IVA & Debt Consolidation Advice

Research has shown that Credit card companies are increased their fees between cards by an average of 0.5% during the past year.

MoneyExpert.com said that providers are charging people, who were switching balances to take advantage of 0% interest introductory deals, 2.67% of the amount being moved, up from 2.1% in September last year.

The group said 160 credit cards currently gave people the option of transferring balances to them, with fees ranging from 1.75% to 3% of the amount being moved.

Sean Gardner, chief executive of MoneyExpert.com, said: "Card firms have lost out since they were forced to cut so-called default charges so now customers are losing out as balance transfer fees increase.

"Analysts talk about the so-called water bed effect - cuts in one area mean increases in another area. And that has been the experience for credit card customers with new charges appearing to replace the old charges which have been cut.

"Customers should of course still switch credit cards in search of better deals and particularly if they are paying standard rates of 16.9% or so on debts. But they've got to remember there is a cost involved and factor that into any savings they make."

The Student Loans Company has calculated the 2008 fixed interest on all active student loans in the UK.

The regulatory body collects former students repayments through the tax system at 9% of any earnings above £15,000.

The loan interest is based upon the March retail price index, which reached 4.8% this year in the UK.

The rise from 2.4% means that UK students will shoulder a further £500 Million on top of the existing debt (£19 billion in 2005-06).

The UK student debt figure grows, on average, by £3 billion a year. A figure compounded by the introduction of 'top-up fees' which increase each individual student's debt by roughly £3000 a year.

New figures show that debt enquiries to Citizens Advice Bureaux in England and Wales have hit a record high, increasing by 20% in the last year and bringing the total to 1.7 million in 2006/07. The number of debt problems brought to bureaux has doubled in the last 10 years.

National charity Citizens Advice says the figures confirm there is no let-up in the rising toll of casualties from an unprecedented consumer credit boom and recent sharp increases in the cost of living, making mortgages, council tax and utilities more expensive for many people.

Debt is now the number one issue advised on in bureaux, accounting for one in three of all enquiries, and CAB advisers around the country are dealing with over 6,600 debt problems every working day.

The new figures are published during Advice Week when the focus is on raising much needed funds and recruiting the 5,000 new volunteers needed every year by Citizens Advice Bureaux.

Credit card debt and problems with unsecured loans dominated, accounting for 40% of the CAB debt caseload. One in four of all debt enquiries concerned credit and store cards. Consumer credit debt problems of all kinds increased by 14%, while problems with overdrafts and unsecured personal loans increased by more than 18%. Enquiries about bankruptcy jumped by 50%.

But the figures also indicate that many hundreds of thousands of people are increasingly struggling to meet their day-to-day living expenses. Gas and electricity debt problems shot up by a third (33%), while council tax debt enquiries went up 25% and telephone debt problems by 19%. Problems with mortgages and secured loans were up 11%.

A former Bank of England adviser has warner that the current loan crisis in America may push up mortgage rates in the UK.

Professor Willem Buiter, an ex-member of the Monetary Policy Committee, said UK banks were in crisis over their exposure to bad loans in the US.

He said this had made them reluctant to lend to each other, which had raised interbank lending rates.

Some banks are worried that their rivals may not have revealed multi-million pound losses on sub-prime mortgages in the US.

As a result, they are currently lending to each other in the interbank money markets at an interest rate of nearly 6.9%.

That is significantly higher than the standard bank rate of 5.75%, which the Bank of England kept unchanged after its monthly MPC meeting this week.

Professor Buiter told the BBC's Today programme: "The extent to which this translates into higher rates being charged to households and mortgages or hire purchase loans or higher loans to businesses in the real economy, that, I think, is an open question.

"The longer it lasts, the more likely it is that all rates from deposit rates to mortgage rates to loan rates will, ultimately, in the private sector get pulled up to that level," he added.

The current liquidity problems in the banking system have driven up interbank lending rates sharply in the past few weeks.

Professor Buiter said: "It is a new type of crisis - it is not an old fashioned banking crisis. We don't know how long it is going to last.

"Gradually clarity will dawn, but how long it will take, it could be weeks, it could be a few months."

There is substantial evidence that these higher rates are now starting to affect mortgage deals offered to the public. For example, five lenders - the Anglo Irish bank, Northern Rock, Heritable bank and the Derbyshire and West Bromwich building societies - have each offered new fixed-rate savings deals, but at rates up to 0.55% higher than before.

Also the he Anglo-Irish bank is now offering to pay savers 6.9% if they lock money away for one year.

"It is unusual to see rate rises that are not triggered by increases in base rate," said Andrew Hagger of the financial information service Moneyfacts.

"However, with money markets in a volatile state on the back of the US sub-prime mortgage crisis, it is not surprising to see savings rates being increased, in an attempt to bring funds in via their front doors, rather than resorting to traditional methods."

Consumer group Which? today announced that credit card users face a range of new charges as providers attempt to recoup lost money.

This comes on the back of last April's announcement from the Office of Fair Trading saying that many card providers were charging high fees for late or missed payments.

Which? reported that most providers responded by cutting their charges but over the past twelve months some have introduced new additional fees.

Card providers have introduced other charges such as; charging users simply for having a card and more low usage charges.

Which? also said some providers had reduced the minimum monthly repayments for customers, which means borrowers who only pay back the minimum will pay more interest in the long run.

"Credit card providers seem to be resorting to a raft of ingenious methods to recoup lost revenue following the OFT crackdown on penalty fees," said Martyn Hocking, editor of Which? Money.

Official figures in England and Wales has seen a drop in the number of people becoming insolvent for 2007.

Between April and June seen a drop of drop of 8.1% on the previous three months, but a rise of 4.2% on the same time last year. This was overall down 2.9% on the previous three months.

Despite the slight fall the number of people going bust is still high. Five interest rate rises over the past year have added to the pressure on people's finances.

Last Week, the Council of Mortgage Lenders (CML) announced that repossessions had risen 18% in the first half of the year.

Year-on-year, repossessions have risen by nearly 30%; however mortgage repossessions are nowhere near the highs of the early 1990s.

A recent report today from Credit Action has showed that consumer debt in the UK reached £1.355 trillion in July and has grown 10.1% in the last year.

Britain's personal debt is increasing by £1 million every 4 minutes and today in the UK -

• Consumers will borrow an additional £322m today
• The average household debt will increase by over £13 today
• 77 properties will be repossessed today
• 317 people today will be declared insolvent or bankrupt
• 2,750 County Court Judgements (CCJs) issued
• Bank and building societies will hand out £1bn in mortgages today
• Citizen Advice Bureaus will deal with 5,300 debt problems today
• The average car will cost £15 to run today
• More than 7,716 loan repayments are going unpaid every day
• The average home will cost £30 today to run
• Raising a child to the age of 21 will now set you back £23.50 daily
• The price of a typical house will increase by £44 today
• £500m will be withdrawn from cash machines today by 7.5m people across the UK
• 24.5m transactions worth £1.4bn will be spent on plastic cards today
• 1/3rd of all groceries we buy today will end up in the dustbin.

The amount of money students borrow to finance their education is three times higher than it was a decade ago. It has reached an alarming £18 billion and is likely to soar even higher with the new £3,000 annual top-up tuition fees. Depending upon your course of study, these fees can push the estimated cost of obtaining a degree to more than £33,500.

According to figures submitted by Student Loans Company, during the last financial year, new student loans totalled more than £3 billion, a remarkable increase over the £941 million they borrowed in 1997. Of that amount, almost £400 million was required in order to cover £3,000 annual fees, the amount that most universities charge. The total amount due on student loans from both graduates still paying on their loans and current undergraduates is £18.125 billion. Critics of top-up fees claim that they are putting an additional financial burden on students.

The National Union of Students believes that this fee could increase typical graduate debt to £30,000. The government, on the other hand, estimates that debt could rise from the current £8,500 to £15,000. This estimate only takes into consideration debt that is owed to the Treasury where loans to students are subsidized and students pay zero interest rates. In 1997, the average student debt was under £5,000.

Students are allowed to borrow £7,405 each year from the Student Loans Company. This includes a £3,000 tuition fee loan and a £4,405 loan for living expenses. Many students supplement their Government loans with overdrafts or by taking loans on their credit cards.

Last autumn tuition fee reforms raised student fees from the previous £1,175 a year. Students are not required to pay the fees at the start of their courses and can wait until they earn £15,000 before they repay zero-interest rate loans they take to cover the charges.

Education spokesperson Sarah Teather commented that the total student debt is higher than gross domestic product of Slovenia. However, Higher Education Minister Bill Rammell said that student loans are the safest and most effective means for students to finance their education. He goes on to say that students are borrowing only the amounts to which they are entitled and are not going beyond their means.

The UK's debt burden has reached a record £1 trillion, making Great Britain the most indebted nation in Western Europe, according to recent statistics recently presented to a conference organized by Citizens Advice Scotland and the Debt on Our Doorstep Campaign. Their aim was to examine the reasons why citizens in the United Kingdom have such overwhelming debt levels. Delegates to the conference were also told that household debt levels are now at £1.3 trillion and increases by another £1million every four minutes.

Debt on Our Doorstep stated that the debt repayments of the poorest 40 per cent of households is more than triple the amount the richest spend.

The conference was held in Edinburgh and included more than 100 delegates as well as guests from the European Coalition for Responsible Credit. CAS chairman, Graham Blount stated that Britons have the largest debt load in Europe with people on lower incomes paying a higher price on debt repayments than those from wealthier households.

The conference intended to investigate why Britons are so heavily indebted and what can be done to create more affordable and responsible borrowing in Britain. The conference was attended by high-profile participants, which included the new Executive Communities Minister for Scotland, Minister Stewart Maxwell. Other speakers at the conference included Damon Gibbons, Debt on Our Doorstep chairman and Mark Lazarowicz MP, All Party Parliamentary Group on Personal Finance chairman.

Results from the conference's investigative research will be used at another European debt conference that will be held in Brussels in September 2007.

All across Britain debt is spiralling with many borrowers unable to afford their repayments. Just this year 17,000 filed for insolvency. According to the Insolvency Advisory Service, people are seeking debt relief through bankruptcy at younger ages with debts that are becoming increasingly larger.

During the first three months of 2007, 17,000 filed bankruptcy, which is an increase of ten per cent over 2006 figures, thus adding to the 100,000 individual insolvencies that were filed in England and Wales.

Gill Hankey of the Bankruptcy Advisory Service says the she recently met with a 21 year old client who was seeking help for credit card debts of £35,000 and is just one of many such cases that the bureau has on its books. They also saw a client with an income of £900 a month who had 17 credit cards and another who had filed bankruptcy and was about to borrow £80,000 on credit cards. Hankey says that cases like this show that lenders are failing to conduct proper checks before approving credit cards and loans.

High Street banks and credit card issuers have taken an increasingly tougher line on debtors. Recent government figures showed that county court judgments were higher than they have been in ten years, with 70 per cent of those judgments related to consumer loan and credit card debt. Lenders are quicker to use the court system to deal with debtors who have unsecured obligations, and the seriousness of these figures are a warning to borrowers that not only are their credit ratings at risk but also further legal action is not very far down the road.

Debt advice agencies report they are seeing an increase in the number of clients who have tried not to file bankruptcy, but are struggling with Individual Voluntary Arrangements (IVAs) with payment plans they can ill afford. Under an IVA, a debtor makes monthly payments over five years in exchange for the creditor agreeing to write off a portion of the debt. The IVA company charges a fee for their services, which is deducted from the repayments, usually about £7,500. Some people are making payments of 45 per cent of their take home pay on IVAs, which leaves them with very little left on which to live and take care of their families. These repayment plans are not affordable, and many people begin to struggle after making only one or two payments, so they end up doing what they had tried to avoid, filing bankruptcy.

Both the Consumers Credit Counselling Service and National Debtline, a telephone helpline for people who need debt advice, have said their experience shows a similar trend and that there is likely an issue with recommending people for IVAs who should clearly never have been recommended for the program.

For many people who have a large debt load without available income to pay them, bankruptcy may be a more realistic option than an IVA according to Sue Edwards, a senior policy officer for Citizen's Advice.

Debtsolver have written an article on the pros and cons of an IVA versus bankruptcy.

It’s only a general guide though, and people facing insolvency are urged to seek professional debt advice.

A leading carers' organisation has warned that carers in Northern Ireland face a future that is riddle with debt, worry, and health problems according to survey results throughout the UK. The survey, based on 3,000 carers, suggests that those who care for a disabled or chronically ill relative or friend can expect to face severe financial penalties. According to survey results, carers were forced to make cuts in food, heating and clothing, give up their jobs and sacrifice their pensions. Just in Northern Ireland, carers' support is worth £1.9 billion a year.

Helen Ferguson, director of carers NI, is seeking an overhaul of the current benefits and tax system for carers. She says that the carers' benefits were designed in the 1970s when things in the world were much different. Because of significant changes since then, she says a complete overhaul of the system is necessary.

Ms. Ferguson feels that there is a need to invest heavily in social care so that carers and their families can partake of things that other people take for granted such as going shopping, having a weekend break, taking classes, or working.

Ninety-three per cent of carers who responded to the NI survey said their financial situation had deteriorated since they became a carer. This compares to an average of 73 per cent in the UK as a whole. Approximately 48 per cent reported having difficulty paying gas/electricity or telephone bills and were or had been in debt.

The survey also showed indications that parents of disabled children under 18 and those who were caring for adult children who were disabled had more debts and financial difficulty than most others.

Ms. Ferguson further stated that the National Carers Strategy review that was announced by the British government would provide the perfect opportunity to review the current tax and benefits system for carers.

Can a local council force an individual into bankruptcy because they failed to pay their council tax? Will others know that you have gone bankrupt? Does a bankruptcy show in your credit file? Will filing bankruptcy affect your chances of finding a job?

According to the latest report, there was another steep rise in the number of people with county court judgments registered against them in 2006—a total of nearly 850,000 consumers. With more consumers incurring these judgements, many will see bankruptcy as an easy way to escape the CCJs.

For the first time in the UK, reports showed that more than 100,000 people filed for bankruptcy in 2006. In addition, government figures showed that 15,356 people filed bankruptcy and 11,299 filed IVAs during the first quarter of 2007.

Online credit information provider, Equifax, has expressed concerns that many consumers are unaware of the implications of filing bankruptcy, but rather see it as an easy way to get out of debt without any real consequences.

The 2002 Enterprise Act changed the law where the debt's of a bankrupt individual could be written off after one year instead of three, however, this change caused a number of people who had been struggling with debts to view bankruptcy as an attractive option for wiping the slate clean and starting over. What they don't understand is that even though the bankruptcy will be cleared after one year, the record of the bankruptcy filing will remain on their credit file for six years, which could have serious implications on their financial futures.

Lenders use an individual's credit file when they review an application for credit or loans. A record of bankruptcy can cause them to be declined or force them to pay a premium interest rate. It can also affect a person's ability to get a job or even a mobile phone since a credit agreement is taken out for line rental.

Some unethical lenders are taking advantage of problem debtors by forcing them into expensive "consolidation loans." These lenders are refusing to approve any individual voluntary arrangement(IVA's), a bankruptcy alternative that allows a debtor to repay a portion of his debts over several years, while the lender writes off the remainder.

These unscrupulous lenders use the knowledge they have of people's financial status in an attempt to sign them up for a master loan with a high interest rate that is sometimes secured by an interest in the debtor's home.

Though the practice is not illegal, it may be “immoral” according to Peter Sargent, a council member of R3, the trading body of insolvency practitioners. One anonymous insolvency source voiced the opinion that it is an abusive practice by creditors.

This practice has advantages for the ruthless creditors aside from the fact that they do not have to write off any of the money that is due to them from debtors. First, they are in a position to charge more for a debt consolidation loan. Second, they have the option to attempt to secure it using the debtor's home. Thirdly, unlike an IVA, there is no need for a lender to consider it as a problem loan.

Sargent is a partner with the insolvency firm of Begbies Traynor and advises anyone who is in financial trouble not to borrow any more money.
In 2006, there were 44,332 IVAs filed in England and Wales compared with 20,293 in 2005.

IVA companies recently agreed to spread out their fees over several years after pressure from Britain's major banks concerning their charges. IVA companies, intermediaries, and creditors agreed to a meeting in order to address some standard guidelines concerning the fee structure, advertising, and advice that the IVA companies offer to people who are seeking relief from their debts.

This agreement follows a large increase in the number of people seeking to take out IVAs, a program that allows debtors to write off a portion of their debt while repaying the remainder over several years through an agreement drawn up by an IVA provider. Creditors have been critical of some providers, saying they take too large a fee, don't advertise in a responsible way, and fail to offer the best advice to the debtors. In light of the recent agreement, it is likely that the fees IVA providers charge will be spread over the period of the arrangement instead of being paid at the start of the arrangement.

According to Eric Leenders, executive director of the British Bankers' Association, the agreement has been reached to recalibrate the structure, but they have to get more details on a final agreement. It is expected that the changes will be implemented within the next six months. There was no discussion about setting a standard fee for an IVA.

Some banks such as HSBC have gotten tough on how much they will pay IVA providers. Capitol One has stated it will no longer pay more than 4,500 pounds for any one IVA. Currently providers receive about 7,000 pounds for each IVA according to estimates.
As of the end of March, there were 48,000 IVAs, an increase of over 80 per cent from the previous year.