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Why you should pay your unsecured debts now

A recent survey revealed that consumers aged between 30 and 35 years have average unsecured debts of around £5,863, which equates to nearly 30 per cent more than the national average. Financial experts have said that the early 30s are a transitional age where careers are beginning to take off and before family responsibilities take over. Many are buying their first homes at this age, but are also enjoying rapidly increasing salaries and are keen to enjoy their disposable income.

However, some particularly those that are not trying to get on the property ladder, may find themselves in financial difficulty in the future as a result of living beyond their means.

The survey also revealed that those in the age group are likely to make the maximum number of defaults on their unsecured loans. The results have raised concern over the alarming rate at which bad debts are rising and when they will be paid off. For example, pensioners are carrying huge amounts of debt with the average 60-plus-year-old owing more than £35,000 in unsecured loans.

Some 63 per cent of those aged 60 and over have unsecured debts, such as credit card and loan debt, according to a survey of 4,620 pensioners by equity release specialist Key Retirement Solutions. It found that the average pensioner owes £9,098 in personal loans, £7,551 pounds in credit card debt, £3,215 in overdrafts and a further £15,616 in other unsecured debts, such as store cards and car finance schemes. That’s a total 35,480 pounds. Taking account of outstanding mortgage debts carried into retirement adds a further £31,000 per pensioner to the debt mountain.

Recent figures from financial education charity Credit Action showed that the number of over-60s with money worries increased faster than among any other age group last year, as pensioners grapple with rising energy and council tax bills. There is an increasing number of over-60s not only taking mortgage debt into retirement, but servicing loans, credit cards and overdraft debt. With official statistics showing that 11.7 million workers do not make any contribution to a private pension, and a growing culture and acceptance of debt in our society, this is a large scale problem that will continue to hit future generations in retirement.

With monthly repayments on that of over £450 and more than 38 per cent of pensioners living on 10,000 pounds or less per year, the debt crisis means that some older people are using almost half of their annual income to keep up with repayment. .

Retirement should be a time for some well-earned relaxation, but for all too many it is a time of financial stress. Also, when we consider that inflation hits the over-60s hardest, pension provision is looking increasingly shaky, and we have moved away from a savings culture. The levels of debt amongst the over 60s, as well as being a serious issue now, is one which is only likely to get worse.

Borrowers that find themselves living well beyond their means should concentrate on slimming down their debts and putting money aside for savings. If you’re not keen to buy a house or start a family, it is still a good idea to put aside some extra cash to finance the rest of your life should your financial situation change.

The author is Melinda Varley who an experienced journalist currently specializing in articles for the financial field. Melinda has held several positions for magazines and newspapers both hard copy and online and both in the UK and Australia which is where she originates from.

This article was written on the 24th May 2007. This article does not represent ‘financial advice’ as each persons individual requirements will be unique to their needs. If there is something in the article which you which to rely on then please check those details with any person from whom you purchase a term life policy at the time of purchase.

The views in this article represent those of the author and not those of Netbasic Limited.

Don’t let your consolidated debt give you too much freedom

A recent poll by a comparison site found that of the people who have taken out consolidation loans, three out of five will go on to running up further debts. The results also revealed that men and women are equally likely to accumulate more debt after consolidating multiple loans into one big debt. So why is this? The main reason many people chose to consolidate their debts is for the convenience and in hope of obtaining a lower interest rate. Once the debt is consolidated there is only one monthly bill that will pay off those lingering debts, no matter if they are credit cards, loans or mortgages.

The danger of consolidating debt however, is once the debt is stockpiled, it makes it easier for borrowers to obtain more money through other loans, such as credit cards and store cards, as the borrower is still only appears to be paying off one debt. The danger is, a consolidated loan may be one monthly payment, but it certainly is still part of a larger debt that must be paid off. A consolidated loan is not an answer to debt problems; it’s simply an easier way of dealing with it. It in no way will eliminate or reduce the amount you owe. Only one in four people say they manage to clear their debts early. That said, people who pay off their consolidation loans early are less likely to go on to accumulate more debt.

The recent poll found that whilst both the length and size of loans varied considerably, the average consolidation loan is around £16,500 and will take over eight years to pay off. The average size of loans taken out by men and women are roughly similar, but twice as many men compared to women manage to pay off their loans early confirming that credit cards and store cards are still a women’s market.

However, consolidation loans aren’t necessarily a bad idea. After all, it can make sense to roll up several expensive debts into one affordable monthly payment if you are faced with a myriad of claims on your money. But another option is to snowball your debts, meaning paying off debts with the highest rate of interest first while making minimum payments on other loans.

If you do choose to consolidate your loans, do so carefully. For instance, around half the loans taken out by people in the poll carry a penalty for early settlement. This is unreasonable, and is unlikely to encourage borrowers to pay off their loans any sooner. It is also vital to use consolidation loans sensibly, given that those newly paid-off credit cards will be brought back to life with enticing and generous spending limits it can be difficult to resist using them to reward yourself.

Consolidation loans can be a welcome lifeline for people caught in financial difficulties. But the lifeline can quickly turn into a trap if you give in to the temptation of running up further debts. Ensure the loan is flexible if you are disciplined so you can make overpayments or pay the loan off early and make sure that you take out a fixed-rate loan to avoid sudden interest rate rises. Also try to avoid payment protection insurance unless you're absolutely sure you need it.

Never borrow more than you need and definitely don't put your home at risk by taking out a secured loan if you are bad with managing your debt. Also, don’t use your credit cards until you have fully paid off your consolidation loan.

The author is Melinda Varley who an experienced journalist currently specializing in articles for the financial field. Melinda has held several positions for magazines and newspapers both hard copy and online and both in the UK and Australia which is where she originates from.

This article was written on the 11th May 2007. This article does not represent ‘financial advice’ as each persons individual requirements will be unique to their needs. If there is something in the article which you which to rely on then please check those details with any person from whom you purchase a term life policy at the time of purchase.

The views in this article represent those of the author and not those of Netbasic Limited.

Cheap loans, not many takers

Loans have never been so cheap and as the base rate has risen, typical loan rates have fallen. This means that the profit margins are narrower then ever for the loan providers and consumers are getting a very good deal that needs to be taken advantage of.

However, borrowers are a little slow on the uptake. Current account rates have improved steeply in a relatively short period indicating that providers have to work harder to attract new current account customers putting consumers in a very powerful position. The base rate now stands at 5.5 per cent with the best loan rate available at 5.9 per cent – a difference of 0.4 per cent. Just four years ago in March 2003, the base rate was 3.75 per cent, but the best loan rate was 6.7 per cent, a difference of 2.95 per cent or seven times greater. Recent reports indicate that many current accounts and loan products on the market are offering good value to consumers by abandoning the current base rate and offering attractive deals.

Similarly, many current accounts are offering rates that are considerably lower than the present base rate, following recent interest rate increases since the end of last year. Meaning the rapid growth of the Secured loans market has now encouraged increased competition. But even as loans are cheaper and easier for borrowers to obtain than ever before, the UK housing market growth slowed in March. This was due to the impact of the Bank of England's interest rate tightening cycle.

The Department for Communities and Local Government said annual house prices were up 10.9 per cent in March, lower than February's 11.8 per cent rise. The March figures missed predictions of a 12 per cent increase as the average house price in the UK rose to £206,890 in March, from a revised £204,556 in February. With speculation that the base rate could be set to increase further in 2007, customers could also benefit from further improved margins in the coming months.

Average credit interest rates on current accounts have increased by 0.29 per cent since October 2006 meaning it could be a very good time to consider a loan, such as a homeowner loans or debt consolidation loan. But an EU-wide lending could emerge in the near future, which would see loan providers able to operate across the 27 member states and make it easier for consumers to secure loans in another country. This could mean buyers could be tempted into buying a property abroad due to easy finance and cheaper prices as after four interest rate rises in the last year, fewer people are taking out mortgages in the UK as cheap deals are drying up.

Recent figures from the Council of Mortgage Lenders (CML) revealed that gross mortgage lending fell a total of nine per cent from March to April, with figures from the Building Societies Association (BSA) revealing mortgage approvals dropped eight per cent compared with the same month last year. This indicates that borrowers are now responding to the effect of a one per cent base rate rise. At the start of January, the mortgage market was anticipating two or three base rate rises indicating that the month on month slowdown could also be an effect of borrowers bringing their purchasing decisions forward in the first quarter of this year.

While lending is still strong, it does seem to be stabilising in 2007 following its major growth in 2006. However, with the cost of homes constantly rising it’s inevitable that lending will also rise and now is a good time to take advantage of the cheap deals that are available thanks to the narrow profit margins.

The author is Melinda Varley who an experienced journalist currently specializing in articles for the financial field. Melinda has held several positions for magazines and newspapers both hard copy and online and both in the UK and Australia which is where she originates from.

This article was written on the 23rd May 2007. This article does not represent ‘financial advice’ as each persons individual requirements will be unique to their needs. If there is something in the article which you which to rely on then please check those details with any person from whom you purchase a term life policy at the time of purchase.

The views in this article represent those of the author and not those of Netbasic Limited.

What product is right for you?

Contrary to the negative stories associated with credit and borrowing in the UK, maintaining some level of credit is a fact of life for most people. Research shows that the vast majority of the population is comfortable with their levels of borrowing and has come to budget it into their earnings. However, many worry that they are not getting the best deal on interest rates and charges on their existing credit. Therefore, credit consolidation through a secured loan is often an attractive choice for people who want to reorganise their existing credit arrangements.

No financial product is designed with specific criteria or with customers in mind, so an understanding of the terms and conditions of the agreement is essential. Some would argue that a loan secured against your home is never a good idea and the risks are far too great but, there are many reasons why this can be a viable solution for some.

Firstly, secured loans help homeowners to reduce their monthly credit repayments and offer lower interest rates on existing credit. In households with multiple credit repayments coming out on different days in the month, with varying interest rates and charges, managing money can prove to be quite difficult. For people in this situation, freeing up a significant amount of money each month and getting everything in one place is not just a convenience but a priority. In order to enjoy these lower repayments, consumers are generally fine with paying back more over a longer period of time.  

Secondly, consolidation through a secured loan is an attractive alternative to those who may be unable to remortgage for any number of reasons. Some people may have a favorable mortgage rate that they do not want to lose, or they would like to repay their loan over a shorter period, or they simply don't have the equity. The decision to take up a secured loan or other financial product is ultimately about consumer choice and will not always suit everyone. Any responsible lender will have a screening process in place, credit-scoring all customers to ensure that they do not lend to people who can not comfortably afford the repayments.

With UK house prices jumping 10 per cent last year, it's no surprise that mortgage equity withdrawal has also become increasingly popular in recent years. The average UK home currently costs around £200,000 and consequently for every 1 per cent rise in house prices, an extra £2,000 could, in theory, be unlocked from your home. And when house prices are rising, a certain sense of security tempts homeowners to save less and spend more. This can lead to an increased number of secured loans being taken out.

The temptation to save less and spend more during a property boom is not new and if you look back to the housing boom of the 1980s, it also prompted many homeowners to live off equity from their homes. Last year, £50 billion was extracted through mortgage equity withdrawals, representing almost 6 per cent of take-home pay. This means that borrowers supplemented £100 of take-home pay with £6 of extra home loans to help finance their increasingly expensive lifestyles.

However, while there is nothing wrong with borrowing against our home while mortgage equity withdrawal remains one of the cheapest ways to borrow money, you must be aware that it will take you longer to pay off the mortgage with bigger interest bills at the end.  

The author is Melinda Varley who an experienced journalist currently specializing in articles for the financial field. Melinda has held several positions for magazines and newspapers both hard copy and online and both in the UK and Australia which is where she originates from.

This article was written on the 25th April 2007.

This article does not represent ‘financial advice’ as each persons individual requirements will be unique to their needs. If there is something in the article which you which to rely on then please check those details with any person from whom you purchase a term life policy at the time of purchase.

The views in this article represent those of the author and not those of Netbasic Limited.

Is a secured loan your answer to managing your finances?

Apacs, the UK's payments body, has warned that only half of us check through credit card statements carefully, meaning many extra fees and charges could be being paid without us even knowing. In addition to this, many consumers may find the way their balance is being divided a little confusing, as often different amounts of debts are charged at different interest rates. This makes it even harder to understand exactly what you are paying and why you are paying it.

Although people are getting better at checking their statements, research suggests that there are still too many of misunderstandings. Taking out secured loans or homeowner loans can be a much cheaper option and a much more simple way of managing finances in comparison to a credit card.

As well as typically offering a much lower interest rate than a credit card, a secured loan or homeowner loan can produce all your payments together, making it easier not just to manage your money but also to consolidate your debts. A secured loan can be used for almost any purpose such as paying off expensive credit cards and reducing monthly repayments, home improvements, a new car, a wedding or that long awaited holiday.

Secured loans are secured on your property. This means that the lender is taking less of a risk in lending you the money and the rates are lower than for unsecured loans. Secured loans are also available to people who may not be eligible for an unsecured loan such as people with a bad credit rating, or people who are unable to prove their income. This may also be a solution for those who are relying on an income from benefits or a pension. Larger secured loans are also available, depending on how much equity is in your property. However, it is important that you know that you are at risk if you don't keep up the repayments.

UK mortgage brokers are increasingly focusing on secured loans making it easier for consumers to get good quality advice on when to take out such products. This is just one finding revealed by a new study carried out by the Association of Finance Brokers (AFB). Its survey of UK mortgage intermediaries said that around 50 per cent of respondents now advise on mortgages, with 56 per cent having advised on between one and ten secured loans in the past month. Close to 20 per cent of intermediaries placed their business with ten or more lenders.

In recent years mortgage brokers have been saying that they want, or intend, to become more involved in offering secured loans. Mortgage brokers are increasingly using secured loans as an appropriate part of their advice to consumers. This should ensure that the customer receives good quality advice. Although only 20 per cent of intermediaries did not offer Payment Protection Insurance (PPI) with the loans they advised, the remaining 80 per cent offered PPI either as a monthly premium or a choice of a monthly or a single premium.

The author is Melinda Varley who an experienced journalist currently specializing in articles for the financial field. Melinda has held several positions for magazines and newspapers both hard copy and online and both in the UK and Australia which is where she originates from.

This article was written on the 20th April 2007.

This article does not represent ‘financial advice’ as each persons individual requirements will be unique to their needs. If there is something in the article which you which to rely on then please check those details with any person from whom you purchase a term life policy at the time of purchase.

The views in this article represent those of the author and not those of Netbasic Limited.