Independent research commissioned by credit reference agency Callcredit has revealed that 40% of the UK’s working population could not survive for more than a month on their savings alone. This figure peaks to a staggering 53% among the 25 – 34 year old age group.

The impact of the credit crunch means that one in ten people can no longer afford to save and have in fact started dipping into savings to meet their monthly outgoings, with the 18 – 24s most likely to have to resort to raiding their accounts to make ends meet (14pc).

The findings also reveal that one in twenty people are spending over 50% of their salary on unsecured debt repayments. While this remains a relatively low figure it has more than doubled compared to a previous survey conducted in September 2007.

Owen Roberts, head of Callcredit Check, commented, “These findings are a stark illustration of how the credit crunch is already affecting consumers; it’s clear that the rising cost of everyday living is having an immediate impact on our ability to save. Many UK workers are at what could be described as a financial tipping point where just one unexpected unfortunate incident could have dire financial consequences.”

The number of people facing bankruptcy has fallen, according to the Ministry of Justice.

According to its figures, 17,931 petitions for bankruptcy were issued from January to the end of March. This is 15% fewer than those from the same period of 2007.

The number of individuals choosing bankruptcy - called debtors' petitions - stood at 13,080 in the first quarter of 2008 - up from 11,674 in the previous three months, but still 13% down on the number of petitions in the same quarter of 2007.

Some 4,851 people were facing forced bankruptcy - creditors' petitions - in the first three months of 2008, up slightly on the 4,583 of the previous quarter but down 15% on the same time a year ago.

Credit data specialist Experian has revealed UK borrowing increased to over £1.1 trillion in the last year, despite showing signs of a slowdown.

In its annual UK debt report showed debt balances on outstanding mortgages, credit cards, loans and overdrafts rose by 9.24% to £1.1.59 trillion.

According to the report outstanding debt on mortgage balances showed the largest increase over the last 12 months.

Bruno Rost, spokesperson for Experian, said its results show lenders had been tightening lending criteria before August 2007.

He said: “It shows that growth in lending has slowed markedly across all key credit products and credit tightening on cards, loans and mortgages was already well established in advance of the so-called credit crunch”

Rost said the worst affected area was Northern Ireland which had shown a 23% increase in debt balances.

The data also revealed mortgage balances had risen 10.8% over the past 12 months compared to 16.4% in the previous 12 months.

It said the growth in outstanding mortgage balances had been in line with house price inflation around the country.

Rost said consumer loans had bucked the trend by showing a decrease iin debt balances.

He added: “The total balance on loans has actually decreased by 0.38 per cent, compared with an increase of 2.9 per cent in the previous 12 month period.”

Banks have recently reported a sizeable increase in the amount of money that they have to write off because so many people have defaulted on their loans and credit cards.

Of course, people have to take responsibility if they've borrowed more than they can really afford but lenders must also take part of the blame for making credit too easily available.

Not surprisingly, lenders are being more careful when they select potential customers these days, but they still base their decision on three main factors.

1. Your application form
Lenders need basic information from you such as your name, age and address, how much you earn, how much you want to borrow and why.

There'll be certain questions that might seem irrelevant to you but the information you of you and give will be used to build up a ‘profile’ of you and your circumstances. This will enable them to 'score' you by allocating plus or minus points for information that they regard as good or bad.

2. Your credit files
Next they will carry out a search of your credit files. These play an important part in showing how well you manage your finances because they contain details of any County Court Judgements and bankruptcies. Alongside that will be information passed on to them from various banks and building societies about your payment history for cards, loans and mortgages that you already have, how much you've borrowed and how much credit you have available to you.

There are three main credit reference agencies holding this sort of information about you which lenders use, these are: -- Equifax, Experian and Call Credit -- and, as you have a right to see the information they hold on you, it's a good idea to send off for them occasionally to make sure the information they hold is correct and to ask for factual details to be rectified if a mistake has been made.

Every time a search is carried out it is logged on your files and that information is available to every other lender who needs to access it. In some cases, this can go against you -- for example, if you have approached several banks, it might appear that you are looking for lots of credit and could have been turned down even though you may have a perfectly good reason for not proceeding with each application.

If you go ahead with your application and you meet your monthly obligations on time, then your payment history for that particular borrowing will show up on your file as a series of zeros for each card or loan that you have. If you are late with your payments your track record is automatically altered even if you miss just one payment.

However, it's the Default notices and County Court Judgements which are of most concern to lenders and as these stay on your files for six years, even if you eventually manage to pay them off, it can still affect your chances of getting further credit. You'll either be turned down flat or you'll be charged a higher-than-usual interest rate.

If you have a bad record because of late payments, defaults or County Court Judgements, then there's not much you can do to improve matters except to make sure that your payments are on time in the future.

3. Your credit score
Finally, having checked your application form and your credit reference file, your prospective lender will then use that information to give you marks to determine whether you are a good or bad risk.

Each lender has different criteria when calculating your credit score. It depends on their target market and whether they want to lend money to people like you. It works on a points system: the more points you get, the more likely it is that you'll get credit.

Factors such as being married and being a homeowner will probably score highly because this implies stability. Your postcode may also be relevant because it indicates whether you live in an affluent area or not, but having lots of children could count against you because kids are expensive!

The most important thing is to make sure you are on the electoral roll. If you don't show up as being on the electoral roll, most lenders will automatically refuse you credit. So if you've recently moved, phone up your local council and ask to be registered as soon as possible.

The Government yesterday announced its plans for a new scheme that would allow struggling debtors to have a ‘payment holiday’ on their unsecured debts, in which a court order would freeze payments to creditors for a period of time. These Enforcement Restriction Orders, or EROs, would prevent penalty charges, charging orders, and ordinary repayment demands for up to one year.

There are a number of conditions. The debtor must have a clear reason for their inability to pay – loss of job, sudden illness and divorce being obvious examples. Simple mismangement of debt will not qualify a debtor for an ERO. Debtors will also have to prove that they will be able to afford the repayments at the end of the ERO. Certain debts, such as student loans and mortgage repayments, will be excluded, but there is no limit to the level of debt that can be included in the ERO. A side benefit of the proposal is that it is predicted to hit the Payment Protection Insurance industry hard. PPI has become notorious for being over-priced, mis-sold, and generally being an unnecessary insurance product.

The chief drawback is that interest on debts is not frozen. It is also not yet clear whether or not people will be restricted from taking more credit while under an ERO. People who unwisely enter into these Restriction Orders may suffer from the same fate as debtors who mismanage their consolidation loans, and just end up with more debt at the end of it.

Still, these proposals are to be welcomed. The sudden loss of income due to illness or loss of work is one of the classic ‘tipping points’ that pushes people into the debt spiral and towards insolvency. Rather than borrowing more to service their debts, debtors will have a chance to get their finances in order and address their debt problems sensibly. Debt Management Plans can provide a solution for moderate to low levels of debt, but they are informal and lack the legal protection offered by the EROs. Regulated and legally binding measures targeted at lower levels of debt could reduce the number of people forced into formal insolvency.

The bad news is that the EROs aren’t expected to come in until 2010 – too late for the thousands of debtors who will have slipped into insolvency by then. But it is a positive step that the government is prepared to provide legal protection for those who have fallen into debt through no fault of their own, and who just need a little time to make things right.

Source: iva.co.uk

Britons’ lax monitoring of their money is putting £43.3 billion and wellbeing at risk

New research released today has revealed that only one in ten (14%) Britons polled in a new study would immediately notice if £1,000 went missing from their account.

When calculated at a national level, this figure amounts to an estimated £43.3 billion* in unwatched money, highlighting the careless way Britons currently monitor their finances.

Almost a quarter (21%) only check their bank balance once a month.
Almost one in five (16%) of Britons have “finance-phobia”, admitting that they are too afraid to check their balance
Over a quarter of Britons (28%) stated that they suffer sleepless nights over their finances

Britons’ money management found to be limited

A third (32%) of those polled stated that their knowledge of their bank balance was poor.
16% stated that they knew more about celebrity and sport trivia than their bank balance.
Around half (56%) of Britons check their bank balance once a week.
However, over one in four (28%) Britons believe that a better knowledge of household finances would help them wear the trousers in their relationship

The study, commissioned by mobile banking service Monilink, also demonstrates the impact of poor money management in the UK.

Alastair Lukies, chief executive of Monilink said “These findings suggest consumers need all the help they can get to keep tabs on their money. Poor money management and existence of ‘Finance-phobia’ in Britain is worrying considering the rising levels of debt problems Britons face”



Lack of money management contributing to the growth of British debt and overdrafts

Over a third (38%) of those polled admitted they had gone accidentally overdrawn due to a lack of knowledge about their bank balance. Women (41%) and those aged between 25 -34 (48%) were the worst offenders.
Almost one in five (18%) of people stated that each time they went overdrawn, this was by a sum of £300 or more.
Those who never checked their balance were almost twice as likely to go overdrawn by £300 or more than those who checked every week (16% compared to 30%).
Card and bank account fraud amounted to £423 million in 2007*, but only 13% of those polled currently worry about illegal withdrawals on their account.



Impact of the lack of financial control on Britons’ wellbeing

31% of women and 22% of men polled suffer sleepless nights over their finances.
The 25-34 age group emerged as the most stressed, with 35% losing sleep over their poor money management.
Almost half of Britons (41%) would like to feel more in control of their finances.
One in ten (8%) of those felt their finances are actively out of control. Women were most concerned about this, with (44%) wanting more control.
25–34 year olds again emerged as the leading problem group with 12% feeling their money management was out of control.



British ‘carefree’ attitude to going into debt revealed

One in ten (9%) of those polled would go overdrawn to buy something wanted but didn’t need, with 25 -34year olds being were most prone to this behaviour (15%).
When questioned about debt-threatening overspending, the most common unessential treats were food and drink (52%), 31% luxury goods purchases (cars, watches, etc) and clothes (19%).
When comparing genders, women’s favourite area of overspending was food and drink (55%). This was followed by luxury items e.g. jewellery (24%) and clothes (23%)
Men were most likely to overspend on luxury goods (46%), followed by food and drink (45%) and clothes (10%)



Launch of mobile banking offers busy Britons a money management lifeline

One in five (19%) of those prone to going overdrawn stated that easier access to their bank balance would help them stay in the black.
Of those who check their balance every day, 64% never go overdrawn.

Alastair Lukies said “As mobiles are also more widespread in the UK than PC’s, UK banks have woken up to the fact that mobile banking represents the future. Internet banking is OK if you are sat at a desk, but not so good when in the middle of a shop working out whether you can afford a purchase”

The number of orders for home repossessions has dropped despite the worries surrounding the extent of personal debt in the UK.

Figures from the Ministry of Justice show that the number of mortgage repossession orders during the third quarter dropped by one per cent year-on-year, falling to 23,086.

But the number of repossession claims by lenders increased by one per cent to 34,717 over the previous quarter.

An increase in the cost of borrowing and tighter lending conditions in the aftermath of the credit crisis led to economists expecting a rise in repossessions.

The Council of Mortgage Lenders (CML) predicted a 50 per cent jump in home repossessions for 2008.

Should the economy slow markedly over the coming months and unemployment start rising significantly, the number of home repossessions could surge.

Figures from the Insolvency service also showed a five per cent fall in the number of people declared insolvent in the last quarter due to lenders tightening up their criteria for products such as Individual Voluntary Arrangements or IVA’s.

Anyone falling outside defined "thresholds" could be at risk from the credit crisis.

Despite signs of gradual recovery in the mortgage markets, tighter credit conditions may re-emerge in the aftershock of the recent financial turmoil.

But people with debt repayments of more than 55 per cent of their household income or net worth less than 33 per cent of their income could be in jeopardy.

The two thresholds provide a handy guide for consumers to see if they are potentially sitting ducks. By ensuring that people stay comfortably within them they should be better placed to face any unexpected shocks in the future.

Consumers should draw up a statement of affairs or an income and expenditure to get an accurate view of their financial situation and to see if they are at risk.

The Debt Advice Bureau has responded to the news that over one million homeowners pay their mortgages on credit.

Stephen Rose, director of Debt Advice Bureau, believes that people using credit cards to meet mortgage payments may not be treading on a dangerous path after a poll from YouGov found six per cent needed a credit card to meet payments.

"If people are using credit cards it may mean that there are cash flow problems anyway, it really depends what they're paying on the credit card versus what they are paying on the mortgage," he said.

"There are people out there who have technically bought a house on a credit card and they've done very well. I bought my first property off the back of credit cards and the credit cards were a hell of a lot less than a mortgage," he added.

Chancellor Alistair Darling has urged Britain's banks to take a more cautious approach to lending.

In an interview with the Daily Telegraph, Mr Darling said both lenders and borrowers needed to "think long and hard" about the risks involved.

He also suggested a return to "good, old-fashioned banking" and voiced concern over loan consolidation TV ads.

His comments come amid volatile markets and concerns about the scale of debt taken on by British consumers.

The chancellor told the Telegraph primary responsibility had to rest with individuals.

Elementary banking

He said: "In crude terms [lenders] need to know who they're lending to, how much they're lending and what the risk is.

"Now, that's elementary banking, one might think, but there are times when going back to good old-fashioned banking may not be a bad idea."

But Mr Darling made no suggestion government would intervene with tighter regulation of lending.

"My starting point is that government can't stand on the shoes of borrowers or lenders," he said.

"[Borrowers] need to ask themselves, 'Can I repay this?' and lenders need to ask themselves, 'If it goes wrong, can I get it back?'. People do need to think long and hard about this," he warned.

But he did say the Treasury was looking into commercials - "the sort you see on daytime TV" - which encourage consumers in debt to consolidate their loans.

Experts have warned such schemes can actually push households further into debt.

'More honesty'

He added that banks themselves may bear some of the responsibility for people getting into problems with debt they cannot handle.

"Institutions have in some cases been prepared to lend to people without actually checking if they were ever going to repay it," he said.

He also suggested the City and financial institutions should take a more sceptical approach to new and complex financial instruments which appear to offer spectacular rates of return.

Recent cases have shown such instruments have turned out to be backed by risky loans to sub-prime home-buyers in the US.

"Banks try to only lend responsibly but often they have been dazzled by the technology and forgotten to eyeball the customer" Malcolm Hurlston, Consumer Credit Counselling Service

He told the newspaper: "Institutions themselves need to open their own eyes and be more honest.

"When someone comes up with a fantastic way of making money they need to ask, how is this money being made and what are the risks?"

'Stigma'

Mr Darling's comments were welcomed by the Consumer Credit Counselling Service, which advises those in financial difficulties.

"Banks try to only lend responsibly but often they have been dazzled by the technology and forgotten to eyeball the customer," said chairman Malcolm Hurlston.

"There should also be responsible borrowing but consumers can be led astray by emotions - not helped by cynical advertising on daytime television, as highlighted by the Chancellor, with for-profit providers offering minority solutions to mass problems."

The director of public policy for Citizens Advice, Teresa Perchard, said that a campaign to inform people about better lending and borrowing habits was needed if behaviour was going to change.

"The Chancellor is right to highlight the need for more responsible lending by banks and credit providers," she said.

"Borrowers and lenders need to go into lending with their eyes open. The impact of unmanageable debt on individuals is severe and long-lasting. For some it means bankruptcy and years of stigma."

The number of people seeking advice on how to meet their debts has hit record levels, the Citizens Advice Bureau (CAB) has warned.

The CAB said 1.7 million people sought debt counselling last year, up 20%. CAB is handling 6,600 debt enquiries a day.

Those with problems paying credit card bills and other unsecured loans accounted for 40% of all enquiries.

But CAB reported a "worrying" rise in the number of people struggling to meet day-to-day outgoings like phone bills.

'Paying the price'

The past two years have seen the number of people seeking debt advice spiral, as a sharp rise in the cost of borrowing has made life far more difficult for many households.

CAB said the figures illustrated how the consumer credit boom of the past decade - characterised by an easy availability of cheap credit and by people taking on more and more debt - had turned sour for many.

"These figures are worrying evidence that while many have enjoyed the benefits of the credit boom, a large and growing number of people continue to pay the price," said David Harker, CAB's chief executive.

"Lenders need to do much more to check that borrowers are really in a position to keep up repayments"
David Harker, Citizens Advice Bureau

Bankruptcy-related enquiries rose 50% last year, while the number of people requiring help with their overdrafts rose 14%. Mortgage-related enquiries rose by 11%.

Most disturbing of all, the CAB argued, was a 33% rise in the number of people struggling to pay their energy bills and a 25% rise in enquiries about council tax payments.

Banks and other financial providers needed to act more responsibly, Mr Harker stressed, by not offering new sources of finance to people who were already struggling.

"Lenders need to do much more to check that borrowers are really in a position to keep up repayments when they take out credit," he said.

"We also want to see creditors being more willing to negotiate with people in debt."

The CAB added that it needed 5,000 new volunteers to deal with the surge in enquiries.

A number of UK lenders, including HSBC, Lloyds TSB, Royal Bank of Scotland and Nationwide, have agreed to go to court in a test case about overdraft charges.

On Friday, and with the banks' backing, the Office of Fair Trading will file an action arguing that charges are unfair.

Banks have had a long-running battle with consumers over whether fees levied for unauthorised borrowing are legal.

Tens of thousands of cases have already been settled out of court, costing the banks millions of pounds.

Market watchdog the Financial Services Authority (FSA) will allow banks to suspend dealing with any claims for repayment of overdraft charges filed against them until the test case has been decided.

However, the banks will still need to make a note of any claims lodged, and will have to honour offers to settle that were made before the test case and FSA waiver were announced.

Unfairness rules

Angela Knight, chief executive of the British Bankers' Association (BBA) said that legal clarity was needed to end uncertainty for banks and consumers alike.

She added that the banks had not softened their view that the charges were legal and fair, and said that the lenders could only "start looking at the issues underneath" once they had a ruling.

The Office for Fair Trading (OFT) said that the lenders had approached the UK's financial watchdogs in order to sort out the problem and agreed to the test cases in England and Wales, Scotland and Northern Ireland.


LENDERS IN TEST CASE
Barclays
HSBC
Royal Bank of Scotland
Clydesdale Bank
HBOS
Abbey National
Lloyds TSB
Nationwide

The OFT said that on Friday it would commence proceedings in England's High Court for "a declaration on the application of the law in respect of unauthorised overdraft charges".

At the heart of the court case will be whether or not the overdraft charges are a fair reflection of the costs incurred by banks.

Under current rules, the banks cannot make punitive charges when customers exceed their overdraft limit without prior permission or write cheques when they have insufficient funds in their accounts.

Customers have been arguing that the fees levied far exceed the costs incurred by the banks.

"The OFT considers that a quick determination of this point of principle will assist in securing a clear and orderly resolution of the fairness of these charges," it said.

Out of court?

To date, the banks have been reluctant to contest such cases, usually settling out-of-court.

If a bank were to do so and lose its argument that the charges were fair, it could lead to many more bank customers getting refunds, analysts said.

The BBA's Ms Knight said that the banks had been unwilling to take an individual to court as the case would be different from person to person and would not offer a definitive answer on the legal issues being questioned.

She declined to say how much the banks stood to lose should the test case go against them, but said that it could affect the way they do business in the UK.

There has been speculation that lenders could end their free consumer bank accounts should the ruling go against them.

"We are defenders of free banking," Ms Knight said, adding that while it was too early to say what the outcome of the court case would be "we cannot say it will have no impact".

Borrowing is so much a part of 21st century life that being declined for a loan, credit card or mortgage can come as a shock, especially if your finances are well under control. Here, we explain what could be counting against you – and what you can do about it. There’s a score that can affect your life just as much as your bank balance or your tax code. It’s the credit score that lenders calculate when you apply for a loan, mortgage or credit card and it represents the risk they take in lending to you – because there’s always a risk that a customer might not repay what they borrow.

Lenders use the information you give them on your application form plus details on your credit report – the personal financial record that shows what credit you have taken out in the recent past, your repayment history, whether you have any court judgments or have been bankrupt and whether you are registered to vote.

Each item of information is allocated a value. Generally, the higher your score, the easier you will find it to borrow. So if you’re comfortably off and managing well, why would a lender turn you down?

You haven’t borrowed enough in the past

You’d think lenders would love a customer with no debts – but it isn't as simple as that. They rely on the details in your credit report to show them that you make repayments on time and are a reliable person. If you have no track record, they cannot tell how you might behave in future and could mark you down because they have no evidence of you being someone who manages credit well. If you fear this could happen to you, ensure your lender has full information about your situation – for example, that you own your home and have paid off your mortgage, or that you use a debit card because you live within your means. They can then make checks and come to a rational decision.

You don’t fit the profile for the particular lender or the type of credit you asked for

Confusingly, you don't have a single credit score. Different lenders use different ways to work out their scores and sometimes one lender will even use different calculations for different products. They target specific groups of people and you may not fit their template. Ideally, you should do your research before you apply and identify lenders who want to deal with people like you and what product they have for you – for example, for home owners, students, older people and so on. The personal finance pages in newspapers, specialist magazines and websites will help.

There are too many recent searches on your credit report

Each time you apply for credit, you will give permission for the lender to search – look at the information on – your credit report. This search leaves a record of the check that you and other lenders can see. If you apply to multiple lenders in a short space of time, your credit report may give the impression that you are taking on more credit than you can afford. Future lenders can interpret this as meaning that you are desperate for money, overextended or even that a fraudster is using your identity to get lots of credit, fast. Make sure that when you approach lenders for information about their products, they don't think you are making an application. Always explain that you want details, or a quote, but that you haven’t yet decided to apply. If you think there are searches on your credit report that shouldn’t be there, contact the lenders involved, explain that you were only looking for information and ask them to amend your credit report.

You had problems years ago

Today, you’re financially fit – but perhaps things haven’t always been so good. If you have missed credit repayments in the past, a record of these arrears can stay on your credit report for up to 36 months. With a court judgment, the evidence is there for six years. Information about a bankruptcy also stays on record for at least six years and a bankruptcy restrictions order can remain there for as long as 15 years. Lenders see these and mark you down when scoring your credit application, because they fear you may not honour your obligations to them if you have failed with others in the past. Don't panic – you may be able to take remedial action. You can ask to add an explanation of the circumstances surrounding any problems that caused adverse information to be added to your credit report. For example, you might have missed a few repayments because of illness or an accident. The credit reference agency will help you add a note explaining what happened and why things are different now.

You aren’t registered to vote

Lenders use local electoral registers to check that you are who you say you are and live where you say you live. If they don't find your name at your address, they may need to make further checks or can even turn you down. The solution is simple: register at once and ensure that you have been taken off the electoral roll at any previous addresses.

Despite the major issues that are dominating the news agenda, such as the environment, crime and terrorism, new research from Abbey reveals that finances are perceived as the biggest threat to quality of life. The Abbey Lifestyle Report, which looks at working trends and concerns across the UK, shows that almost one in four people (24%) identify money worries as the biggest threat to their quality of life. By contrast, environmental concerns barely registered, with only four% highlighting the environment as a major worry.

Retired people are among the least concerned with the environment (three%), with the research indicating that pensioners may be some of the biggest carbon culprits, spending almost a quarter of their leisure income on travel. For this group their personal health is the biggest concern and they are the section of society with the biggest fear of being victims of crime. Parents are the most concerned about the environment although only one-in-20 see it as the biggest threat to their quality of life.

Other issues high on the news agenda but low on the public’s list of worries include crime (11%) and terrorism (nine%). Fears vary greatly by region though, and while only six% of Scots see terrorism as the biggest threat this rises to 11% in the Midlands, the location of a number of recent police operations linked to the prevention of terrorism.

In spite of these concerns, the nation is optimistic about 2007 with 32% of UK adults believing that they will have a better quality of life next year compared with only 15% who think their quality of life will deteriorate.

Students are the most optimistic, with almost half (49%) believing that they will have a better quality of life in 2007. Retired people are the most pessimistic, with just 21% believing that they will have a better quality of life.

Sue Hayes of Abbey commented: “People are generally positive about their quality of life in 2007 and the much-publicised issues around crime and the environment don’t seem to be denting this optimism. The real concern for people is money and we are hoping that this is a signal that people are planning to get more engaged with their finances in 2007.”

Cash-strapped Farepak victims are being targeted by unscrupulous loan firms cashing in on heartache, an MP warned today.

Hard-up families facing a bleak Christmas could be fleeced of their remaining cash by signing up for loans at exorbitant rates of interest.

Caerphilly MP Wayne David is urging anyone looking to take out a loan to use local Credit Unions which offer ultra low interest rates.

He fears vulnerable people who lost out when the Farepak savings scheme collapsed could otherwise be plunged into a cycle of debt misery.

"It is a very real concern and people are certainly being approached in Wales," the Labour MP warned today.

"Loan companies are certainly targeting people that they believe have had dealings with Farepak.

"They are not advertising as such, it is being done by word of mouth, but the sales people tend to work door-to-door anyway."

He added: "I am careful to say that what these companies are doing is not illegal – but it is certainly immoral.

"If they genuinely wanted to help these people they would direct them to the nearest Credit Union."

He said he had been approached by a concerned local branch of the Citizen’s Advice Bureau operating in Bargoed, in south Wales.

It is already a community which has problems with loan shark companies preying on the poorest families, he said.

He added that former Farepak customers living in the town are now being sought out as ideal candidates for high interest loans.

He warned that some rates of interest are as high as 100%.

"People would have to pay back a heck of a lot of money over the coming weeks and months," Mr David said.

He said that as far as Wales was concerned the Welsh Assembly Government had offered to underwrite loans to former Farepak customers.

He said for such families joining a Credit Union the stipulation that they must be a member for some time before being eligible for a loan had been waived.

The Tories have outlined a six-point plan to tackle the growing personal debt "crisis" among people in the UK.

They want people to better understand financial matters, with banks and credit card companies lending more responsibly and being more transparent.

Shadow chancellor George Osborne also called for a seven-day "cooling off" period when store cards were acquired.

But the Lib Dems said the Tories had waited "too long" to consider the issue and were "jumping on the bandwagon".

Speaking at a Tory-organised debt summit in London, Mr Osborne claimed British people owed £212bn, excluding mortgages, and nine people were declared bankrupt every hour.

He said he had six "robust and sensible proposals" to promote personal debt as "an issue of social responsibility".

'Robust and sensible'

Action to tackle "the low levels of financial literacy and awareness" was needed because "a well-informed public is better-placed to borrow responsibly", he said.


THE TORIES' SIX-POINT PLAN
1. Tackle financial illiteracy
2. "Cooling-off" period on store cards
3. Greater corporate responsibility
4. Clearer information on cost of debt
5. Look at advertising code for Individual Voluntary Agreements (IVAs)
6. More competition within "door-to-door" credit firms

"As well as promoting individual responsibility, it's also important to encourage greater corporate responsibility," he said, calling on greater sharing of data so banks had a "full financial picture" on customers before agreeing to lend them more money.

"We should not allow people to take out that tenth credit card without the credit card company knowing about the other nine."

Mr Osborne said the plan for store cards would "give consumers the opportunity to think about whether other forms of credit, such as an overdraft extension or conventional loan, might be more appropriate".

Lessons on money management for school pupils aged between 11 and 18 were needed, he said, claiming that only 53% of teenagers have been received any kind of teaching about how to organise their finances.

Legal agreements:

Mr Osborne also called for tighter restrictions to be placed on Individual Voluntary Agreements (IVAs).

These are legal contracts between lenders and borrowers to pay off a reduced amount of a debt, but can leave the consumer with a poor credit rating.

Earlier the British Bankers Association warned that people were being "ill-advised" about these.

"Frankly, suggesting that 90% of your debt will be written off is simply misleading," , Eric Leenders, the executive director of the British Bankers Association, told BBC Radio 4's Today programme.

"Many people are concerned about the sort of advice people are being given."

Citizens' Advice policy director Teresa Perchard said that while people needed to be better informed about financial matters, there was a "strong responsibility on lenders to look thoroughly at a person's ability to pay before giving them credit".

"It was under the Tories, with David Cameron in the Treasury, that personal bankruptcies and home repossessions hit their highest levels," said Lib Dem treasury spokesman Vince Cable.

"It was under the Tories that the fall in the housing market led to negative equity across vast swathes of Britain.

"For too long, the Tories have been quiet on solutions to this major problem," he added. "It is simply not credible for them to pipe up now."

Britain's debt epidemic has worsened, with the number of people in serious difficulties increasing by 400,000 in the past six months, figures showed on Thursday.

A total 8.4 million adults, a fifth of the population, now have unsecured debts of 10,000 pounds or more -- up from 8 million in April, according to debt consultancy Thomas Charles.

Its study of 2,322 adults, undertaken by YouGov (LSE: YOU.L - news) , also uncovered a huge increase in the number of people struggling to meet repayments.

Some 2.5 million people said they regularly had problems repaying their debts -- up 38.9 percent from six months ago.

Women were found to be feeling the strain the most. One in three women with debt of over 10,000 pounds said they were struggling to service it, compared to just one in five in April.

Men fared a little better, with just over a quarter reporting regular problems repaying their debts, up from a fifth earlier this year.

As more people struggle to meet repayments, the number of them teetering on the brink of insolvency has also rocketed.

Around 1.4 million adults (17 percent of those with debts over 10,000 pounds) said they were "quite likely", "likely" or "certain" to declare themselves bankrupt or take out an individual voluntary arrangement (IVA) -- a 27.3 percent increase from April.

IVAs are agreements with creditors to make reduced payments towards debts. After five years, the debt is classed as settled.

Of those with debts of 10,000 pounds or more, excluding mortgage borrowings, 21 percent of women and 15 percent of men said there was some likelihood of them becoming insolvent.

James Falla, a director of Thomas Charles, said: "We're currently witnessing a correlation of increased borrowing alongside a massive decrease in the number of people coping.

"If action is not taken to curb borrowing trends in the UK, the situation is likely to spiral over the coming years; we could quickly reach a tipping point where those in financial trouble outnumber those who are not."

Women are in the grip of a 'binge debt' epidemic that is as perilous as binge drinking warn financial experts.

The ease of obtaining credit, the fact that many women are delaying settling down with a partner and the pay gap between the sexes means that they are facing far greater debt problems on average than men.

On average, women over 35 owed £8,219, compared with £3,436 owed by men - a difference of 139 percent. The figure excluded mortgages.

The snapshot is the latest in a series of reports to reveal the debt crisis gripping the nation, with its culture of easy credit and spending instead of saving. Last month a survey showed that the number of IVA's - which allow debtors to make a deal with their creditors - is up 135 per cent on last year.

The same research predicted that the number of individual insolvencies, which include IVA's and Bankruptcies, will hit a record 100,000 this year.

The latest figures were taken from a study by ICM of 800 volunteers that examined attitudes towards money and debt. It found that despite their overdrafts and loans, women were largely not worried about how they would repay the debt.

More than half the women questioned for the study, commissioned by independent financial advisers Sesame, said they would be embarrassed if others found out they were in debt. One in three were not worried about repayment.

Alaistar Conway of Sesame said: 'Never mind binge drinking in Britain, there is a growing epidemic of binge debt Britain that could prove to be just as detrimental to women's financial health as binge drinking is to their actual health.'

He said women were delaying partnerships until later and therefore battling with debt alone.

Many also earned less that their male peers. 'They are living in the same cost environment but potentially earning slightly less than their male counterparts,' he said.

'Like binge drinking there is a danger we get carried away because credit is relatively easy to obtain.'

The study also revealed how middle-aged men and women are running up debt struggling to support their children through school, university and into their first homes.

By the time both sexes hit the 45 to 54 age group they had a average debt og £16,800, more than three times the £5,199 debt level for 35 to 44 year olds.

Once over 55, the average debt level drops to £2,626 and then down to £456 at 65 and over.

"Low income, combined with badly informed and poorly understood financial decisions, are at the root of many of our clients' debt problems" say David Harker of Citizens Advice.

It could take 77 years on average for people asking Citizens Advice for help with debt to get back into the black, a report from the charity has said.

This is because most of those asking the charity for help with debt were on just half the national average income.

People were condemned to a "lifetime of poverty" burdened by debt, the charity said, with many unable to afford the fees payable for declaring bankruptcy.

On average, people seeking help from Citizens Advice were £13,153 in debt.

The charity said the number of people seeking counselling for credit card and loan debt had doubled in the past eight years.

Life overshadowed

The Citizens Advice report stated that many of its clients were stuck in a spiral of low incomes and very high debts.

"Low income, combined with badly informed and poorly understood financial decisions, are at the root of many of our clients' debt problems," David Harker, Citizens Advice chief executive said.

"The reality is that they are condemned to a lifetime of poverty overshadowed by an inescapable burden of unpayable debt," he added.

Mr Harker called on the government to introduce Debt Relief Orders (DROs).

DROs are designed for people on low incomes, who owe less than £15,000 but have very small assets.

DROs would work like bankruptcy, but be low-cost to initiate.

It would offer hope to people who were too poor to take advantage of other debt solutions, the charity said.

Minister Jim Fitzpatrick suggests banks are partly to blame for their bad debts.
The government has rejected calls for more regulation of firms that market individual voluntary arrangements, known as IVAs, to people with debts.

Banks have been lobbying for stricter controls, claiming their own losses from bad debts have been due partly to unscrupulous marketing of IVAs.

But Department of Trade and Industry minister Jim Fitzpatrick has said banks should lend money more carefully.

IVAs are an alternative to bankruptcy that let people settle their debts.

Speaking to the Financial Times, Mr Fitzpatrick said: "If we've got a rise in indebtedness, if we've got a rise in people having difficulty in servicing that debt... then maybe the banks are lending too much money or maybe they're not being as careful as they used to be in scrutinising the applications."

He added: "If they'd not lent it in the first place then they wouldn't be in the difficulty of trying to recover it."

Bad debts and insolvencies

In the UK, banks wrote off £3.3bn in bad debts in the first half of this year.

But they fear that part of this rise was due to people using IVAs as an easy escape route from repaying their debts in full.

They have pointed to a big rise in the popularity of IVAs, widely advertised on TV and in newspapers, as one reason for the general surge in personal insolvencies.

In England and Wales, 26,000 people became insolvent during the second quarter of 2006 - 66% more than during the same period last year.

Although two-thirds of those people declared themselves bankrupt, the rest took out IVAs, which let them come to a voluntary agreement with their lenders.

Debt management

Debt management companies have spotted the rapid growth in personal indebtedness as an opportunity to develop a thriving business, charging people for advice on how to deal with their debts and often helping them to set up an IVA with their creditors.

Although anyone claiming to be an insolvency expert is regulated, advertisements and call centre staff are not.

However, the government does not accept there is a problem it should tackle.

Its own Insolvency Service says that only about 5% of the clients of debt management companies actually end up in an IVA.

Overspending Britons are responsible for a third of all unsecured debt in Western Europe, according to a report.

Figures from analysts at Datamonitor found that the UK consumer credit market hit £214 billion last year, making it the most indebted country in Western Europe.

The average Briton owes just over £3,000, almost twice as much as his continental cousin.

The report's authors put the high figure down to the UK's "insatiable appetite for credit".

Major countries on mainland Europe have a culture of savings and frugality, with people in France and Germany particularly averse to debt, according to analysts.

But this situation could change, with consumer credit growth in Europe outstripping the UK and providing an opportunity for lenders faced with a UK market that is reaching saturation point, the report says.

Paul Marsh, financial services analyst at Datamonitor and author of the report, said: "UK lenders looking for business opportunities should look overseas to realise their expansion plans.

"The UK is an increasingly difficult place to do business, due to the highly indebted nature of the population. Yet in other European countries consumers are not as indebted and the markets are not as sophisticated."

Total personal debt in the UK - including mortgage debt - is estimated to be £1.2 trillion.

On average two CCJs were registered for every 100 people aged 18 or over in England and Wales over the last 12 months, according to research by online credit report service MyCallcredit.

But in some towns the incidence was as much as three times higher.

Its research looked at the number of CCJs registered in England and Wales, by postcode, postal sector and postal town, and the characteristics of people who live in those areas, to determine the households and areas most at risk of defaulting on their credit commitments.

In the period May 2005 to May 2006 more than three quarters of a million CCJs were registered in England and Wales. Purfleet in Essex recorded the highest number of CCJs per head of population in a postal town (six for every 100 adults).

Callcredit director Mel Mitchley said: “Where you live can reveal so much about your life from whether you’re likely to have a CCJ to how likely you are to own a car or have access to the internet.

“Our research found that 55% of the population live in postcode areas where no CCJs were recorded in the last 12 months. We also found that those postcodes with the highest numbers of CCJs per head of population tended to share certain demographic characteristics. But a combination of record levels of personal debt combined with the recent interest rate rise could mean that over the next year we start to see CCJs in neighbourhoods that have so far been unaffected.”

More than 0.75 million CCJs were registered over the last 12 months; 20 CCJs were recorded for every 1000 people aged 18 or over in England and Wales in the last 12 months; 55% of the population live in postcode areas where no CCJs were recorded over the last 12 months; 30% of the population live in postcodes where between one and two CCJs were recorded over the last 12 months; 15% live in areas where three or more CCJs were registered in that postcode over the last 12 months.

Of the 20 towns with the worst record for CCJs over the last 12 months eight are in the Midlands while four are in the East, three in London, three in Yorkshire and the Humber, one in the North East and one in the North West.

Amongst the Midlands towns, there was a high concentration in the West; Birmingham, Wolverhampton and Bilston – all in the former industrial area known as the Black Country.

In Yorkshire, Scunthorpe had the highest density closely followed by Bradford and Dewsbury. In Bradford and Dewsbury there are many single people in terraced homes and almost twice the national average number collect unemployment benefits in these two post towns.

In Purfleet, the town with the worst record – three times the national average – the predominant socio-economic group is single home-owners and renters with pre-school age children.

Tilbury, the town in second place, is a port town in the South East. The town has a large proportion of people who are employed in unskilled or semi-skilled jobs at the port.

Mitchley said: “There are many factors which will affect whether someone gets into difficulty with debt but the geodemographic profile of where you live is clearly one of the indicators that lenders can use to support their responsible lending policies.”

An estimated 3.5 million people have been turned down for credit during the past year as banks tighten their lending policies.

People applying for a credit card were most likely to be hit by financial firms tightening their rules, with around 1.7 million people having their application refused during the past twelve months. At the same time, around 1.5 million loan applications were rejected and 260,700 mortgage applicants were also turned down, according to financial website moneyexpert.com.

The group warned that lenders were likely to make their policies even tougher going forward if interest rates rise during the coming year.

Research carried out by the group found that 60 percent of people would apply again if they have an application for a credit card or a loan refused, and 12 percent would even reapply to the same lender. The group said consumers often did not understand why they had been turned down for credit, and the only way to find out was to ask the lender who had rejected the application.

Nine out of 10 people in the UK are comfortable with their debts while one in five expect to reduce their borrowing over the next 12 months, research by MyCallcredit reveals.

The telephone survey asked people how much they owed, how comfortable they were with their debts and where people think they will be in a year.

It found young people are the least optimistic about their financial position, part-time workers are the most likely to be out of their depth and there is a significant minority of Britons who are overindebted.

MyCallcredit director Alison Nicholson said: “Three times as many people expect to reduce their debt burden over the next year than expect it to increase, which is good news.

“However, there are some people who expect their situation to get worse, one in four people between 16 and 24, and one in seven people who aren’t working, expect more of their income to be spent on unsecured debt repayments in a years time.

“This is bad news for the housing market as it will put further pressure on first-time buyers and delay their entry into the housing market.

More than one in two people (55.8%) know exactly how much they owe on credit. Nine out of 10 people (92.7%) say they are comfortable with their levels of debt. One in 13 people (7.3%) say their debts are a struggle or they are out of their depth.

One in 15 Britons (6.5%) think they will be spending more than they do now on unsecured debt repayments in 12 months time.

People who are not working and have credit commitments are the most likely to say they are struggling financially or out of their depth (15.4%) followed by part-time workers (10%).

If you are a credit card holder, like most others you would probably like to have a higher credit limit. It would enable you to make more and more purchases that you would not be able to afford to in one go. More importantly, though, a higher credit limit can come in very handy when something unexpected crops up such as a car repair that you have not budgeted for. So how to go about getting a higher credit limit? One method would be simply to ask your issuer to increase, however, they are unlikely to accept. They will increase you credit limit if they feel that you have proved to be reliable. Using an analogy, if you were to borrow money from a friend and not pay him back for a long time or be very inconsistent with your payments you would need some nerve to ask him for even more money. The same applies with credit card companies and banks. Below are 5 top tips to obtaining a higher credit limit:

1. You must abide by the terms and conditions issued by the bank or credit card company. They want to give you a higher credit limit so don't give them an excuse not to.

2. Prove your credit worthiness not only to the credit card issuer but with any other credit you have such as mortgages, personal loans and car finance packages. Defaulting on any of these would certainly dissuade the bank from increasing your credit limit.

3. Use your credit card on a regular basis. Rather than paying with your debit card for everyday things, use your credit card then immediately pay it off. Regular usage and consistent repayments will allow the bank to build a more complete picture of your habits than if you just use it for emergency purchases. This will make it easier for them to decide if you should have a higher credit limit.

4. Make more than the minimum repayments each month. A higher credit limit goes means potentially larger minimum repayment amounts. It follows that if the issuer sees you are only able to make the minimum payment then it doesn't make sense to increase your credit limit.

5. Avoid making late payments. This is primarily due to the late payment fee that will be applied to your account but also because every late payment will count as a point against you in your bid to get a higher credit limit.

Treating your credit card with the utmost respect and spending wisely is the best way to gain a higher credit limit. Even more importantly, if you do manage to get a higher credit limit is not to get carried away with spending that you cannot afford to pay back. This is where a long and unpleasant cycle of debt can begin.