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Debt management

Sunday, April 5th, 2009 It's often difficult to know where to turn when it comes to managing debts. Many people are unaware of the help that's available, and many do not realize that their lenders may be willing to help out if money gets tight. There are a number of things can do to help get yourself out of debt. Here are a few tips for making managing your debts easier.

Contact your lenders

If you are struggling to meet your debt repayments, you should always contact your lenders first. In some cases, your lender(s) may be willing to make a temporary agreement allowing you to make lower monthly payments, or even a payment holiday, in order to get your finances in order. If you cannot agree anything suitable with your lenders, then it's time to speak to a debt adviser.

Get free debt advice

A good debt management company will offer free, confidential debt advice. In some cases, a little debt advice may be all that's required. A debt adviser will talk you through your situation to help you decide the best way forward for your circumstances. They'll tell you if a simple reshuffle of your finances could help - or, if the situation is a little more serious, they'll recommend an appropriate solution to help you pay off your debts.

Assess your own costs

Often, the best form of debt management is to look at your outgoings in detail and see where you might be able to cut back. Consider which costs are essential and which you could do without. Do you really need that satellite TV subscription if you're struggling to pay your mortgage? Also consider costs that you could make lower yourself, perhaps by switching provider. Gas, electricity and broadband, for example, are all provided by a wide range of companies, all of which are looking to compete with each other. Do your research, and you might be surprised at how much money you could save overall.

Budget with your money

Some people overspend simply because they haven't planned their finances well enough. By budgeting properly, it's easier to avoid unexpected costs and to ensure you have enough money for all your expenses. At the start of the month, calculate exactly how much you are likely to need to spend by looking at previous months' expenditure. Add up each part separately - your household bills, mortgage payments, food costs, debt repayments, etc. - and the remaining money is your disposable income. By doing this, you know in advance when and where your money is leaving your account, and the disposable income provides a convenient safety net should anything unexpected arise, as well as covering your leisure costs.

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How to regain control and manage your debts

Thursday, March 19th, 2009 Guest Post from Debt experts Debt Advisers Direct For people struggling with unmanageable debt, one of the worst parts can be the feeling of loss of control. Your commitments can often leave you with little money to spare, and any unexpected costs can make the problem even worse. However, regaining control can often be easier than you think. Here we look at a few simple changes to your financial habits that can make all the difference to your ability to repay your debts.

Plan out your costs

Planning how much money you need to put aside for each of your commitments, including bills and debt repayments, can make a big difference to your ability to stay on top of your finances. Make a list of all your essential outgoings at the beginning of each month, and subtract that amount from your total income. The amount you have left is your disposable income, and you can spend this as you wish - although it may be a good idea to either save some of this or put it towards your debts, enabling you to repay them more quickly.

Reduce your outgoings

If you're struggling to repay your debts, consider whether there are any areas in which you can cut back. Expenses such as satellite TV and take-away meals are not as important as, say, food or electricity - so consider which 'luxury' items you could do without. Giving up some of your luxuries until the debts are repaid may be a difficult thought for some people, but if it means repaying your debts more quickly, you will be glad you did it.

Keep track of your bank balance

Keeping track of how much money you have at any given time can help you to pace your spending and prevent you from exceeding your limits. Online banking is probably the quickest and easiest way to do this on a regular basis, but you can also call your bank or walk into your nearest branch to check on your balance.

Get good debt advice

If you find that none of the above can help your situation, then getting the right debt advice is very important. In some cases, a few words of advice on how to manage your finances might be all that's needed; in other cases, a more specific debt solution might be required. There are a number of debt solutions available, including debt management plans, debt consolidation loans and IVAs (Individual Voluntary Arrangement). All are designed to help people in varying situations, and all aim to help you to avoid court proceedings from your creditors and/or bankruptcy. For more information on a range of debt solutions, visit Debt Advisers Direct

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How has the base rate affected borrowers and savers?

Thursday, February 19th, 2009 In order to tackle the economic downturn, the Bank of England has made a number of base rate cuts over the past few months. There are two main ideas behind this:

Reducing the wholesale cost of borrowing to lenders, and subsequently encouraging them to lend more money to businesses and individuals at lower rates
Giving consumers less incentive to save money, and therefore encouraging more spending - which can help to fight off shrinking inflation or deflation.

However, there has been increasing debate as to the effectiveness of base rate cuts as a measure for combating the economic downturn. Some economists believe that base rate cuts are ineffective, and only serve to disadvantage existing savers. Base rate cuts made in the last few months have affected different areas of the economy in different ways. Here we take a look at how borrowers and savers have been affected.

Mortgages

Mortgage holders have arguably been affected the most positively by the recent base rate cuts. In particular, many of those on tracker mortgages have experienced significant falls in their monthly outgoings. At the peak of the market in 2007, it was not unheard of for borrowers to be offered rates that tracked at a fraction of a percentage above the base rate - meaning that some homeowners are now only paying a little above 1% in interest. Some mortgages had even been offered with rates tracking below the base rate, making their current mortgage payments extremely low. Meanwhile, rates on new mortgages have come down on the whole, despite many lenders raising the margins between their interest rates and the base rate. Fixed-rate mortgages are available for as little as 3% to 4% at present (February 2008) - although lenders tend to require a large deposit for their lowest rates.

Loans

The effect of the recent base rate cuts on loans has arguably been minimal. Some lenders have lowered their rates slightly following the last few cuts - Nationwide have extended a trial period with a 7.9% interest rate on loans for existing customers, and other lenders such as Alliance & Leicester, Tesco Loans and Abbey are offering similar deals - but on the whole, the cuts have been nowhere near in line with the falls in the base rate. However, this could change if banks become more confident in the coming weeks and months.

Savings

It's a widely-held view amongst economists that savers are the worst-affected by the base rate cuts. In short, banks need to offer savings rates below the base rate in order to make money - meaning many savings accounts now offer less than 1% interest. This is a problem because typical interest rates are significantly lower than the rate of inflation - currently 3.1% - meaning savers are technically ‘losing' money. This may not be such a problem to people who simply want to put their money somewhere safe, but for those who rely on interest from savings as a source of income, the reduction in interest can be a serious burden on finances.

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Base Rate Cut Could Boost Mortgage Market

Thursday, November 20th, 2008

Following the Bank of England's shock base rate cut to 3%, financial solutions company Think Money have welcomed the news, commenting that firm action is more likely to encourage banks to consider cutting their interest rates accordingly. However, they added, there are still some factors that may prevent lenders from passing on the full 1.5% cut to their mortgages and loans.

The base rate cut, from 4.5% to 3%, is the biggest cut since the Bank of England lowered the rate by 2% in 1981. The base rate now stands at its lowest point since 1955.

Many economists had predicted an aggressive cut in base rates, but the extent of the cut was still unexpected. Most predictions in the run-up to the Bank of England's announcement pointed towards a 0.75% or 1% base rate cut - and only a few days previously, 0.5% seemed a more realistic figure.

A spokesperson for financial solutions company Think Money said: "It would seem that the Bank of England are acting based on Mervyn King's recent statements that the recession would be long and drawn-out, and rather than take the base rate down in small increments, they have 'bitten the bullet' and taken it down further than most people expected.

"Potentially, it's very good news for people and businesses looking for loans, but not such good news for savers."

However, the spokesperson stressed that as with previous base rate cuts, there is no guarantee that lenders will pass the full cut onto their mortgages and loans - although the extent of the cut could at least increase the impact on lenders' behaviour.

"There will still be a lot of uncertainty with regards to what will happen in the economy in the future, as well as some apprehension amongst banks as to how much they might lose from things like defaults on mortgages as the recession takes hold," she said.

"The base rate cut only affects how cheaply lenders can borrow funds from the Bank of England. It does not directly affect the LIBOR rate, which is the measure of how expensive inter-bank lending is. Since lenders rely heavily on borrowing from each other to fund their loans and mortgages, they may well be slow to bring their rates down."

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Fed cuts to 1% Again Helping?

Thursday, October 30th, 2008 In a unanimous decision, the Fed dropped its key fed funds target to 1% from 1.5%, while the discount rate fell to 1.25% from 1.75%. "The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures," it said. The Fed hinted it may not be done with rate cuts: "... downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability." New in its statement were its reference to "slowing economic activity in many foreign economies" that "is damping the prospects for U.S. exports," and its more dovish stance on inflation, which it now "expects" to moderate.

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$700 billion buys a lot of bad debt

Friday, October 24th, 2008

Guest Post from Mortgage and Remortgage experts www.ThinkMoney.com

On Monday 29 September, US politicians announced a $700 billion rescue package designed to buy bad debts and restore confidence in US markets.

Basically, the Emergency Economic Stabilization Act would give the Treasury the power to spend up to $700 billion (£380 billion) buying mortgage debts and other 'troubled assets' (sometimes called 'bad debts' or even 'toxic debts') from banks.

It's a hugely controversial move, opposed by many throughout the US and beyond. Many don't feel they've contributed to the debt crisis and are not happy about spending so many tax dollars on the 'Wall Street bail-out'.

Nonetheless, the draft Act does contain a range of provisions which weren't in the initial proposal, and which should provide some protection to tax payers.

As summarised on the BBC website, 'the deal addresses several of the key concerns raised by both Democrats and Republicans:

The government will get the money in tranches - $250bn straight away, and $100bn at the request of the White House; Congress can veto the release of the remaining $350bn
Banks that accept bail-out money will have to hand over shares in return, which allows tax payers to benefit from the banks' recovery
Top bankers, meanwhile, will see their pay limited, and "golden parachutes" - huge payments when they leave the firm - will be banned
The banking industry will have to help finance the bail-out if the money can not be recovered from the struggling banks themselves
Four agencies will monitor the deal, including an independent Inspector General and a bipartisan oversight board
Banks will be obliged to join an insurance programme to protect them against the losses of mortgage-backed securities.'

The White House website contains the transcript of a speech from the President, in which he says: "The bipartisan economic rescue plan addresses the root cause of the financial crisis - the assets related to home mortgages that have lost value during the housing decline. Under the Emergency Economic Stabilization Act, the federal government will be authorized to purchase these assets from banks and other financial institutions, which will help free them to resume lending to businesses and consumers."

At the time of writing, it remains to be seen whether the Act will be passed. It would mean an enormous investment of tax dollars, but could make a huge difference to the health of the nation's finances.

People and businesses looking for mortgages, loans, and other kinds of credit may be particularly keen to see it approved. For many, the credit crunch has been a time of real stress: in so many cases, an inability to get a loan or mortgage has forced them to put their plans on hold, whether they're trying to buy a house, consolidate their debts, or seize a business opportunity.

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Hope for mortgages as LIBOR falls

Thursday, October 23rd, 2008 In a potential boost to the mortgage and loan markets in the UK, Wednesday saw the cost of interbank lending fall further as banks displayed increased confidence in market conditions. Adding to several consecutive days of falls following an injection of Government funds, the overnight LIBOR rate (London Interbank Offered Rate) fell to 4.58% on Wednesday – just above the base rate.

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AIG Turns To Buyers And Borrowing

Friday, October 10th, 2008 AIG turns to buyers and borrowing. AIG (AIG) drew down another $9B from its government credit line, bringing its three-week Federal Reserve borrowing total to $70.3B. The bulk of the loan has so far gone to providing collateral to AIG trading partners on credit default swaps and covering losses in AIG's securities-lending program. As the threat of lending program losses grew, the Fed stepped in earlier this week and raised the original $85B emergency bailout loan to $122.8B. Meanwhile, AIG is racing to sell assets to pay off the Fed's loan, as frozen capital markets and falling stock prices 'put AIG in a severe cash bind,' but buyers have been hard to come by as financial markets continue to tumble. Down 25% yesterday, AIG's shares are down 5.9% in pre-market trading [5:52am].

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Markets Snap 10/10/08

Friday, October 10th, 2008 * Asia markets closed heavily down. Nikkei -9.6% to 8,276. Hang Seng -7.2% to 14,797. Shanghai -3.6% to 2001. BSE -7.1% to 10,528. * Europe mid-morning is deep in the red. London -7.5%. Paris -8.2%. Frankfurt -9.1%. * U.S. futures: Dow -3.2% S&P -3.6%. Nasdaq -2.0%. Crude -4.9% to $82.38. Gold +4.3% to $924.80.

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Dow Plunges For The 6th triple-digit loss

Thursday, October 9th, 2008 NEW YORK (AP) _ A runaway train of a sell-off turned the anniversary of the stock market peak into one of the darkest days in Wall Street history Thursday, driving the Dow Jones industrials down a breathtaking 679 points and deepening a financial crisis that has defied all efforts to stop it. Stocks lost more than 7 percent, $872 billion of investments evaporated, and the Dow fell to 8,579. When the average crashed through the 9,000 level for the first time in five years in the final hour of trading, sellers had only begun to hit the gas pedal. As bad as the day was, even worse was the cumulative effect of a historic run of declines: The Dow suffered a triple-digit loss for the sixth day in a row, a first, and the average dropped for the seventh day in a row, a losing streak not seen since 2002. "Right now the market is just panicked," said David Wyss, chief economist at Standard & Poor's in New York. "Nobody wants to take on any risk. Everybody just wants to get their money and put it under the mattress." It all took place one year to the day after the Dow closed at its record high of 14,164. Since that day, frozen credit, record foreclosures, cascading job losses and outright fear have seized the market and sapped 39 percent of its value. Paper losses for the year add up to an staggering $8.3 trillion, according to figures measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies representing almost all stocks traded in America. It was the second straight day that Wall Street was rocked by a final-hour sell-off, but this one was particularly shocking. Most of the day was relatively calm, and the trading floor was quieter than usual because of the Jewish holiday of Yom Kippur. Wall Street awoke to news the federal government was brandishing a new weapon against the financial crisis — considering seeking an equity stake in major U.S. banks in order to stabilize them. But that step appeared to be as ineffectual as the others Washington has rolled out in recent weeks, including a $700 billion bailout of the financial industry, a coordinated interest rate cut by central banks around the world and direct lending by the Federal Reserve to private companies to provide them with short-term cash. Acquiring a stake in the banks would be yet another startling intervention by the government in the free market, but economists said President Bush was left with little choice because of the credit markets, where tight lending has choked off the everyday cash that is the lifeblood of the economy. "In normal times, this would be out of the question, but in the present dire situation, I think the government should be employing all the powers that it can," said Sung Won Sohn, an economics professor at California State University, Channel Islands. After the closing bell, shellshocked traders and bankers gathered at Bobby Van's Steakhouse and downed beers and drinks to chase the ghastly numbers. One Wall Streeter joked things had gotten so bad that he should apply for a job as a waiter. "It was an ugly day, there's no ways to put it," said another customer, Alan Valdes, director of floor operations for Hallard, Lyons. "Guys were frustrated, just fed up. ... We're in an area no one has been in since 1930." Wall Street has been teetering on the brink of panic for a month now, vulnerable to any bad news. Thursday's sell-off was triggered when a major credit rating agency put General Motors Corp. and its finance affiliate under review to determine whether it should be downgraded. Stock in GM, one of the 30 components of the Dow Jones industrials, lost 31 percent of its value and closed at $4.76 — its lowest in more than half a century, since the Korean War began. For the Dow, it has been nothing short of a free fall: —The average is down 2,338 points, or 21 percent, in the last four weeks, since the Lehman Brothers bankruptcy escalated a long-running credit crunch into a full-fledged crisis. —The point decline Thursday was the third-worst in Dow history. The worst, 778 points, came less than two weeks ago. —Of the last 19 trading days, there have been 11 triple-digit losses — including the unprecedented six straight. The six gains have all been triple-digits, and only one of them was enough to make up the losses of the day before. —The Dow now stands only about 1,300 points above its lowest close of the bear market that followed 9/11. In a market as volatile as this, that gap can be closed in a couple of trading days, or less. In fact, triple-digit declines can happen almost in an instant. On Thursday, the Dow was above 9,200 after 1:30 p.m. and still above 9,000 after 3 p.m. The pressure to sell was so intense that the Dow kept dropping precipitously for 10 minutes after the 4 p.m. closing bell as the day's losses were tabulated. In percentage terms, the drop in the Dow exceeded the day the markets reopened after the Sept. 11, 2001, terrorist attacks. It was not close to the 22.6-percent decline on Black Monday in 1987, the last stock market crash. Still, it is becoming increasingly clear that Washington has ever fewer places to reach in its toolbox to stop, or perhaps even slow, the crisis. Among the options still left are buying up foreclosed properties and making direct loans to homeowners, both of them hard for free-market supporters to swallow. Speaking in the afternoon before the market closed, President Bush told an audience on the South Lawn of the White House that the economy was going through a "very tough stretch." But, he said: "I'm confident in our economy's long-term prospects." After the market closed, the White House said Americans should remain confident despite the market plunge, and Bush planned to speak from the Rose Garden on Friday morning — though he was not expected to unveil any new policy proposals. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid asked Bush on Thursday to call an emergency meeting of the G-8 industrial nations' heads of state to address the continuing global credit freeze and instability in world markets. The G-8 comprises France, Germany, Italy, Great Britain, Japan, the United States, Canada and Russia. In the markets Thursday, the broader stock indicators registered similar declines to the Dow's. The Standard & Poor's 500 index fell 7.6 percent to the 909 level, and the Nasdaq composite index fell 5.5 percent to 1,645. Meanwhile, the credit markets remained stubbornly locked-up. The benchmark rate that banks charge each other for loans, known as Libor, rose to 4.75 percent from 4.52 percent a day earlier, signaling banks are still afraid to make loans because they worry they won't be paid back. "The story is getting to be like that movie Groundhog Day," said Arthur Hogan, chief market analyst at Jefferies & Co. "Everything we're seeing is historic. The problem is historic, the solutions are historic, and unfortunately, the sell-off is historic. It's not the kind of history you want to be making." Adding to Wall Street's nervousness, a ban on short selling — a process in which investors borrow shares of stock and essentially bet the value will fall — expired. With three and a half weeks before voters elect Bush's successor, there was also no immediate comment on the Wall Street action from the presidential candidates, Democratic Sen. Barack Obama and Republican Sen. John McCain. Earlier in the day in Dayton, Ohio, Obama took aim at McCain's plan to have the government absorb the full cost of renegotiating mortgages for borrowers under strain from the dramatic decline of the values of their homes. McCain rolled out the idea at the second presidential debate earlier this week, a forum in which he also told voters it was important to have a steady hand in the White House during a time of economic crisis. ___ AP Economics Writer Martin Crutsinger reported from Washington. Associated Press writers Tom Raum in Washington and Patrick Rizzo in New York contributed to this story.

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