Debt is straining the fabric of our society – so says the Archbishop of Canterbury Rowan Williams in a speech made last Thursday. Painting a grim picture of life in today’s Britain, the Archbishop attacked all those who make a profit out of debt and highlighted the hardships of the indebted. The speech was delivered to the House of Lords, and can be read in full here.

The Archbishop was particularly critical of doorstep lenders and loan sharks who charge exorbitant rates of interest to those who have been refused by highstreet lenders, and also criticised the growing divide between the super rich and the poor. Dr Williams warned that an “economy built on spiralling, more or less uncontrolled, credit” is leading to “the erosion of family life and the erosion of self-confidence” for many people.

It is a timely address. Previously, the Church of England has shown a concern for debt, setting up a webpage dedicated to debt relief, and it is good to hear debt being taken seriously by a national institution. Most of the comment on the credit crunch and house market troubles has been on the bigger picture – the state of the economy, the future of the financial industry and so on. Worthy concerns, to be sure, but of equal or greater importance is the plight of the many ordinary people who struggle under the practical and physiological pressure of chronic debt.

The Archbishop had some deeply concerning things to say on this last point, saying that his charity workers had discovered that 1 in 3 heavily indebted people has seriously considered suicide. It is hard to understand the pressure that heavy debt brings until you have actually felt it. Thankfully, Dr Williams is making an effort to understand, and is determined to help the nation work towards a solution.

It feels as though the battle over bank charges has been going on forever, but now it seems it may be coming to an end – or at least, the beginning of the end. The Office of Fair Trading has won the first round of its legal battle with the high street banks, as on Thursday, a judge ruled that the OFT has the right to rule on the issue, paving the way for one or more high court decisions as to whether or not the overdraft and late payment charges have been fair, and how much will have to be repaid to consumers. If the OFT case is successful, a cap will be placed on overdraft and late payment charges, and billions of pounds worth of charges may be paid back to members of the public.

Bank charges are big business for banks. It is estimated that the banks collectively receive £3.5 billion from the charges every year. That’s over £10 million a day. The charges can go as high as £39 for a bounced cheque or missed direct debit, when the actual administration cost is estimated at £2 for each instance. Reclaiming the charges can bring a few hundred pounds back to consumers, or much much more – one Norfolk businessman reportedly claimed back over £35,000 last year.

Anyone who feels they have a case to make should send a template letter (many of these are available on the internet) to their bank, and should be aware that there is a time limit on making claims – you cannot claim back charges that are over six years old. But those who are hoping to claim back their charges will have to keep waiting for a while. The ‘freeze’ on repayments, imposed last year, still applies for the time being. It may be a long time before a decision is reached, and there may well be a lengthy appeals process. But the case has made it past the first step at the very least, giving hope to many.

The British Banking Association (BBA) statistics are in for mortgages and unsecured lending in March, and they make for interesting reading. After the massive surge of borrowing in February, which saw the biggest monthly increase in unsecured borrowing in five years, it seems that either people have become more conservative or lenders have become more cautious – perhaps it is a little bit of both.

For credit cards, in March people actually paid off marginally more then they borrowed, with £7.4 billion being taken out and £7.5 billion of credit card debt paid off. Every silver lining has its cloud, however – despite these figures, due to interest and charges net credit borrowing still increased by £300 million. About £2.7 billion was taken out in loans, which is similar to previous months, and overdraft borrowing increased slightly. Overall, a quieter month compared to the February surge in borrowing.

Remarkably, March also saw the biggest increase in savings in a long time, with over £2.9 billion being invested in savings compared to the monthly average of £1.9 billion. Perhaps in anticipation of troubles ahead, people are banking as much as they can into savings whilst they still have the chance. Whatever the reason, bigger savings will provide many with the safety net to survive the uncertain future.

While March saw a significant boost in savings, mortgage rejection rates climbed to 46%, as the housing market worsens and new and existing homeowners struggle to secure new mortgages.

These statistics are only averages, and debtors experiences are will always be individual. It may be that it is the best off in the country who are responsible for the surge in savings rather than those who are truly struggling. Equally, the fact that borrowing has decreased may have more to do with banks rejecting customers than debtors growing more cautious. But the figures seem to suggest increased consumer caution in the face of anticipated problems, and it can only be a good thing that can only be a good thing as the economy remains unstable, and many ordinary families struggle to make ends meet.

An eye-catching statistic that has cropped up over the past few days is that an estimated 18,000 credit card applications are being rejected every day. 3.24 million credit card applications have been rejected in the last six months, as wary lenders tighten their criteria for credit cards. 7 per cent of adults in the UK have been denied a credit card in the last six months. Clearly, the UK’s appetite for credit is still there – it’s just that the supply is drying up.

Not only are rejections for new cards up (Barclaycard is being especially cautious, rejecting over 50% of new card applicants), but an estimated 1.8 million card users have had their credit limits reduced. Some card companies are even trying shed their existing customers; Egg froze the cards of over 160,000 problem customers earlier this year. Last year, everyone wanted to get in to the credit and insolvency industries – now they are falling over each other in their attempts to back out again.

This rejection effect can be cumulative – being rejected for a credit card is a black mark on your credit record, which makes it even harder to get any credit next time. There is a danger here that those with a borderline credit record who are seeking to refinance their way out of trouble may get caught in a downward spiral, as rejections pile up and damage their credit record still further.

Curbing the UK’s credit addiction is a necessary step, but some access to credit is needed to give people the flexibility to survive, particularly in troubled times like these. Plenty of people are borrowing just to ends meet, as they struggle to readjust to the rapidly rising cost of living and stinging mortgage increases. The gradual withdrawal of easy credit is a natural response to the credit crunch (and a healthy one), but the sudden disappearance of credit for everyone except those with pristine credit rating is likely to worst affect those who are at the ‘tipping point’ between serious debt and insolvency.

Rates and charges on credit cards have risen significantly in the past two years, new research shows, despite a cap restricting late payment charges imposed in 2006. The Office of Fair Trading imposed a £12 cap on late payment charges (some banks were charging over twice that), but since then average purchase rate APR on credit cards has increased from 14.9% to 16.4%. There have also been significant rises on a number of credit card services – the rate for taking out cash on credit cards has increased from 18.1% to 24.3%, while the cash advances are up from 2% to 3%. All in all, it is estimated that credit card borrowing is now 15% more expensive than it was before the cap on charges was put in place.

Previously, banks were unfairly penalising those who fell behind on their payments, but now every borrower is affected. The ‘back door’ nature of many of the charges has left many debtors unaware of the true cost of borrowing in many cases. Credit cards always one of the most tempting ways to borrow, simply because they are easy to acquire and fun to use. They are also amongst the most problematic forms of borrowing – few sources of credit have such a maze of variable rates, charges and deceptive offers seemingly designed to catch borrowers out. Earlier this week, this blog discovered the apparently deliberate trap on many 0% interest rate credit cards. There seems to be little to challenge the perception of credit cards as little more than convenient moneyspinners for creditors, dressed up as fashionable financial status symbols.

With the cost of living rising rapidly, and growing uncertainty over house prices, many people will be looking for a little extra money to help make ends meet. But anyone who borrows on a credit card needs to make sure that they know what they are getting into, and needs to make it their first priority to clear credit card debt before it grows out of control.

1 million Briton’s have “problem debts” that they are struggling to pay, and the number of people facing serious debt problems could double this year. The estimates come from a report by the TDX group, and paint a concerning picture of the current situation for debtors in the UK. The report, titled ‘UK Problem Debt – consumer crisis or efficient market?’, goes on to state there are approximately £25 million of problem debts, averaging out at £25,000 for each of the troubled debtors. About 60% of this problem debt, unsurprisingly, is on credit cards, with the remainer on loans.

The more worrying statistic is one from the previous year. An estimated 58% of problem debtors tackled their debts through some form of refinancing last year, such as balance transfer, consolidation loans and remortgaging. This isn’t concerning in itself – in fact it is a positive sign that people were intelligently finding ways to control their debt without having to resort to more serious debt solutions. What is worrying is that this option isn’t really available anymore. Stricter lending has made the more favourable low interest loans and 0% credit cards hard to come by, and the problems in the housing market mean that remortgaging and equity release aren’t as straightforward as they once were.

Refinancing is one of the early measures that can be taken to curb serious debt long before a Debt Management Plan, IVA or bankruptcy becomes necessary. If this option is taken away from debtors, through tighter lending conditions and the withdrawal of useful products, then we will see a sharp rise in the number of people entering into insolvency in the months to come.

It seems like the perfect deal, just when credit cards were starting to go out of fashion - a card that gives you 0% interest on balance transfers for a year, while also giving you 0% on purchases for three months. Several lenders, including Barclaycard, NatWest, Lloyds TSB, MBNA, Virgin and Egg have put out credit cards like this. While they seem seem like great offers, they are deliberately structured to hit debtors with hidden costs.

People transfer large debts onto the card, and are then fooled into using it for everyday purchases. The trick of it is, that you have to pay off the transferred balance before you can pay off the new amount that has been spent on purchases. So if you transfer £1000 onto a card (interest free for a year), then spend £250 in shopping (interest free for only three months), you’ll have to pay back the full £1000 before you can start to pay back the £250. If you can’t afford to pay off the transferred debt in less than three months, you’ll face interest on the purchases of 15% or more. In addition, customers applying for these cards have to pay a fee of between 2.5 and 3 per cent of the debt they are transferring. Creditors are making money both ways, hitting people with fees on the transfer debt, then getting the opportunity to charge interest in the purchase debt.

Not all lenders are acting in this way – cards from Halifax and Capital One have equal interest free periods for balance transfers and purchases, while Nationwide allows debtors to pay off the more expensive . But the number of cards that have these deceptive interest structures is concerning high, particularly when they are advertised as a way of curbing debt by freezing interest. At a time when debtors in the UK are being squeezed harder then ever, it is irresponsible and unscrupulous to trap them in these way. Anyone who intends to take out a credit card in the next few months needs to check the small print very carefully to avoid being tripped up.

An IVA or bankruptcy? This is the debate that anyone with a serious debt problem will have to have with themselves when it comes to finding a solution. It is also the subject of the next IVA.co.uk debt debate on May 2nd, where forum members and industry experts will once again gather together and discuss the key personal insolvency issues that debtors have to deal with.

Record insolvency levels are predicted for this year, with even conservative estimates putting them at over 120,000. Plenty of people are going to have to make a choice, and the debate is particularly relevant at a time when the IVA industry is struggling, as companies close down, budgets in IVA proposals get tighter, and Insolvency Practitioner fees are greatly reduced. IVAs have been a very popular solution for the past few years, but banks and creditors have grown uneasy and been imposing stricter conditions. Perhaps soon things will go the other way, and we will see a surge of bankruptcies and a dwindling number of IVAs over the next few years.

But it is important that both options remain on the table for debtors in trouble. It isn’t a matter of which solution is better, just which is more appropriate for a person’s circumstance. If someone has valuable assets to protect, or a job that prohibits them from going bankrupt, then the IVA is a natural choice. If someone doesn’t have the income to propose a sensible IVA, doesn’t think they’ll be able to sustain the payments or simply wants to have closure to the problem sooner, bankruptcy may be the better option. And ultimately, it just comes down to an individual’s choice of which solution suits their mentality and lifestyle the best. What is most important is that debtors get the right information to make an informed choice, rather than being pushed one way or the other by unscrupulous companies out to make a fast buck.

Anyone interested in finding out more about the debt debate should visit the web page here, or call 0203 178 5980 to reserve a place. The event takes place at Brown’s Courtrooms on May 2nd, and runs from 4 - 6 pm.

House prices are dropping at their fastest rate since the housing slump of the 1990’s, recent research has shown, with prices down by an average of 2.5% in February. The report is from Halifax, whose research is regarded as being a reliable benchmark for the UK housing market. The price changes are uneven across the country.  London and the South East, generally speaking, are holding steady or rising, whereas prices in the Midlands and Wales have seen steep falls.

Measures are being taken to limit the damage, but it is ordinary homeowners who will suffer the most. The removal of the more generous mortgage loans and the cuts in interest that will almost certainly be imposed by the Bank of England will protect mortgage lenders, but few savings will be passed on to homeowners. And of course, it is those who have poor credit history or who cannot afford to save a large deposit who will bear the brunt of this. The best rates are likely to only be available to those who can afford a 25% deposit – anyone offering less will face much more severe rates of interest. All this combines to financially stretch those who are already struggling to breaking point when it comes to buying a house.

Perhaps it is an important development for the long term, in that it encourages people to save up rather than receiving hugely inflated mortgages that are many times the value of their salaries. Reckless lending, in the mortgage market as in the credit industry, invariably leads many to disaster. Equally, it may simply be a natural correction to the amazing rise in house prices in recent years – the price for the average home is up from £121,000 to £191,000 in only ten years. But the rapid drop in prices is going to hurt those who have already spread thin in trying to make their mortgage payments, and it is they who need to be careful to avoid serious debt and insolvency.

Along with its troubles in the mortgage loans, the UK is receiving another unwelcome import from the American credit industry. Payday loans, long popular in the US, are increasing in popularity in the UK, and they are a new and dangerous form of credit to watch out for.

Essentially, it is a loan that comes in a week or so before pay day, and which are paid back once you receive your wages. The appeal is that they are relatively simple to get – all you need is a steady monthly income from your employer, and there are plenty of online providers prepared to hand out the cash. Many people find themselves running short on funds in the week before they are paid, and getting a small advance on your wages seems like no bad thing, at a first glance.

The catch is that you pay a significant amount for the privilege of this small advance – the interest and charges make them an impressively expensive way to borrow, with up to 25% charges for a few weeks or days. Worse, it is possible to ‘roll over’ the amount paid until next month – it isn’t hard to see where this ends up. Once people get into the habit of overspending each month (which the payday loan encourages them to do), it is all to easy to slide into serious debt and insolvency.

Overdrafts, personal loans and even credit cards all offer much better options for a mid month cash boost. Better still, of course, is to watch what you spend more closely and budget more effectively. Anyone who is consistently spending more than they earn each month needs to take a long hard look at their finances before it becomes too late.