If a Christmas spending binge has sent you into the red, you will need to take action now. Myra Butterworth explains how to keep the bailiffs at bay.
A record 120,000 people will go bust this year as their borrowing becomes unmanageable following excessive spending at Christmas.
The latest predictions from Grant Thornton, the accountancy firm, are the starkest warning yet that borrowers are failing to keep their debts under control.
The figures suggest that 10,000 individuals a month will become insolvent in 2008 after a series of interest rates rises in the past two years. This would represent a significant rise in the number of personal insolvencies. In 2007 there were 110,000 insolvencies, after the number topped 100,000 for the first time in the previous year.
The figures come just days after KPMG, a rival firm, announced that more than £1.3bn was written off in bad debts as a result of individual voluntary arrangements (IVAs) in 2007.
IVAs allow those in financial difficulty to approach their creditors with a plan to restructure their debts, typically by making regular, affordable monthly payments over a fixed period.
Last year the average IVA debtor owed £50,300 and proposed to repay just 38 per cent of this sum, or just £19,100, according to KPMG. Britain’s debt crisis is expected to be exacerbated by the 1.4m homeowners predicted to come to the end of their cheap fixed-rate mortgages this year.
Borrowers will find it harder to obtain new home loan deals as many banks have tightened their lending criteria in the wake of the credit crunch.
“Sadly, many individuals spend on credit at Christmas and pay no heed to the financial warning bells,” says Mike Gerrard, the head of Grant Thornton’s personal insolvency practice.
“Come January, they find their financial woes are compounded by the festive bills, and in these situations insolvency becomes the only way out.”
Excessive Christmas spending will fuel at least a third of all personal insolvencies in the first three months of this year, with 28,000 individuals likely to go broke in the first quarter of 2008, according to the figures.
As the January sales continue, it may be tempting to splash out on goods that you might not otherwise buy. But experts warn that this would only exacerbate the financial misery felt by families. “The quickest way to double your money is to take the notes out of your wallet, fold them in half, and put them back,” says Alan Steel of Alan Steel Asset Management, the independent financial adviser (IFA).
The Bank of England has already warned that the proportion of households struggling to maintain debt payments is at its highest level for almost 15 years. But the recent cut in interest rates will provide only limited respite for homeowners.
The reduction may not be reflected in the cost of mortgage deals, which are still significantly more expensive than two years ago. On top of this, consumers have also been hit by rising council tax and energy bills.
For many people, 2008 will be a year to tighten their belts. This is how to go about getting on top of your borrowing.
LIST YOUR DEBTS
Families who find themselves on the brink of insolvency this New Year need to put an action plan in place immediately. |
