November 26th, 2009
A recent study suggests that, in order to help people to better manage their debt, credit card companies should either increase the minimum repayment amount from the typical 2-3%, to 5%. This is part of an effort to help people pay off their debt more quickly and therefore more cheaply, than they are presently. You may feel that this is not particularly ground-breaking; raising the minimum payment will result in a shorter repayment period. However, the truly interesting area of study hinged on the principle that any minimum payment amount lowered our repayment expectations and in fact, removing the minimum would prompt borrowers to pay off more of their debt, rather than less.
Even though they might not be aware of it, people who pay off more than the minimum are also affected by these minimum payment values. A study conducted in the psychology department of Warwick University has shown that the smaller that minimum amount, the less people chose to pay over and above that. Shockingly, on average repayments rose by about 70% when a minimum payments amount was left off the credit card statement. This is due to a psychological phenomenon known as an anchoring effect. The minimum payment on a credit card statement acts as a psychological anchor, dragging down the amount they decide to repay. The majority of people do like the idea of paying a bit more than the minimum. It makes them feel like they are actually paying the debt off, rather than just the interest.
At the centre of this is an overall confusion surrounding compound interest. Simply put, interest is applied to the cost of your purchase in the first month, then in the second month you are charged interest on that interest as well as whatever you bought, then in the third month and so on and so on. The idea behind the minimum payment is that you pay off a bit of the interest and a bit of the original purchase price each month. The minimum is often so low that this has very little impact on the overall debt. So, even though you are making payments each month, payments greater than those outlined by your credit card company, your financial situation is not actually getting much better.
For debt help, talk to a debt advisor at Harrington Brooks, one of the longest established financial practices in the UK. They’ll be able to help you draw up a personal debt management plan that will help you to get out of debt as quickly as possible at a level you can afford. Use their debt wizard to assess your own level of debt and come to a conclusion on the best solution to suit your circumstances.
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November 24th, 2009
- First appearing in the 1986 Insolvency Act, the popularity of the Individual Voluntary Agreement (IVA) has soared in credit crunch Britain. However, due to the different legal systems, they are only available in England, Wales and Northern Ireland.
- The result is that your creditors receive somewhere between 10p and 50p out of every pound that you owe. This depends upon the amount that you are able to repay and the value of any assets that you have at your disposal. When an agreement is reached, your creditors cannot add any further interest or charges.
- An IVA rests on a minimum of three quarters of your creditors (in terms of debt value) agreeing to the arrangement as such a high proportion of your debt can be written off. An IVA usually includes any unsecured debt, like outstanding credit card debt and your overdraft.
- An IVA is likely to take any equity in your house into account. In the vast majority of cases, your home will be safe from repossession but you may have to release some of the equity in your property to service the IVA.
- IVA’s are typically suited for those with a minimum of £15,000 of unsecured debt. They are a more attractive proposition than filing for bankruptcy as in the majority of cases, you can keep your home, the details of your IVA are not published and you retain a greater degree of control over your finances. Also, you are afforded greater freedom to conduct your business affairs.
To see if an IVA is the right debt solution to suit your circumstances, take the 15 second debt wizard at Harrington Brooks. You simply have to fill in a few details to see if you can reduce your monthly debt repayment and be debt free within just 60 months with an IVA.
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November 23rd, 2009
Breaking the four minute mark is something that has been traditionally heralded as a bit of a triumph. Ever since Roger Bannister’s breaking of the four minute mile in 1954, it has become synonymous with accomplishment, a source of pride and a benchmark for achievement.
Well, there is nothing to be proud of in passing our latest four minute milestone. There is a declaration of insolvency every 3 minutes and 58 seconds. That’s some record; a first in British financial history. This translates to about 11,000 people being declared bankrupt or going into an IVA in the United Kingdom each month.
In the wake of global recession this perhaps doesn’t come as much of a surprise. Rates of insolvency, both bankruptcy and sequestration, have been rising gradually for a couple of years and there was an element of inevitability about the findings but this doesn’t stop it making for distressing reading. Particularly when we count the associated costs of bankruptcy and become aware of the alternatives. Bankruptcy is such a severe debt solution and borrowers should be conscious of the other options at their disposal.
Primarily, an Individual Voluntary Arrangement, or IVA, is a preferred method of tackling debt. Whereas a bankruptcy will tend to result in the loss of assets like your home, the IVA process will let you keep your house, even though it might be necessary to relinquish a proportion of the equity. This isn’t the only benefit that an IVA has over bankruptcy. Where bankruptcy is a matter of public record, published in your local newspaper, it’s possible to keep an IVA far more private. It will still be published on the Insolvency Service website but it won’t be in any newspapers.
The Individual Voluntary Arrangement came into being as part of the 1986 Insolvency Act and has recently become increasingly more popular as an alternative bankruptcy. Of course, any debt solution should be carefully researched to ensure that you are taking on the right option to suit your circumstances. The Harrington Brooks Debt Wizard is an excellent free resource in ascertaining the right course of action. In 15 seconds, it can give you an accurate breakdown of the alternatives to bankruptcy. Now, that’s a timeframe that you can be proud of.
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November 20th, 2009
There are 14.3 million low earning households in Britain. That is, households that are living on an earned income of less than £20,350 but independent of state support. This is a difficult situation to be in as you are earning enough that you do not qualify for government support but you are extremely vulnerable to effects of the credit crunch. Essentially, you are in an extremely precarious position, potentially on the verge of struggling financially and facing the worst rate of unemployment in 15 years; two and a half million unemployed in the UK.
A recent study has suggested that about a quarter of low-income households are currently spending more than a quarter of their monthly income on servicing their debts. That figure has doubled in three years. Almost a third of these low-income households have a high loan-to-value mortgage and are presently in negative equity, which makes them vulnerable to repossession and homelessness if they lose their job and are unable to meet mortgage repayments. Homeowners run a severe risk of repossession of their assets, including their home, should they be declared insolvent. This is one of the key benefits of an Individual Voluntary Arrangement, or IVA. If you enter in into the agreement and stick to the payment schedule, your home is perfectly safe. At the very most, you may have to give over some of the equity in your home to service your outstanding debt.
Do bear in mind that the Council of Mortgage Lenders’ projected number of repossessions for the year has continually dropped, so the pressure on homeowners would appear to be easing too. We have also seen the recent expansion of the Income Support for Mortgage Interest scheme. This is a government initiative that simply means that homeowners have less waiting time between losing their jobs and receiving financial aid in servicing the interest on their mortgage payments. The wait has been cut from 39 weeks to 13 weeks and there is no doubt that it is a valuable asset to homeowners facing debt problems. As is the Homeowner Mortgage Support Scheme, which allows households that suffer an unexpected drop in income to defer a portion of their mortgage payment for a period of up to two years.
Your first step when considering any personal debt solution, whether it’s unsecured debt like credit card arrears or your secured mortgage payments, should be to get professional financial assistance and debt advice. After all, everyone’s financial circumstances are different and there is no quick fix for your debt problems. So, don’t hesitate in getting debt help. Take the 15 second debt wizard at Harrington Brooks for a free, personalised debt solution.
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November 19th, 2009
An IVA is a legally binding contract between you and your creditors. It allows a person to make a formal proposal to settle a debt within a reasonable and fixed period of time. A licensed Insolvency Practitioner makes a proposal to your creditors and negotiates on your behalf. You just have to disclose all of your financials to them and they work out the terms for you. You make payments to the Insolvency Practitioner, which are based on what you can afford. The repayment period is 60 months and once you make your final payment, your outstanding debts are written off.
The key is to get advice that is specific to your financial circumstances. For example, if you don’t own any assets and are unemployed, then bankruptcy could be an option. If you are a professional, it might cost you your job though. A specialist debt advisor will be able to offer you assistance in making the right call. Take the free, 15 second debt wizard on the Harrington Brooks website and get impartial advice on the best course of debt help.
There are a number of points of distinction that are important to the individual involved when trying to decide between bankruptcy or an Individual Voluntary Arrangement. There are a number of points which make an IVA preferable to a declaration of bankruptcy. The primary attraction of an IVA over bankruptcy is the risk to your assets. The chances are, if you own your property, insolvency proceedings will put your home in serious danger of repossession. An IVA allows you to keep your house but it may require you to give up some of the equity you have in it to service your debt.
Further to this, the bankruptcy procedure is a public matter and there is a legal obligation to publicise the results of any insolvency in the local press. Also, you have an obligation to ensure that banks and other interested parties are made aware of it too. IVA’s are more private, only being published on the Insolvency Service’s website.
Naturally, setting up an IVA hinges on you having the ability to service some proportion of your debt. In order for three quarters of your creditors, the minimum proportion required to attain an IVA, to accept the terms of the agreement, you will have to demonstrate your ability to meet the repayment schedule. This creditor percentage is determined by value of debt rather than head-count. This means that if one creditor is owed 30% of your total debt, they have the power to veto the arrangement. Creditors can put forward changes to the proposal but there is no obligation to accept these. Interest rates will be frozen and your creditors will be forbidden from making additional charges.
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