thedebtblog.co.uk

I sometimes feel that this blog is always ‘doom and gloom’ but then again how can debt be anything but gloomy? There isn’t a lot to get excited about when it comes to debts - apart from getting rid of them!

An additional 81,000 people became unemployed between may and July this year taking the official unemployment rate up to 5.5 per cent which means that 1.72 million people in the UK are now unemployed.

These are all more bad signs of an economic slowdown as more people loose their jobs and job vacancies fall at the same time…

The TUC’s General Secretary Brendan Barber said; “Today’s figures show that unemployment is starting to accelerate and it now looks very likely that total unemployment will reach two million during 2009.”

“It is clear that deflation is a much more pressing threat than inflation, and interest rates should be cut,”

This is the highest level of unemployment in the UK since early 1999 and industry experts are warning that falling employment and vacancies will only lead to further unemployment over the months ahead as the demand for labour weakens…

Official figures released today show manufacturing output fell 0.2 per cent between June and July 2008.

Industry experts are predicting or should I say praying that interest rates will be cut in the last few months of 2008 as we’re seeing the longest period of decline in manufacturing output for over seven years.

If predictions are correct the UK economy will be officially in recession by the end of 2008.

The British Retail Consortium also reported high street conditions were at their worst as sales fell 5 months out of the last 6.

This is more bad news for the debt industry, particularly with regards to First Plus offering a large number of it’s secured loans to customers wanting to consolidate their existing debts.

First Plus is the largest provider of secured loans in the UK and is owned by Barclaycard. This hasn’t however stopped the announcement that they will no longer be accepting new loan business from 9th August 2008.

It is common practice to use a secured loan in order to pay off existing unsecured debts. The secured loan is, of course, secured against any equity in the applicants property. The worrying consumer trend associated with debt consolidation loans is that around 60 per cent of people who use a secured loan to pay off debt will then go on to apply for, and use additional means of unsecured credit. Plunging them deeper into debt.

It’s no surprise to me that debt in the UK is at its highest level ever and still rising. Uswitch.com have bullet pointed the main facts and it’s concerns, please see them below;

• Firstplus, the market leader in homeowner loans and best known for its adverts fronted by Carol Vorderman, has confirmed that it will be closed to new business from 9 August 2008 and will make 300 job cuts.
• Firstplus is “market leader” in home loans with 128,000 customers, 430 staff and £4.7 billion in receivables. Today’s news is a huge blow to the personal loans market and another signal that the consumer credit market is quickly drying up.
• Their departure will leave just seven players in the market, down from 18 last year before the credit crunch hit.
• A large proportion of business is sent to them via brokers. Brokers will now struggle to help consumers that need secured loans and consumers will in turn struggle to get hold of cheap consolidation loans as companies continue to tighten their lending criteria. Lenders have reduced the amount of credit on offer to applicants and is undoubtedly harder to come by.
• Having the wrong, or uncompetitive, financial products can mean consumers are wasting money that could be put to better use. Anyone with outstanding debts in need of refinancing onto a cheaper deal needs to act now to secure a competitive loan before rates increase any further.

As many as 6.5 million people have consolidated debts in the last 3 years in order to try and keep in control of their finances. Alarmingly 1.29 million of us have unsecured debts of more than £20,000 - So that’s debts run up on personal loans, credit cards, store cards and overdrafts.

By ‘consolidation’ I mean people that have consolidated all their unsecured debts with 1 bank. This proves that demand for secured loans has increased significantly over the last 6 months. Worryingly, people who are struggling to keep up with their debts often turn to secured loans or homeowner loans in order to pay off unsecured debt with a loan secured on the equity in their home. The problem is something like 60 per cent of people who do this then continue to use credit cards and apply for personal loans, stretching their finances to breaking point.

If you are struggling to keep up with repayments on a number of different debts, perhaps money owed on store cards, credit cards or a loan you should really take action now to take control of your finances.

On one hand it is very good news that people are looking to consolidate their debts and take control of their finances, however on the other hand it is essential that these people do not fall into the false thinking that because they have consolidated their current debts they can suddenly afford to borrow even more. Moving your debts into one place can help you save money.

In the UK I think the average credit interest rate is something like 16.9 per cent, Typical APR, Variable.

Unsecured loan interest rates are much lower at around 9 per cent; secured loans are also lower at around 14 to 15 per cent. This kind of difference in interest rates will make a difference in monthly payments.

I can’t stress enough that debt consolidation should be used as a way of getting your finances under control it should not be used year after year to fund additional spending on credit cards and loans.