Swift Money

As households feel more financial pressure, research conducted by YouGov for MoneyExpert.com has found that more than 6m bills have gone unpaid since 2007.

2.3million people failed to pay council tax bills in the second half of 2007 and 1.3m people did not pay energy bills in time. With rising energy bills and the continuing credit crunch, households may still find it difficult to pay bills in 2008.

Sean Gardner, Chief Executive of MoneyExpert.com said:

“Paying one bill late is not something to panic about. But if you find this is something of a habit then you need to take action. Missing bills can have serious consequences, whether it’s losing a service altogether or even ending up in court.”

According to YouGov nearly three million consumers in the UK failed to meet their credit card payments, resulting in 35m of fees.

Experts predict that personal insolvencies are set to increase this year. KPMG forecast a 30% rise in the number of personal insolvencies in 2008. Remarking on the wide reporting of rising debt, James Falla, director of advice service Thomas Charles said:

“Predictions of an increase in the number of people declaring themselves insolvent are likely to prove correct as 2008 progresses. However, it should be acknowledged that personal insolvency can be either bankruptcy, individual voluntary arrangements (IVA) or informal debt management plans.”

While the amount of bankruptcy and IVAs can be accounted for, there is no formal way to measure the levels of debt management plans undertaken.

Price comparison website uSwitch recently suggested debt consolidation as a solution for consumers looking to pay off their debts this year.

Research shows that UK families are failing to control their spending.  A report by uSwitch, accredited by the Financial Services Authority, found that a quarter of 16 to 44 year olds are worried about bills in the New Year and that more over 50% of people do not know how much they spent over Christmas.

uSwitch discovered that nearly a quarter of adults are struggling to manage their debts, with 9.5 million people have reached their limit on one form of credit in the past 6 months.  Interest repayments in Britain have increased by £12.7 billion to an all time high of £93 billion.

Nearly a quarter of adults say they are struggling to manage their debts – many being put under pressure by rising interest rates and subsequently mortgage rates. The average estimated annual interest bill is £3,744 per household, including mortgages.  This is an increase of £517 compared with 12 months ago.

Despite increasing debts and interest rates, uSwitch found that 26% of people are more likely to take up new hobby or book holiday in 2008, whereas only 13% would make an effort to get their finances in order. Mike Naylor of uSwitch said that people with debts need to take steps to better manage their finances:

“People have enjoyed easy access to cheap credit for a long time. The recent reduction in interest rates is a step in the right direction, however, it could be too late for those in severe difficulties.”

Credit consumers are being warned that the credit boom is coming to an end and lenders are becoming more prudent; market research shows that 38% of those who applied for a credit card in the past 6 months have been rejected.

KPMG estimate that a record 130,000 Britons will file for bankruptcy in 2008, an increase of more than 20,000 compared to 2007. Huge festive period overspending, rising mortgage payments and high credit bills are believed to be the main factors in the problem.

These people will either declare bankruptcy or take out Individual Voluntary Arrangements (IVAs), which allow people to repay part pf their debts to credit provider s and start again.  Those in difficulties, who struggle financially without consolidating their debt or move debts from one low credit product to another, may find themselves closer to insolvency due to tightening lending practices.  

Previously, easy credit helped people already debt; with credit cards second mortgages and consolidated loans available. With stricter lending policies, these lifelines are no longer available to indebted people. KPMG found that half of new credit cards applications are being rejected, up from 30% prior to the credit squeeze.

Mark Sands of KPMG said:

“High interest rates are also responsible for people spiralling towards debt and homeowners [facing difficulties] whose fixed rate-mortgages expire.  This group of people face soaring repayments, for example, around an additional £400 a month to £1390 on a £150,000 mortgage.

The Citizens Advice Bureau (CAB) has received a number of complaints about “aggressive tactics” being used by banks. Banks are allegedly targeting those in debt; repeatedly phoning customers, advising them to take out expensive loans to pay off their debts. The BBC discovered that customers who agreed a debt repayment plan with a debt charity were being pressured by to take out high interest loans in order consolidate their debts.

In one case, an HSBC customer rejected an offer of a “managed loan” with an interest rate of 13%. Despite this, he received numerous telephone calls from HSBC, urging him to change his mind and received letters from the bank, claiming they want to help customers in financial difficulty.

HSBC and the customer agreed an acceptable amount to be paid of monthly, but HSBC would only accept repayment if he took on a “managed loan”.  In response HSBC said:

“As a responsible lender HSBC only offers a managed loan to customers when all other options have been exhausted.”

The British Bankers’ Association (BBA) said that banks were happy to work alongside debt advice agencies. However, the CAB claimed that customers were still on the receiving end of bank’s aggressive tactics, even after the intervention of the CAB. The CAB said that they see many cases where customers have tried to arrange repayments with their banks, but have been asked for more than they can afford.

According to figures from Pricewaterhouse Coopers, British families are nearly in twice as much debt as seven years ago. Today the average Briton owes £33,000 compared to £17,000 in 2000. Rising house prices and subsequent mortgage repayments have contributed to the debt; however experts believe the global credit squeeze could mean hard times ahead.