Debt

The New Year is traditionally a period that sees higher than usual debt defaults. This is largely attributed to overspending across the festive season. However, credit agency Experian is warning of particularly high defaults in January 2010.

The first 9 months of 2009 saw 771000 people lose their jobs. That is a massive 94% increase on the same period of 2008. Add this to the record insolvency statistics also announced this year and it seems we have all the ingredients for some disastrous debt issues as the new year arrives.

What doesn’t help the situation is that debt management companies, loans companies and even banks increase their marketing in the run up to Christmas, seizing the opportunity as more consumers look to find some extra cash to see them through the season. Calls to households from lenders offering extra cash have risen 50% over the last month, according to the Call Prevention Registry and the Citizens Advice Bureau reports dealing with over 9000 calls every single day from those seeking advice about debt problems.

Experts are advising consumers to approach debt management carefully, to budget conservatively and to avoid high interest credit cards as a means of supplementing Christmas spending. However, during what is largely a commercial and consumer driven holiday, it seems unlikely that we’ll entirely avoid the debt associated with it.

The Citizens Advice Bureau forecasts an increase in personal debt for many as consumers spend more than they can really afford over the festive season. After all, Christmas doesn’t come cheap! In 2008, the British spent a combined total of £43.9 billion and that figure is forecasted to rise to £44.7 billion this year. However, there are a few steps you can take to cut your spending without budgeting your enjoyment.

• Set a budget and stick to it! If you haven’t done so already, you should sit down and calculate exactly what you can afford to spend. Take into account your income and your regular living expenses and calculate conservatively!

• Use cash! Alright, so this is not possible if you are spending online, but when you’re spending in the shops, using cash means that keeping a tally on your Christmas spending is much easier. You know how much you have and you can see instantly when it runs out!

• Shop around. This is far easier online of course. But it’s a practice you should really employ in the shopping centres too. Yes, it can be nightmarish fighting your way through shops around the festive shopping period, but it’s worth your while to ensure you get the best deal.

• Special offers! Employ a little frugality and take advantage of the 3 for 2 offers and the discount days in major High Street stores. A number of the major chains have planned sales in the run up to Christmas and buying during these sales will make your money go a little further.

• Check online for discount codes. A quick search in any search engine will return a huge number of these that can be used when shopping online at various e-commerce sites to take a sneaky little discount off. 10% off a £10 purchase might not make an obvious difference to your bank account, but at Christmas we tend to spend significantly more and these discounts can make a noticeable difference.

Christmas tends to be expensive regardless of what thrifty tactics we use to cut our spending. However, the Citizens Advice Bureau warns of excessive credit card spending in the festive season, leading to a nasty debt hangover in the new year. Being a little more thrifty can help you stay within budget and avoid spending money you don’t have!

The Debt Management Industry is to come under the scrutiny of the Office of Fair Trading. The announcement, made in November 2009, means a potential shake up for the so far unregulated industry.

It will be the first review of its kind since 2003 in an industry that has seen massive growth and change in the past six years. There has been a huge increase in internet based companies and a massive shift in emphasis onto online advertising. Given that the industry is not yet regulated by the Ministry of Justice (something that is widely anticipated to change in the near future), there is concern about the level of compliance to the OFT minimum standards.

The industry review will give debt management companies an opportunity to answer a questionnaire relating to their practices, advertising and overall service provided. The Office of Fair Trading will also consult with a number of debt charities on their view of debt management company compliance with the minimum standards set. Consumers will have the chance to have their say too, through a feedback form on the Office of Fair Trading website.

This review follows 24 companies having action taken against them by the OFT, including the revocation of credit licences, since April 2008.

It is hoped that the review will lead to an increase in standards across the entire industry, for both the creditors and consumers.

While the industry remains unregulated, there are organisations, such as the Debt Resolution Forum, promoting higher standards across the debt management sector. It is widely thought, however, that the result of an ongoing Ministry of Justice Consultation over debt management will mean that the industry is soon to become regulated.

Personal insolvencies across England and Wales recently hit their highest number since records began in 1960. The Insolvency Service statistics for the third quarter of 2009 indicate that 35242 people were declared insolvent, which is a massive 28% increase on the same period of 2008. The 35242 insolvencies were made up of 18340 bankruptcies, 12390 Individual Voluntary Arrangements (IVAs) and 4505 Debt Relief Orders (DROs).

The Debt Relief Order is a relatively new alternative to bankruptcy for those with debts amounting to less than £15000 and assets with a total value of £300 or less. It was introduced in April 2009.

What these statistics do not take into account, however, is the number of debt ridden consumers embarking upon debt management plans. Given the informal nature of debt management plans, they do not officially count as insolvencies and there is no central register of figures kept, though an estimated 100000 are agreed each year.

Although not unexpected, the sharp rise is a cause for concern in a period in which unemployment continues to rise. Consequently, the fourth quarter of 2009 is forecasted to see a further increase on these figures, despite the fact that the recession is forecasted to formally end throughout the final three months of the year. However, experts warn that unemployment is likely to continue to rise for some time. As rising unemployment is thought to largely account for the rise in personal insolvencies, it is seen by many to be almost inevitable that the statistics will worsen as the year comes to a close.