Debt can be such a headache |
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Thursday, 03 Jan., 2008
AS THE pounding in your head from one Christmas and New Year bash too many begins to clear, chances are it will be replaced by another sort of headache. This one comes from the growing realisation that you have spent too much over the festive period, and that you are starting 2008 with financial problems. Three-quarters of all British people say they have been affected by money worries at some time, according to a survey by insurer AXA. And this is the time of year when money troubles bite most deeply. It isn't only the cost of all those Christmas presents, although that can be hefty enough. It's all the other things, too - the food and booze, the money spent at the New Year's Eve bash, and on bargains' in the sales. "It is a time of year when people are getting into financial trouble," says Charles Helfferich, a director of York-based Grosvenor Financial Consultants. "And it is getting worse and worse every year." As the father of an eight-year-old, he knows all about that. Children can be very persistent, he says - often fuelled by concerns about keeping up with their friends. "It can be the whole do you have the iPod Shuffle or the iPod Nano' thing - and it doesn't half cost." According to Mr Helfferich, the Credit Card Research Group estimates that British people between them spent about £7,600 per second on credit cards over the Christmas and New Year period. No wonder we are in debt like never before. Many of usPrime Minister Gordon Brown issued his own bleak assessment of the world economy at the weekend - and warned Britons to be ready for a period of belt-tightening. Anyone starting the New Year burdened by debt needs to sit down with a clear head, Mr Helfferich says, and do two things. First, take a piece of paper and, in two columns, make a complete list of all your monthly income, and all your monthly expenditure. You have to be ruthless and honest with yourself when you do this, Mr Helfferich says. Don't forget to add the 40p you spend every morning on a hot drink from the office coffee machine, or the 40p you spend each day on The Press. If you don't include everything, the exercise won't work. The complete income/ expenditure list will hopefully show that you have a little more money coming in than going out. That is what can be used to start paying off debts. You might at this stage also want to look at cutting expenditure, at least in the short term. "You could ask, do I really need that gym membership? Or can I manage without that subscription to Sky, at least for a few months? That would all help," Mr Helfferich says. Once you know how much you can put towards paying off your debts, the next job is to prioritise them. Mortgage repayments, rent arrears, council tax and utility bills are the top priorities, Mr Helfferich says - not meeting mortgage payments is one of the worst financial mistakes to make. Utility companies have a duty to help customers who are struggling, however - so anyone who has a problem with their electricity or heating bill should contact their supplier and ask for advice. Then look at the remainder of your debt. Tot up all credit card bills and see what they come to. Then look at the interest rates charged by each card. Pay off the monthly minimum amount for each card - you will incur a hefty penalty if you don't - but then put the rest of whatever money you have left towards paying off the card which charges the most interest. There are still some cards which offer new customers nought per cent interest for the first six months - so if you can find one of those, and transfer all your balances to that, that will help. What Mr Helferrich would not advise, however, is extending a mortgage to pay off debt. The interest rate payable on a mortgage may seem very low compared to that on a credit card or personal loan, Mr Helfferich says. But appearances can be deceptive. You may be paying a mortgage off over 20 years or so - so even at that lower interest rate, you will pay back far more than if you settle a debt more quickly. The other temptation at this time of year is to think about taking out a loan. Think very carefully before doing this however, advises Mike Horncastle, manager of the York Credit Union. Some lenders quite legally charge staggering rates of short-term interest - The Press reported recently on one woman who was offered a loan at an interest rate of 2.6 million APR - and you may well end up deeper in the mire. The key thing is to be absolutely certain, before you agree to a loan, about how much you are going to have to pay back, Mr Horncastle says. York Credit Union offers loans at the single, constant rate of 19.6 per cent, with no hidden extras such as early redemption fees or set-up costs. But the cheapest rate you will be offered from a doorstep lender in the York area is 183 per cent, Mr Horncastle says. Loan salesmen can be very persuasive, he says. "So if somebody comes to your doorstep offering you £300 or £500 in cash, think very hard first," he said. "And get advice from somebody like the CAB first if you are not absolutely sure." What about secured loans offered to homeowners via advertisements on the television? Remember that such loans will be secured against your house, Mr Horncastle says. Anyone who takes out such a loan but cannot meet the repayments could be at risk of losing their home. York Citizens' Advice Bureau (CAB) is based at Blossom Street and can be contacted on 0870 126 4850. York Credit Union is on 01904 676633 "If I don't have the money, I don't buy something. Full stop!" AS the mother of four daughters, Judith Percival realised long ago that Christmas could easily be a very expensive time of year. That was why, years ago, she set a strict limit for how much she would spend at Christmas on each child. Back then, it was £50 each. And while it has not always been strictly adhered to, her four girls - now aged between 16 and 27 - have grown up not expecting too much at Christmas. "They are generally happy with a pair of pyjamas or something - especially the older two that have left home," says Judith, from Selby. Even so, Christmas can be expensive. Judith, 49, works full-time at a local primary school. She is separated from her husband, and has not only four daughters but also a granddaughter to buy for. To help spread the cost, she buys presents throughout the year, whenever she sees something she thinks one of her children would like. She also has one simple rule - never buy anything on credit. She doesn't have any credit cards. "If I don't have the money, I don't buy something. Full stop!" Sarah, a single mum from York with two teenage sons aged 14 and 15, also has a strategy for dealing with Christmas. She reckons that she will have spent something like £800 this year. "It is an expensive time," she says. "But I started preparing early this time. I put money away into a separate bank account, starting at the end of July." Most importantly, she did not touch that money until it came to buying presents - and it made this Christmas much easier. "I had most of the money I needed saved up in advance." Top tips on dealing with debt
Failure to pay the above could have serious consequences, such as a court appearance, losing your home or being cut off. Lesser-priority debts include:
Pay the minimum monthly amount on all credit card debts - then pay off the cards which charge the highest interest first. Source: http://www.yorkpress.co.uk/display.var.1936646.0.0.php
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