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Home » Business And Finance Articles » Adverse Debt Levels Blight Uk Consumers Personal Finances

Adverse Debt Levels Blight UK Consumers Personal Finances

Debt levels are at an all time high in the UK. The younger generation tend to be feeling the pinch the most, but parents are increasingly being required to bail them out, often at great expense to their own limited mortgage or retirement savings.

It has become almost accepted as a fact of life that graduates will begin their careers with a considerable level of personal debt. The Association of Investment Trust Companies found that on average students expected to graduate with £7,208 of debt, while parents believed it would be nearer to £9,741, however the real average was found to be currently running at £13,501. Graduates then need to service credit cards, take out a mortgage, then cover the payments, repay university loans, not to mention the pressure to start saving earlier, and save more, for their retirement, whilst the basic state pension increasingly becomes inadequate. The government revealed in June that student debt for 2003-04 was seven times higher than they were in 1994-95 and the Student Loans Company has shown that debts owed to them has risen to more than £13bn.

It is not only students who face financial difficulties early in life. Consumer Credit Counselling Services â€" Scotland ( http://www.cccs.co.uk/ ), has indicated that young adults in general, under the age of 25, now account for more than 10 per cent of the estimated 32,000 people who have fallen into severe arrears on non-mortgage debts of more than £1 billion.

Malcolm Hurlston, Chairman of the Consumer Credit Counselling Services (CCCS) said, "It is noticeable that young people are accounting for an increasing proportion and the number of them seeking assistance has risen by about 25 per cent over the past two years or so."

Analysts have been bracing themselves for news of a sharp increase in adverse debt levels from the major high street banks following report figures of a 21 per cent increase in bad debts levels at Lloyds TSB. City analysts expect HBOS and Royal Bank of Scotland to declare that bad debt charges have risen by around 20% in their personal banking businesses, and Barclays, HSBC and Alliance & Leicester are all expected to tell a similar tale of rising loan defaults. Citigroup analysts are expecting bad debt charges from its retail banking division to rise about 24% in the first half of this year to £230m, while last year HBOS's provisions for bad debt rose from £1bn to £1.2bn.

Keith Stevens, of the chartered accountants firm Wilkins Kennedy ( http://www.wilkinskennedy.com/ ), said: "Creditors profit by lending money to people and collecting interest, and the longer they can keep that cycle going the better for them. Unless borrowers own property of significant value, it's often not in creditors' interest to call in their debts." He also continued that he believed some creditors were increasingly taking a hands-off approach, allowing debtors to pile up large amounts of debt, and then collecting interest and penalty charges for as long as borrowers were able to continue paying. This has lead to an increase in the number of borrowers filing for bankruptcy themselves when previously they would have been forced into it earlier by their lenders.

House repossessions have also significantly increased over the past year, with the Council of Mortgage Lenders announcing 4,640 home repossessions during the first half of 2005, compared with 3,070 for the last half of 2004. Government figures show that there has also been an increase in the number of homeowners being taken to court for mortgage arrears.

Some of the major banks and financial service providers have taken the initiative and started to help police the growing adverse debt problems with HSBC announcing that it will share their full credit record, of both positive and negative information, on its personal customers with other regulated financial services companies through the Experian, Equifax and CallCredit credit reference agencies, in efforts to keep tabs on its consumers' debt.

Michael Geoghegan, Chief Executive of HSBC said: "It is no more in the interests of a customer to borrow more money than they can afford than it is for a bank to lend them the money." The move has been widely heralded by analysts, as Michael Geoghegan added, "It is the only way to ensure that lenders properly understand the full financial exposure of customers before they let them sign up to debt that some simply can't afford."

This all comes amidst media pressure for financial firms to become more responsible. One case widely featured in the news concerns a couple who took out the £5,740 loan at 34.9% APR for house improvements, but they were already in arrears on two prior mortgages, and became unable to keep up the loan repayments. Over the course of the 15 year loan term the amount repayable had escalated to £384,000. Attempts by the loan company to still enforce the huge debt, eventually had to be fought off by the couple through the law courts.

The couple urged others considering taking out a loan to seek advice and to, "obviously read the small print and ask the questions that perhaps you don't think about at the time, and just make sure you know exactly what the consequences are should anything go wrong".

There are currently many sources of information to help consumers make decisions regarding their finances and debt levels. Financial comparison sites like Moneynet ( http://moneynet.co.uk/ ) can provide impartial information on loans, mortgages, adverse credit, etc, to find the best product for individual circumstances. Consumer help sites like the National Debtline ( http://www.nationaldebtline.co.uk/ ) provide free confidential and independent advice on how to deal with debt problems, and the Citizens Advice Bureau ( http://www.citizensadvice.org.uk/ ) are there with trained volunteers to help with legal, monetary and other problems, through a free, independent and confidential advice service.

The more help and information that is available to consumers and the more responsible the lending agencies become, the safer finance will be for the most vulnerable who are looking to borrow money, to prevent them getting into un-repayable levels of debt, however these services can only be of help if people actually use them.

Malcolm Hurlston of CCCS said, "We are advising about 4,000 people in Scotland and I would estimate that our figures represent only about one in eight of those who need help".

Financial education is something needs to be provided at an early stage to make people realise the importance of taking on the accountability for their own finances, as well as highlighting where to access help for when it is required. Budgeting is a subject many school leavers have little practical knowledge of, but one which they desperately need to be made aware of before they start to control their own finances.

Where there is existing advice or help, this must be made available and known to all in order to prevent more people getting too deeply into debt, or falling prey to loan sharks like the recent case of Mark Washington Johnson who has been jailed in Birmingham for nearly four years. Mr Johnson was found guilty of charging up to 8,000 per cent interest on loans, taking Social Security benefit books or National Insurance numbers as "security" for the unauthorised loans and then piling on default charges for missed payments. If we are to prevent this sort of abuse occurring to the weakest members of society then public awareness needs to be raised and the most vulnerable people given the assistance best suited to understand and control their own money.

Released by bigmouthmedia ( http://www.bigmouthmedia.com )

And here is another random article you might be interested in...

Understanding and Dealing with Drawdowns

We all have it and go through it one time or another and will continue to go through it. For others, drawdowns are more common than profit run-ups. Or worse, each drawdown is worse than the last. It's a never-ending cycle where these holes appear in our equity charts or account statement. How does a trader go about understanding and coping with them?

The main problem with drawdowns is that the majority of the traders don't know they exist and have ignored them. They have only calculated how much they will make and what they will do with that money earned. But little thought is given to how much each trade would bring and by how many losing trades it takes to wipe out the account. Those without a trading plan or a strategy will have no idea what their expected drawdowns will be. Only after they lose it all did they realize they need a plan to deal with losses.

First is to formulate a strategy and test and demo trade that strategy in a consistent way. Once that's done, start demo trading and begin keeping record and calculate all the losses, wins percentage plus countless other statistics to give an idea how the strategy fares. These demo accounts are offered free by many brokers. Among all of these ready-made calculations from the trades, there is a calculation for accumulated losses as well as average loss per trade. These two formulas show a strategy's likeliness to losing periods and by how much, either in terms of consecutive losing trades or the loss since the highest equity amount. When knowing this in advance, we can expect it in the near future and not be tempted to doubt and even abandon the strategy when in fact it's a profitable system in the long run. Most will never know because they cannot look beyond the current drawdown as part of the overall strategy. This is why testing and reviewing the strategy performance results is such an important part of trading, not just trading. This is where mechanical traders have an edge by following through a process of taking an idea into a final live trading phase.

Drawdown happens to everyone and can happen at anytime. Whether it's caused by the strategy itself or by the trader's own psychological and emotional issues, drawdowns is a fact of trading life. The only way to deal with it is to prepare for it and if possible, identify it and keep it to the minimum. This can be accomplished by reducing the size of the position, trade less or be more vigilant and cautious on each trade.

Drawdowns are the biggest reason why most people cannot survive trading because of the emotional stress that comes with them. These are moments when the trader is truly tested, some overcoming it by continuing and staying with the strategy until the drawdown in finished. Most, however, come undone by doubting their system and lose self-confidence as a trader. Eventually, these traders move on to other systems that will eventually go with their own drawdowns, which spiral to more losses, losing more equity. It's a vicious cycle where the biggest damage is not monetary but psychological. Eventually, these traders cannot handle the stress and quit.

Having explained the consequences of a drawdown, this is why it is so important to concentrate on finding the historical drawdowns associated with the strategy before trading them. This will prepare the trader to expect and deal better with the losing streak. When a person expects and prepares for the worst, he usually comes out feeling better mentally, especially when the result is not as bad as expected.

This mental state has to be nurtured and watched constantly during this period. More important than losing money is the loss of objectivity and confidence. So when this period does arrive, monitor and pay closer attention to each action and mental thought. In doing so, it will lead the trader out of the drawdowns with confidence intact.