Gregory Pennington - debt management company

What is a Statutory Demand?

A statutory demand is a demand for payment of a debt over £750. It’s also a warning that your creditor may start bankruptcy proceedings against you if you don’t pay within 21 days. A creditor does not need to get the court involved to serve a statutory demand.

It’s worth noting that no-one can push for bankruptcy unless you owe them £750 or more. So if you receive a statutory demand, you could consider paying enough of the debt to bring the total under that minimum. This isn’t the best way of managing your debt – and you’ll still need to deal with the remaining debt – but at least you’ll no longer face the immediate threat of bankruptcy.

Summer hols culled as debt worries grow

Over half of Britons will cut back on spending on their summer holidays this year as debt problems continue to mount, a new study has found.

Research from FairFX revealed that 57 per cent of Brits will be forced to cut back on spending - with many cancelling their break away altogether as financial stresses continue to mount.

A total of 55 per cent of respondents plan to curb foreign expenditure because the cost of living back home is too much for them and outgoings have increased drastically over the past few months.

Stephen Heath, chief executive of FairFX, said: "Brits have been forced to slash their holiday spending as the credit crunch and the hefty rise in the cost of living hits them hard in the pocket.

"Unless conditions change holidaymakers are planning to spend just £460 each on what should be the main break of the year."

According to Credit Action, the UK`s total personal debt increased by 8.9 per cent in the 12 months to the end of March.

House prices fall for first time in 12 years

House prices across the UK have fallen on an annual basis for the first time in over 12 years, according to new data from Britain`s largest building society.

Research by Nationwide found that prices dropped during April by 1.1 per cent, which means that the average home in the UK is worth one per cent less than it was in April 2007.

The average house price now stands at £178,555, down from £179,110 in March.

Nationwide revealed that there had been a "steep decline" in house buying in the last six months owing to falling demand from first-time buyers, higher mortgage rates and tighter lending criteria.

The rise in unsold property on the market improved the bargaining power of buyers which pushed down prices.

Nationwide`s chief economist Fionnuala Earley commented: "Although retail spending has so far been remarkably resilient as the housing market has faltered, lower house prices are likely to weigh down on the consumer over time."

Best way to budget? Cash beats plastic

When money’s tight, people often find that using cash helps them keep a close eye on their household budget – and in today’s economic climate, budgeting skills are more important than ever. On April 21, new figures from the British Retail Consortium (BRC) revealed that cash is now used for 60% of all transactions, up from 54% one year ago.

Higher mortgage payments, record costs of petrol, rising food costs… with many households finding their budgets stretched to the limit, there is “a widening gap between the amount spent in cash and the amount spent using cards, suggesting customers want to keep tight control of their finances,” as BRC Director General Stephen Robertson put it.

Budgeting: cash is simple; simple is good
When every penny counts, a simple oversight can easily push this month’s (and next month’s) budget into the red, so it’s not surprising that so many households are keeping such a close eye on their budgets.

“Hard-up customers are increasingly reluctant to spend money they haven`t actually got in their hands,” said Mr Robertson. This is the key point: although plastic’s convenient, old-fashioned cash can make budgeting easier. With cash, checking what’s left of the household budget is just a matter of looking in the wallet / purse.

And there’s a world of difference between different kinds of plastic. With debit cards, people risk spending more of their household budget than they realise. But credit cards bring additional risks: unless they can pay off the balance quickly, it’s easy to get caught in a ‘debt spiral’. High interest rates can easily push credit card debt far beyond the initial amount borrowed, so repayments take a small but significant chunk out of the monthly budget for years to come.

Spending in the shops: biggest decline since 2005
So many households have decided the best way to control their budget is to spend real notes and coins, rather than figures on paper. But in itself, that’s not necessarily enough. Also published in April, the BRC-KMPG Retail Sales Monitor March 2008 reveals a drop in spending: UK retail sales fell by 1.6% on a like-for-like basis*.

“This is the first year-on-year fall in like-for-like sales for two years and the worst result for nearly three years,” said Mr Robertson. “Here is the strongest evidence yet that customers are making serious economies and are increasingly concerned about the future.”

Nobody enjoys ‘tightening their belt’, but it’s good to see people are coping with these expensive times by cutting back on household spending, rather than borrowing more. After all, there’s no point in someone just watching their budget unless they can adjust their spending habits when the situation calls for it.

‘on a like-for-like basis’ – percentage change in the value of sales compared with the same period one year ago.

Survey finds mortgage holidays aren`t being taken

Homeowners and professional landlords who are hard pressed financially could be entitled to a break in their monthly mortgage repayments, according to a new study.

Research by MoneyExpert found that 58 per cent of the mortgage products on offer allow customers some form of payment holiday facility - which many consumers do not know about.

The data uncovered that many mortgage lenders are now offering ways for consumers to offset the effects of the credit crunch.

Sean Gardner, from the financial company, said: "With around six in ten mortgage products coming with a potential payment holiday written into the terms and conditions, cash-strapped homeowners can at least enquire about taking a break."

Last week, the Bank of England outlined a plan to add extra liquidity into the mortgage market - by agreeing with banks to swap risky mortgage debts worth £50 billion with secure government bonds.

Protecting yourself against a recession

It is a good time to batten down the hatches, pay off debt, make savings and prepare for the worst if you`re of a nervous disposition.

There is a one in three chance of the economy sinking into recession over the next two years, according to investment bank Lehman Brothers.

While many people may not currently be experiencing debt problems, getting personal finances into shape now - in preparation for potentially troubled times - may not be a bad thing.

The recent credit crunch has stirred the financial and property markets up in a way that has not happened since the early 1990s and, as a result, many people are not prepared for the outcome.

A recent study by Fool found that 22 per cent of working Britons - those aged between 18 and 34 - had never been through a recession before and were worried about the consequences.

David Kuo, head of personal finance at the company, said: "Young people who have not experienced previous recessions are understandably worried about the property market.

"They include both those who have just bought their first house and those who want to get on the ladder, but whose hopes are being dashed by over-cautious lenders."

The talk of a recession has already had an impact on the housing market. The Bank of England`s £50 billion liquidity boost earlier this month is a sign that things are not quite right at the moment.

Slowing property prices, combined with increasing mortgage repayments and large personal debts, could force many homeowners to miss important bills, potentially leading to repossession of property.

Liberal Democrat shadow Communities and Local Government secretary Julia Goldsworthy claimed that as many as 60,000 families may be at risk of repossession if recession hits.

"As living costs rise, and the credit crunch starts to bite, families are forced to cut back on essentials in order to keep a roof over their heads."

So how do you prepare for something that could, potentially, be so catastrophic?

If you`re thinking of moving home or changing job you might want to carefully weigh up the pros and cons. For example, it could be a bad time to take on a larger mortgage.

Clearing all debts now may help prepare for rockier times ahead, while delaying potential big purchases - such as a car - could free up some extra money to pay off debts or to line a savings account.

How long a recession lasts for is open to much debate. It could be a year, two years or five.

Tony Tan, of the Government of Singapore Investment Corporation, suggested that any recession could be worse than that of the 1970s, lasting for a number of years.

"We could be facing a recession which is longer, deeper and wider than any recession that we have encountered in the last 30 years," he said.

Nevertheless, at the moment, the UK is not in a recession. In fact, as MoneyExpert`s Sean Gardner points out: "There is however a risk that we could talk ourselves into a recession by panicking."

Better be safe than sorry though.

Debt management – in a credit crunch

Many people with multiple unsecured debts look into debt management or debt consolidation as a way of reducing their monthly outgoings and simplifying their finances.

The option that’s right for one person may not be right for another, since debt management and debt consolidation both have their benefits and drawbacks. So it’s a decision they should only take after talking to an expert debt adviser – and one of the factors that adviser will consider is the cost and availability of a debt consolidation loan. Clearly, that can vary from person to person and from month to month, as the credit market goes through good times and bad times.

Online card fraud `worse than feared`

Credit card and debit card fraud through online stores is affecting UK consumers far more than first thought, a new investigation has uncovered.

Research by the BBC found that card losses and debts from phone, internet or mail order crimes totalled £290.5 million in 2007 - but if all attempts at fraud had been successful, that total would have been closer to £500 million.

Criminals using new technologies can access bank accounts and credit card numbers and cause huge losses.

Andrew McClelland, from the Interactive Media in Retail Group, which represents online retailers, said: "If you`re committing a crime online then there is a high probability that you`ll get away with it and even if you are caught a fairly high probability again that the punishment won`t be that severe."

Further research by the BBC found that the introduction of chip and pin payment in shops had not made a significant dent in fraud totals.

Banking on debt problems: what if my bank goes bust?

The expression ‘money in the bank’ has always referred to cash that’s 100% secure. But it seems banks might not be quite as safe as we thought – like individuals, they can have their own problems with debt. Although the government stepped in to save Northern Rock, the nation was still shocked by the reminder that it is possible for banks to collapse.

So what happens to investors’ savings if a bank does go bust? Thanks to the Financial Services Compensation Scheme (FSCS), they WON’T lose all their money, no matter what debt problems the bank is facing.

The Financial Services Compensation Scheme
The FSCS protects customers of companies regulated by the Financial Services Authority (FSA). As the ‘fund of last resort’, it will compensate these people if the company cannot pay what it owes them (normally because it is ‘in default’ – i.e. it has stopped trading and its debts outweigh its assets, or it has been declared insolvent).

The compensation rules changed on 1 October 2007.

Before that date, if a company was declared in default, the FSCS would compensate 100% of someone’s deposit up to £2,000, then 90% of the next £33,000.
But now, if a company is declared in default, the FSCS will refund every penny of someone’s deposit all the way up to £35,000.

So if you have more than £35,000 in savings, it makes sense to keep it in two or more separate banks. If you split £70,000 between two banks, just make sure they don’t belong to the same ‘parent’ organisation – if they share the same FSA registration, they’ll only count as one institution, so you’ll only be compensated for £35,000 (not £70,000) if they collapse.

How can a bank collapse?
In today’s financial climate, consumers aren’t the only ones facing debt problems. Banks and building societies can have their own problems with debt. A common, regular feature of the banking world, borrowing in itself is nothing to worry about, but the funds available to banks are becoming more limited right now: borrowing too much can be dangerous for a bank, and so can lending too much.

Take mortgages for example. Any company offering mortgages is aware that its customers might default on their payments or even have their homes repossessed. Some of them have granted mortgages worth billions of pounds, but today – with so many people struggling against serious debt problems – they’re not sure how much they’re going to get back.

So if enough people have enough problems with debt, this could spell serious trouble for a bank. Today, the LIBOR rate (London InterBank Offer Rate – the rate at which banks borrow from each other) is almost 1% higher than the base rate, which the Bank of England has just reduced to 5%.

Now that the nation as a whole is facing problems with debt, banks are very careful about lending money to each other, as they’re not sure if they would be able to borrow more money!

Bank`s £50bn mortgage injection welcomed

The Bank of England`s decision to inject £50 billion into the UK mortgage market has been welcomed by the Chancellor of the Exchequer and a number of major industry bodies.

Under the terms of the scheme, banks will be able to swap potentially risky mortgage debts for secure government bonds to help them operate more freely during the ongoing credit crunch.

Chancellor Alistair Darling told the House of Commons that he supported the move that he hoped would "help resolve" the current problems in the credit markets.

In response to the move, the Council of Mortgage Lenders (CML) also welcomed the Bank`s decision to help both mortgage lenders and homeowners.

CML director general Michael Coogan added: "What the scheme does not do is give all mortgage lenders direct access to the new funds. In particular, it does not include smaller building societies and specialist lenders."

What is County Court really like?

What is County Court action really like? On television, courts tend to be shown as glamorous places where defendants make passionate, witty speeches to solemn judges and fascinated juries. So depending on the kind of person you are, the thought of going to County Court could be either exciting or terrifying.

But real life is very rarely like TV.

`Wise` credit card users `may avoid crunch fall-out`

Credit card users who have been "managing their money properly" may not be hit as badly as others by the effects of the global credit crunch, one industry expert has claimed.

Those who have spent "wisely" on their credit cards should have no need to stop using cards altogether, Moneyfacts stated.

The protection afforded by credit cards when making purchases allows consumers to be flexible with their payments, allowing other financial pressures to be sorted first, Samantha Owens, head of personal finance at the company, said.

Ms Owens added: "Generally the credit crunch shouldn`t have an effect if you`re good with your money, although if you`re bad with your money it`s going to be the same situation as before the credit crunch and you are going to get into difficulties."

A recent Co-operative Financial Services poll found that eight out of every ten people worried about their debts.

Debt problems - debt, taxes and the Budget

On a low income, dealing with debt problems is never easy - but for some people, this year`s Budget may have made it even harder. Although the Basic rate of income tax dropped from 22% to 20%, the Starting rate disappeared.

Before April 2008, the first £2,230 of someone`s taxable income was taxed at 10%, then the next £32,370 was taxed at 22% (see table). But now, everything up to £36,000 is taxed at 20%: losing the Starting rate means that people will pay twice as much on the first £2,230 they earn.

	2007/2008		2008/2009
	%	Taxable income	%	Taxable income
Starting rate	10	Up to £2,230	-	-
Basic rate	22	£2,231 to £34,600	20	Up to £36,000
Higher rate	40	Above £34,600	40	Above £36,000

In a nation where the average adult owes almost £5,000 in unsecured debt, any changes to someone`s income after tax could make a real difference to their efforts to tackle their debt problems. When they need all or most of their disposable income for debt repayments, even the smallest change could mean they need to look for debt help immediately.

Good news or bad news?
Overall, the changes could be good news or bad news, depending on how much you`re earning. For people on average or higher incomes, this was a good Budget. But according to the Commons Treasury Committee, some low-paid people could be around £20 per month worse off. Clearly, `finding` an extra £20 a month won’t be easy for people already struggling with their debt problems.

It seems £18,500 is the `break-even point` - the point at which people gain more from the lowering of the Basic rate than they lose from the abolition of the Starting rate. Of course, debt is a problem that affects rich and poor alike. Someone with a high salary and plenty of debt may be just as likely to need debt help as someone with less money and less debt. However, the two may well need different debt solutions: for example, the first person might consider an IVA (Individual Voluntary Arrangement), while the second could be better off looking into debt management.

Tax credits – the answer to debt problems?
Many people are unhappy with the government`s claim that a more generous tax credit system should make up for any loss. Why, they say, should they have to claim benefits to replace money they`ve paid in tax? While they’re waiting for their extra tax credits to come through, they`ll be struggling to keep up with debt problems that were already stretching their finances to the limit before their disposable income dropped.

Besides, many people don`t know what they`re entitled to, or don’t claim for it - and when the tax system assumes that people will make use of the tax credit system, anyone with debt problems who doesn`t take full advantage of it could soon find their financial situation going from bad to worse.

Bank of England cuts interest rates to 5 percent

The Bank of England`s monetary policy committee (MPC) has decided to cut interest rates by 0.25 per cent to five per cent amid growing unrest in the financial markets.

As expected, the MPC took the decision to cut the rate in order to reduce the cost of borrowing and – hopefully – boost the economy.

Many major banks and financial institutions welcomed the move by the Bank.

A statement from Abbey said: "It is unclear whether the size of the rate cut provides the adrenaline shot needed to restore confidence amongst borrowers and ultimately the only customers that are guaranteed to feel the cut are those already on existing tracker deals."

Almost instantly, First Direct passed the rate cut on to its customers, lowering the amount of interest it charges on standard variable rate mortgages from 6.2 per cent to six per cent.

What happens if I don’t pay my Council Tax?

Council Tax pays for local services, from policing to refuse collection. It’s a priority bill, which means paying it is even more important than paying your non-priority bills (such as credit cards or unsecured loans), as the consequences can be much more severe.

Rogue debt management services warned by OFT

A number of rogue debt collection companies have been censured by the Office of Fair Trading (OFT) for using illegal techniques.

The OFT has revealed that 13 companies across the UK have been warned about their future conduct – some were warned after chasing consumers for debt that they did not owe, while others bypassed third party representatives such as Citizens Advice.

The OFT has warned consumers with debt problems to only seek professional debt advice.

David Philpott, OFT deputy director of consumer credit, said: "One of our main priorities is to protect consumers who may already be vulnerable as a consequence of serious debt problems."

Earlier this month, the OFT forced Clydesdale Financial Services to reduce store card default charges, after they were linked to consumers` debt problems.

Retiring in debt: spare time but no spare cash

For some, retirement is a long-awaited opportunity to sit back and enjoy the things they’ve spent their whole lives working for. For others, it’s an unwelcome change: why should they retire when they feel they could go on working for years?

Whatever their attitude, most people approaching retirement know it’ll mean a reduction in income. But on top of this ‘traditional’ drop in salary, today’s older workers face a new problem which wasn’t really an issue when their parents and grandparents retired.

A study* by Help the Aged and Barclays has revealed that 1 in 4 people approaching state retirement age still have outstanding consumer credit commitments – and that the average borrower in their late 50s / early 60s has four times as much unsecured debt as someone in that group ten years ago. It seems today’s older workers are far more likely to need debt help before they retire, or even after.

Pensioner poverty
Levels of debt may be increasing in every age group, but younger people simply have more time to pay it off before they retire. As long as repayments don’t stretch their finances too far, their debts aren’t necessarily a problem.

In the past, most people have managed to pay off all or most of their debt before they come close to retiring. But today, more and more people come to the end of their working lives in financial difficulty and end up retiring in debt, struggling to manage their debts on a reduced, fixed income.

Understandably, Help the Aged is concerned about the impact of debt on older people: “This report shows that there are some worrying trends in credit usage that could represent a debt crisis for those coming up to retirement,” said David Sinclair, Help the Aged head of policy. “We know from working with older people suffering from chronic debt problems that even owing a relatively small amount of money can cause untold misery for those living on a fixed income.”

The study also found that:

Debts may already be forcing people to delay their retirement.
Older people use credit cards to cover essentials such as bills or even food.
Many households headed by an older person are still repaying their mortgage:
- 1 in 2 households headed by someone in their 50s,
- 1 in 8 households headed by someone in their 60s, and
- 1 in 25 households headed by someone aged 80-84.
For people in their 50s-60s, arrears on credit commitments are most common
For people aged 70 or over, utility bills are the main area of financial difficulty.

* The research was commissioned to support the work of Your Money Matters, a nationwide money management programme run by Help the Aged in partnership with Barclays.

Offering older people free, impartial money management and debt advice, the programme aims to:

improve older people’s knowledge, skills and confidence to manage their money,
provide practical, individual assistance to older people to overcome money management and debt problems, and
raise awareness of the issues of older people, debt and money management.

Interest rate hope lies ahead?

Another cut in interest rates may be around the corner, which could be welcome news to those with debt problems.

In a poll of eight market commentators, six respondents told Adfero that the Bank of England will implement a 0.25 percentage point reduction to the base rate in April.

The Bank`s monetary policy committee (MPC) will reveal its decision on Thursday April 10th. Currently, the base rate stands at 5.25 per cent.

Capital Economics, Global Insight, Nationwide, Royal Bank of Scotland, Barclays Capital and the Centre for Economic and Business Research all predict better news for people with debt problems and other borrowers.

"Further out, we expect interest rates to fall to a low of 4.0 per cent in the first half of 2009," predicted Howard Archer, chief UK economist at Global Insight.

Meanwhile, HSBC and Lloyds TSB both expect the MPC to vote to hold rates until May.

Creditors and Debt Collection Agencies

"Will my creditors call in a debt collection agency?"
"When – and why – would they do this?"

These are extremely important questions if you’re in debt, especially if you’re struggling to make your payments. Unfortunately, there are no ‘standard’ answers, as it depends on which company you owe money to.

Is debt management better than debt consolidation?

As with most questions about debt, the answer is `It depends`.

It depends on the individual. Not just the amount they owe, but their financial history, their attitude to dealing with creditors – and their confidence in their own financial skills.