"As personal debt has been easier to obtain, the amount has grown and grown and, like most things, you can overindulge.
Being in debt can bring huge stress, cause breakdowns and families to break up, and, as we know, it's been at the centre of the financial crisis.
Yet, not so long ago, getting a loan wasn't easy and credit cards and store cards didn't exist. We don't want to return to this era, but people have to be stopped from taking on debt they can't afford - it has to be capped. It has to be related to salary, savings and other debts, because we've ended up in the position where debt is controlling us, rather than us controlling it.
A lot of debt that appears personal can, in fact, have a wider impact - just look at the housing market! Despite the 20% fall in house prices many first-time buyers are still unable to get on the property ladder. It was the massive take up of debt encouraged by lenders, which drove prices to unrealistic levels - and they still are unrealistic.
So the debt of others has created a barrier for first-time buyers. Had loans been properly capped, prices would not have risen so far. On a more personal level, all parents want to do their best for their children. And this should mean starting out life without debt.
But society seems to be happy to let debt accumulation start at university. It's all the more dispiriting that higher education, the bedrock of future prosperity and a more secure society, is paid for via debt, rather than through taxation, especially when the UK has grown increasingly wealthy.
Changing this system won't be easy, but we need this situation reversed. Debt should be available to most, but it's highly-questionable whether it is wise to allow debts to build up before you've even started work.
Capping debt is not going to be popular, as it means less of it, which means less consumption and, crucially, less instant gratification. Persuading people to wait and save before they consume is a tough one, so it needs regulation.
Funnily it's the mortgage market that is the best example of capping. Although it got out of control, the principle is widely accepted that borrowing is related to ability to pay, so why not extend this across a range of loan activities? Clearly, the idea of "capping" is out there, but seldom applied. I found this out when I asked my bank if I could borrow some money and spent an hour answering questions - having agreed how much loan I could have, they never once asked how I would repay it. Happy days - provided I could pay the interest!
The politicians need to step in and ensure that lending is based on sensible criteria. But they aren't going to like telling the electorate they'll have to consume less - it's just not a vote winner even though its common sense and self evident.
But a less-indebted society is better for everyone - it's time to control debt again and not be ruled by it.
No says David Black banking specialist at Defaqto
If your boiler packs up and your car needs urgent repairs, have you got the cash available in your bank account to sort it out? If you haven't, you've got two choices - get used to cold baths and no car, or borrow the money to fix the problem.
Credit cards, overdrafts, personal loans and mortgages can be incredibly useful both to tide us over at times of need, and also to facilitate purchases of necessary items.
For some reason, many people think that debt has become a dirty word over the course of the last year or so, but, treated responsibly, it remains a natural ally and a useful tool in today's society.
Bad debts are something that lenders are very anxious to avoid and they have adjusted their underwriting requirements to minimise future risks as much as possible. They also have better knowledge, and make better use of, each applicant's financial status and overall level of indebtedness.
Many now base their decision on whether to lend, and, if so, how much to lend, on affordability - which takes account of income as well as financial expenditure and obligations - rather than merely basing decisions on overall income.
What this means is that it's going to be much more difficult for individuals to "over-borrow" moving forwards, as available credit from mainstream sources will restrict personal debt to the level that the individual can both afford and service. The lenders have very definitely learnt bundles from the recent financial malaise, and will do their utmost to ensure that they don't lend excessively in the future.
Many also monitor their existing borrowers, and it is not at all unusual for a lender to reduce a credit card limit or close a card account.
The maximum amount of debt that is appropriate will clearly vary considerably from individual to individual and it would be churlish for the nanny state to impose an arbitrary "one size fits all" limit on personal debt.
One can imagine the outcry if it was decreed that no one individual could have a debt greater than, say, £10,000 in unsecured debt and £200,000 for mortgages. Such would have massive ramifications on many aspects - including both the economy and the property market - which are heavily reliant on credit availability"
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( 3 / 268 )For those with a Halifax account you may be pleased to hear that penalties for overdrafts are about to change. This will mean that depending upon the type of overdraft you have you will be set a daily fee.
"Millions of Halifax current-account customers will have their overdraft charges cut before the end of the year, it has emerged.
The bank, which has more than 5m current-account holders and which was rescued by Lloyds Banking Group earlier this year, will write to most customers next month to inform them it is moving to daily overdraft charges.
Currently, customers are charged £28 a month for an unauthorised overdraft facility, plus fees of £35 for each payment while they are in the red (up to a maximum of three per day).
Under the new structure, customers will pay a daily fee depending on the type of overdraft they have.
Customers who arrange an authorised overdraft of up to £2,500 will be charged £1 a day for each day they use the facility. Those who use an arranged overdraft of more than £2,500 will be charged £2 a day, while those who fall into unauthorised overdraft will be charged £5 a day.
The daily charging structure is already in force for Halifax’s Reward Current account, launched in February. Most of its other current accounts will be switched to the new system in December, with letters going out next month.
However, the Halifax Cardcash, Easycash and Student current accounts will be unaffected.
Several big banks have changed their charging structure for unauthorised overdrafts since a High Court test case was jointly launched by the Office of Fair Trading (OFT) and seven major banks and a building society.
Earlier this month Royal Bank of Scotland (RBS), which also offers current accounts under its NatWest brand, announced it was slashing fees for returning bounced cheques and standing orders from £38 to £5, while fees for paying for goods while overdrawn have been halved from £30 to £15.
RBS has also cut its monthly maintenance charges for unauthorised overdrafts from £28 to £20, with guaranteed card payment fees down from £35 to £15.
The test case is currently being heard by the House of Lords, after the banks involved appealed against an earlier decision that the charges did come under the scope of the OFT"
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( 3 / 277 )If you are in debt then you may be wary of using debt management companies due to the horror stories that are always around. However news today shows that these companies are to face stricter regulations.
"Debt management companies that negotiate with lenders on behalf of borrowers in exchange for a fee could become regulated by the government, which launched a consultation on the issue today.
The companies set up debt management plans designed to reduce monthly repayments for borrowers, but these can be expensive over the long-term after fees are added to the repayments.
Debt advice charities have long expressed concern about some companies operating within the burgeoning debt management sector.
The number of such companies has ballooned from 40 in 1999 to over 150 now and it is estimated that between 100,000 and 150,000 people enter debt management schemes each year.
A recent review of the sector by debt charity Money Advice Trust concluded that the advice given by these companies was mixed and that the Office of Fair Trading should require them to be clear about the cost of their services when they promote them.
It found some customers were only told the levels of fees very late in the process, leaving them feeling they were in a worse financial position than before they contacted such companies.
"If you are in unmanageable debt you need to get advice on the full range of options available," said Beccy Boden Wilks of the Money Advice Trust.
"Often these companies only sell debt management plans or consolidated loans whereas you may be better off taking another route such as bankruptcy."
The consultation is expected to conclude in December and the government will announce its conclusions early next year. Options being considered include regulation or an industry code of practice"
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( 3 / 278 )Although interest rates are currently incredibly low this has to eventually end and new reports suggest that this could be the case early next year.
"Simon Ward of Henderson New Star said the Bank of England’s projections for inflation in two years’ time could be at the top end of their historic range at 2.5pc. The Bank bases its interest rate decisions on inflation expectations about two years in the future.
This high level of expected inflation implies that the Bank might have to raise rates to bring price rises back down towards the target of 2pc. The other means of tightening policy, a reversal of “quantitative easing” or money creation, is “off the agenda”, Mr Ward said, because of the likely effect on the cost of government borrowing.
“An eventual withdrawal of monetary stimulus is likely to take the form of a rise in Bank Rate rather than a reversal of quantitative easing,” he wrote. “Given the historically low starting level [of interest rates], rises in Bank Rate, when they begin, could be larger than in the initial stages of prior cycles.”
The two-year-ahead forecast for inflation is now above the target, at 2.17pc, Mr Ward pointed out. “This is the first positive deviation since last August and the largest since August 2007 – the MPC [monetary policy committee] last raised Bank Rate in July 2007.”
He said the committee’s decision to adopt a looser policy than warranted by its projections appeared to reflect a judgement that the economic costs of inflation undershooting the target would exceed those of an overshoot. “It has, in effect, taken out temporary insurance against worse-than-expected outcomes.
“The emphasis, however, is on ‘temporary‘, since such an approach risks damaging inflation-fighting credibility.”
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( 3 / 270 )It has been widely reported in the news recently that repossessions have been falling in recent months. This is thought to be due to interest rates being so low as well as better handling of cases.
"Repossessions fell by 9% in the second quarter of the year, reflecting the impact of falling interest rates and changes to the way such cases are handled by courts and lenders, the Financial Services Authority said today.
Lenders repossessed 13,610 homes from April to the end of June, compared to 14,884 in the previous quarter, but the figure is still 23% up on the second quarter of 2008.
The FSA said the quarterly fall was likely to be a result of the pre-action protocol introduced in November last year, under which courts can only grant a repossession order if all other measures to keep someone in their home have failed. It said this had probably delayed cases preceeding to repossession.
It added that lower interest rates and a more cautious attitude on the part of lenders towards repossessions were also helping struggling mortgage borrowers.
The FSA figures showed that new arrears cases fell for a second consecutive quarter from 60,000 in the first three months to 51,000 in the second three - a fall of 14%. Both quarters showed a steady decrease from 68,000 in the last three months of 2008.
However, with borrowers still struggling to clear their arrears, the total number of loan accounts in arrears has been steadily increasing since early 2007. At the end of June there were 403,000 loan accounts in arrears, an increase of 3,000 or 1% since March, and an increase of 30% on a year earlier.
The group defines a mortgage as being in arrears when a borrower has missed payments worth at least 1.5% of his or her outstanding mortgage debt.
The FSA figures follow research from the Building Societies Association, which found that 97% of borrowers who went into arrears in the last two years have not faced repossession and remain in their homes. Of those who fell behind with payments, 33% have repaid their arrears in full, 41% are repaying them now, and 12% have come to an arrangement with their lender but are not yet paying off their arrears. Just 3% had their homes repossessed.
The research showed borrowers were more likely to be successful in settling arrears if they sought financial advice and spoke to their lender about their problems at an early stage"
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