealed that CAB debt clients owe an average of £13,153 - almost a third more than they did three years ago, and the equivalent of 17.5 times their total monthly household income. It will take them an average of 77 years to pay off the money they owe at a rate they can afford.

Consumer credit debt problems brought to Citizens Advice Bureaux have doubled over the last eight years, accounting for three-quarters of the 1.25 million new debt cases dealt with by the national network last year.

Earlier this year the Government awarded Citizens Advice £33 million to provide more face-to-face debt advice in England and Wales.

Ten top tips for dealing with debt, borrowing and budgeting:

1. If you are in debt, don’t ignore the problem. Tell your creditors if you are having problems paying them.
2. Work out how much you think you can realistically afford to pay back to creditors.
3. Pay the most important things first like mortgages, rent, council tax, and gas and electricity, not just the person who shouts the loudest.
4. Check your income and see if there is anything you are entitled to that you are not getting, such as benefits or tax credits.
5. Be wary of borrowing more money to pay off existing debts.
6. When looking at borrowing money, spend time shopping around, researching what is on offer and getting advice. Never borrow money on the spur of the moment. Always look at the total amount you will have to repay.
7. Always try and pay of at least 10% of your balance every month on your credit cards.
8. Try and save something every month and allow for planned spending in your budget, such as Christmas and holidays.
9. Look at your income every time there is a change in your income or any other change that affects your finances.
10. If you do get into difficulty, seek free advice.

* Explanation of debt remedies:

Bankruptcy - is one way of dealing with debts you cannot pay. Bankruptcy proceedings free you from overwhelming debts so you can make a fresh start, subject to some restrictions; and make sure your assets are shared out fairly among your creditors. In England and Wales it costs £475 to go bankrupt. In most cases you will be discharged from bankruptcy within a year and, with a few exceptions, any remaining debts will be written off.

County court administration order - If one or more of your creditors has obtained a court judgment against you, the county court may make an administration order. Administration is a court-based procedure whereby you make regular payments to the court to pay towards what you owe your creditors. Your total debts must not be more than £5,000 and you will need enough regular income to make weekly or monthly repayments. You do not have to pay a fee for an administration order but the court will take a small percentage from the money you pay towards its costs. The government is considering changing the rules for administration orders to increase the debt limit to £15,000 and require debtors to have at least £50 per month available income after essential expenditure.

An Individual Voluntary Arrangement - is a legally binding procedure which allows you to pay off your debts over a number of years. Some of the debt may be written off and you may be able to keep assets like your home. An individual voluntary arrangement begins with a formal proposal to your creditors to pay part or all of your debts. You need to apply to the court and you must be helped by an insolvency practitioner. Any agreement reached with your creditors will be binding on them. Insolvency practitioners charge fees to set up proposals and monitor the voluntary arrangement.

http://myvesta.org.uk

Extracts From The Myvesta UK Forum:

Question: Will I Lose My House In Bankruptcy

Hi, I am considering bankruptcy, but have conflicting advice regarding my home. I notice on a lot of the advice sites on here, it says you will have to sell your home, and will be bankrupt for 2 years. As I couldn't find an answer, I phoned the official receivers office and he said, they are not in the business of making people homeless, and I would be bankrupt for a year as they understand some people have got into difficulties but should I go bankrupt again that would be a different story second time around.I also asked about my car which is a K reg cavalier and he said why would he take that when I needed to get to and from work.

Can you please advise me, did I get an exceptionally nice official receiver or has some of the information on these sites not been updated as he said it was new law from April 2004.

Thanks

Answer:

Hi there,
I think the advice given to you by the Official Receiver is sound basically. If there is very little or no equity in the house then there is no benefit in the OR looking to sell the property (legally there needs to be more than £1000 in equity value to obtain a repossession order anyhow)

Equally with your car, if it is of low value and you need it to get to and from work etc then it also makes no sense to force sale of the vehicle.

Can I Keep My Car If I Go Bankrupt?


Hope this helps!
_________________
Kind regards

Sean

For Online Bankruptcy Advice In Video Clip Format - Click Here

Myvesta UK - "We Can Help!"

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Britain's debt crisis deepens as personal insolvencies rise almost 70 per cent to hit a new peak.

Figures for the three months to June rose 10 per cent on the previous three months and 66.3 per cent from the same period a year ago.

Mark Sands, director of personal insolvency at accountants KPMG, said: “Pressure could mount further as consumers face higher energy bills and rising interest rates.

"We predict a record number of personal insolvencies of 100,000 in 2006 and we
think the figures mean someone is entering formal insolvency every minute of the working day.”

Accountants Grant Thornton said insolvencies were "spiralling out of control" and predicted worse to come, with the level of house reposessions set to rise and banks tightening their lending criteria.

Mike Gerrard, head of personal insolvency at Grant Thornton, said: "Personal insolvencies have hit the roof and carried on rising, reaching an average of almost 9,000 per month when just five years ago they averaged 2,500."

According to official figures released today by the Government's Insolvency Service, 26,021 people became insolvent in England and Wales during the three months to the end of June.

News of the dramatic rise - for the second quarter in a row - comes after the Bank of England yesterday increased the cost of borrowing by 0.25 per cent to 4.75 per cent. The move was the first time the Bank had upped interest rates for two years.

While designed to head off inflation, the rate rise puts pressure on mortgage repayments for millions of households.

Today's figures also come as concern mounts that the nation's £1 trillion consumer debt bill is becoming increasingly unsustainable.

The Insolvency Service revealed that 11,105 individuals filed for Individual Voluntary Arrangements (IVAs) in the second three months of this year, up 153.2 per cent on the same period last year and 34.9 per cent compared with the January to March quarter.

Gaining an IVA means borrowers do not have to service their debt obligations in exchange for agreeing to pay off a set sum each month.

The lax new laws on bankruptcy have been blamed by leading high street banks this week for sparking a sharp increase in their provisions for bad and doubtful debts.

Leading high street banks HSBC, Barclays, HBOS and Lloyds TSB this week all reported double-digit percentage increases in impairment charges for consumer loans gone wrong.

Mr Gerrard, who also predicted that banks could further tighten their lending criteria, said: "What is of greater concern is that such [insolvency] rises have developed within a relatively benign economic context.

"Without wanting to be overly gloomy, it is undeniable that recent economic factors such as the rise in unemployment levels, ever increasing utility bills and, since yesterday, higher interest rates will all play a part in tipping yet more people over the edge and adding to the problem."

The number of companies going into liquidation fell 4.9 per cent from the first to the second quarter , to 3,265, the Insolvency Service said.

Howard Archer, chief UK and European economist at Global Insight, said today's figures "highlight the fact that many people have borrowed to their limits".

"With unemployment continuing to rise, utility bills soaring, many home owners stretched to the maximum and debt bills at record high levels, it seems highly likely that individual insolvencies and mortgage repossessions will climb markedly further over the coming months," Mr Archer said.

"This danger has been magnified by the Bank of England's raising interest rates this week."

The need for heavily indebted borrowers to improve their personal finances will be a "significant constraint" on consumer spending for some time to come, Global Insight said.

Property reposessions also recorded a steep year-on-year rise during the second quarter, according to separately released figures from the Government's Department of Constitutional Affairs today.

In the three months from May to July, the number of eviction orders was 22,254, according to the Government. This is up 21 per cent on the second quarter last year and slightly higher than the first half of this year. Half of those orders were suspended.

This followed the issue of 33,180 summons after borrowers failed to keep up with debt repayments. This figure was 17 per cent higher than the same period last year.

Figures for the number of houses actually repossessed are not yet available for this year but there has was a sharp rise last year, to 10,250, from 6,000 in 2004.

Join the debate

Is bankruptcy really the only option? Click here to have your say

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So the cost of borrowing is rising for the first time in two years. The Bank of England's Monetary Policy Committee announced on Thursday that it would raise base rates from 4.5 to 4.75 per cent. Leading mortgage lenders have already signalled that they will pass the increase on to customers. A borrower with a £150,000 mortgage, say, will now pay an extra £30 a month.

A rise in the number of people struggling to meet debt repayments is bound to follow. There are already signs that the hangover from Britain's borrowing boom is worsening: announcing half-year results this week, HSBC, Lloyds and Barclays all revealed sharp increases in their provisions for bad debt.

Naturally, the banks blame everyone but themselves for this problem. Lloyds, for example, is scathing about the firms that sell individual voluntary arrangements (IVAs), a type of insolvency that enables borrowers to agree repayment plans with lenders.

The growth of IVAs and the relaxation of some of the punitive measures imposed on full-blown bankrupts, Lloyds suggests, have encouraged borrowers to take on too much debt, in the knowledge that there will be an easy way out later.

The argument just does not stack up. Even leaving aside the question of whether bankruptcy and IVAs are an easy option - debt advisers and consumer groups say they absolutely are not - surely it's up to the banks to be a bit more careful with their money?

Faced with the realisation that it has lent too much money to customers who now can't pay it back - Lloyds's bad debt provision in the UK has risen to a whacking £632m - the bank says someone else is at fault, as if working out who you can safely lend money to is not a basic skill in banking.

Not that repayment defaults have sent Lloyds into crisis; it still made a first-half profit of £1.78bn. The figures at Barclays and HSBC were, respectively, £3.6bn and £6.7bn.

And that's the rub. As long as our banks go on making such huge profits, they don't have to worry too much about even large bad debts. They have no reason to be more responsible in their lending decisions, particularly when there are other people to blame when the victims come to light.

Meanwhile, if you're concerned about rising interest rates, take action. Most economists think this month's rise will be a one-off for this year at least. But there is a minority view that rates could increase further.

If higher rates would leave you struggling to repay your mortgage, it's worth fixing what you pay now. The cheapest fixed rates are currently slightly more expensive than the best variable deals, but that's a small price for the certainty your repayments will remain affordable.

The Independant
August 5th 2006

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Do the banks know something we don't? The multi billion pound profits announced by all the major banks this week follow a sustained price war in many of their key markets - particularly the unsecured loan business, where interest rates are at an all-time low.

The trick that squares this circle is that only a few borrowers pay the lowest rates. Does a loan costing 6 per cent sound too good to be true? Unless you have a perfect credit rating, it almost certainly is. Save & Spend research reveals that four out of five loans on offer today are priced according to borrowers' personal credit histories - consumers with a bad credit report could end up paying 13 per cent or more.

Take the current best three buys listed by market analyst Moneyfacts: Moneyback Bank (5.6 per cent on a £10,000 loan, over five years), GE Money (5.7 per cent) and Northern Rock (5.7 per cent). In each case the headline interest rate is subject to credit rating. Most of the big banks - including Barclays, HSBC, Halifax and Lloyds TSB - offer headline rates that vary according to personal history.

Banking has gone the same way as insurance - what you pay is related to the banks' view of the risk you represent. Two years ago, 56 per cent of lenders used personalised lending rates - today that figure is 81 per cent, according to calculations made for The Independent by the price comparison service uSwitch.

Not only does this illustrate the importance for borrowers of looking after their credit status (see right), it also produces a Catch-22. Personalised interest rates mean there are real benefits from comparing rates available. But the process of seeking out and comparing interest rates can damage your credit rating, reducing your chances of being offered the best deals. Lenders assume a history of loans applied for but not taken up is an indicator of bad risk - new applications are then more likely to be rejected.

"You go into the branches of certain banks that advertise loans and you sit down and provide all your details - and it is only then that you will be told what you would actually get," says Cristina Rebollo, a spokeswoman for uSwitch. "By that time you have a 'footprint' on your credit score which means you can't shop around."

Not only do borrowers face higher rates than advertised, but lenders are also becoming more likely to reject applications. "Lenders are getting tough with credit - our research shows 3.5 million applications rejected over the past 12 months," says Sean Gardner, chief executive of analyst MoneyExpert.com.

Some online intermediaries - including MoneyExpert.com and MoneySupermarket.com - have launched web-based calculators to assist consumers assess their likely credit status, and identify the most competitive products available.

But the calculated credit rating is based on information provided by the individual borrower, who may omit, or be unaware of, information held by an agency. An agency's credit report could be significantly different.

Alexander Cowen Wright, a spokesman for Moneysupermarket.com, acknowledges the weakness. "It's a complex field, that we are trying to simplify," he says. "But we do give guidance on what consumers are more likely to be accepted for, though this is not guaranteed."

As he says, this is not necessarily just about providing lenders with people with the best credit record - it may be those who fit in other ways lenders' market positioning and preferred customer profile: "There are certain drives from lenders from time to time to attract a different type of customer and even those with a good credit rating might not fit."

Using the online credit calculators is helpful, but it is safer to check the actual credit status with one of the agencies themselves. Then the shopping around can begin in earnest - but try to make sure you know what you will be offered before you formally apply for the loan.

How to get the best possible credit rating

* Make sure you are on the electoral register.

* Check your credit report with at least one of the three main agencies: Experian (0870 241 6212), Equifax (0845 600 1772) and Call Credit (0870 060 1414). Individuals can obtain copies of their personal credit records for £2. Credit reports can be obtained online from www.moneysupermarket.com and www.moneyexpert.com.

* Challenge any information held by an agency that you believe is wrong or misleading, requesting that it is deleted or that your short note of explanation is inserted.

* If you are shopping around for the best loan or mortgage, demand a quotation search from the lender - not a loan offer. A potential lender seeing a 'footprint' of a string of loan requests is likely to assume the worst.

* Protect yourself against identity theft by looking after, or carefully destroying, paperwork, including old letters with your address.

* Pay your bills on time.

* Set up a direct debit to ensure you meet the minimum repayment on your credit card each month - even if the statement gets lost in the post.

* Don't ignore debts - if you have problems, reach agreement on making staged repayments rather than going into default.

The Independant
August 5th, 2005
http://myvesta.org.uk

Who says that running a UK credit card company is not a profitable business? Who argues that the risks associated with right-off for bad credit credit card users makes the business of credit card a risky one?

Well, however they are should take a look at some of the profit figures being published by many of the UK leading lenders this month! Several billions of pounds profit and record levels of credit card debt provisions tells the story that running a credit card business is very profitable indeed thank you very much.

The simple fact is that UK credit card issuers charge some of the highest rates of interest and fees in Europe.

Given that 2 out of every 3 Britons will carry-over a credit card debt each month, and that a majority of those who do carry-over a credit card debt will only pay the minimum repayment amount, and it’s not hard to see how UK credit card issuers have a license to print money. Is it any wonder then that we now have the option of over 1,000 credit card issuers to chose from?

In reply to most UK card issuers claims that many of their cardholders are in default, the answer appears to be clear – yes, they are. However, they’re not sufficiently in default to warrant any significant note being made on their UK credit rating report and with so many of us acutely aware of what the effect of having a bad credit rating will have on us, nearly all of us will do anything we can to make sure this is avoided.

That means paying the minimum repayment to each credit card issuer and then using the available balance each month to survive. The robbing Peter to pay Paul syndrome. And guess what? UK card issuers love this type of credit card user because we fit the bill of what makes a nice fat profitable customer. No wonder then that this year has been such a profitable one for the UK credit card industry.

The only question remaining then is how the latest shock rise in interest rates is going to affect this already precariously balanced juggling act of paying bills and trying to survive. It could well be the case that many more of us in the UK become credit card defaults in the next 12 months – and therefore UK credit card issuers would do well to provision for this.

Richard Smith
5th August 2006
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