Financial products you might not actually need

There are many financial products which might seem good at first glance. It’s only after looking a little closer that they begin to lose their appeal. There are some products that you might be better off avoiding altogether. Unless you are certain that you will reap the benefits, then here are the products you do not necessarily need.

Store cards

At most till points at big-name retailers; employees are likely to invite you to take out a store card. These are essentially credit cards for specific stores, tempting customers with incentives such as discounts, freebies and exclusive offers.

The same as any credit card, as long as you don’t overspend and pay off your bill off in full on time, you shouldn’t have a problem. If you don’t make your payments you at risk of being on the receiving end of some very high interest rates if you don’t clear your balance each month.

Extended warranties

Extended warranties can help you cover repair costs, after the retailer’s guarantee ends. They usually last for a time frame of around one to five years. This often depends on the purchase price on the item being protected. Extended warranties are usually an expensive financial product.

A five-year extended warranty may cost a large amount of the original retail price of the item. It is important to take into consideration that if an item is faulty, you have rights to protect you.

The 1979 Sale of Goods Act states the goods must be sold to a satisfactory quality, fit for their purpose and last for a reasonable time. If they do not need these requirements, you can return them and ask for refund or replacement.

ID theft insurance

For £10 per year, you can purchase ID theft insurance. As this is only a small sum of money to pay, most people feel comforted by this kind of insurance.

What most people do not know is that they are already covered for any financial loss is your identity is used fraudulently by your bank or credit card provider. A claim can only be rejected by your provider if they can prove you were grossly negligent or committed fraud.

Phone insurance

If you do not have a history of losing your phone, or your phone is relatively cheap, then phone insurance could be an unnecessary expense. Phone insurance can be incredibly expensive, costing between £16 and £300 a year.

If you do own an expensive phone or are locked into a long-term contract, then phone insurance may be worthwhile. If you wouldn’t be able to replace your phone without insuring it, then consider starting to save to replace it.

Many phones are already included on home insurance policy. There is no point doubling up on insurance. Compare the excesses of both phone and home insurance policy. Home insurers are usually slower to replace items as well.

Packaged bank accounts

For a packaged bank account you probably pay around £15 a month, which offers a wide range of extra features. These usually include free travel insurance, mobile phone cover or better exchange rates.

If you don’t need or use these benefits, it is an expensive option. Some of these extras may be cheaper to buy separately.

You must always check the terms and conditions for exclusions and excesses. This is where you might be caught when it comes to the extra features. Many phones are already included on home insurance policy. There is no point doubling up on insurance, so compare the excesses of both phone and home insurance policy. Home insurers are usually slower to replace items as well.

The Jam Jar Account

When all of your outgoings are coming out of one account, it can be hard to stay in control of how you spend your cash. The concept of the jam jar approach is that you divide your money into separate pots for different expenses. This is a great way of making sure all your bills are covered. Knowing your money is going exactly where you want helps you stay on track financially. These types of accounts are usually offered by credit unions for a fee. The jam jar account won’t be for everyone, but if you’re someone who struggles to sort out your money and pay the bills every month, then this could be a handy tool.

If you’re considering getting jam jar accounts, then you need first to be sure of how much money you have coming in and where it’s going each month. This can be done relatively easily by using effective budget planning techniques. If you’re unsure how much you have or where it’s going then you will end up with jam jar accounts with too much, or not enough, money coming in.

You also need to establish your spending priorities. By taking a careful look at everything spend money on you should be able to decide which outgoings are essential needs, and which are simply wants. Making lists of both of these will make your finances clearer in your mind. Your needs should include rent, mortgage and other essential bills like gas and electricity. After covering the basics, you will be able to look at your wants. Deciding which outgoings matter most to you may be difficult, but you can also try cutting overall costs. This means you will be able to fit in more outgoings, which only cost a small amount.

Once you have established a clear picture of your spending needs, then you can begin to set up your budgeting jam jars. Setting up real a bank account with standing orders coming out will assist you when trying to keep an eye on your finances. Sticking to a strict rule of ‘when it’s gone, it’s gone,’ will help you avoid dipping into other accounts. For example if your phone bill jar is empty, then you shouldn’t allow yourself to dip into the electricity jar instead. If you have any cash left in the jars after your payments have come out, you should always try to put it towards an emergency savings fund.

When making accounts for each area of spending, you should instruct your bank to set up standing orders. This means the money will automatically transfer from your main account into the additional accounts one or two days after you’ve been paid. Once your standing orders have been paid, you will then have the freedom to spend from your main account. You won’t be risking not having enough left for important monthly bills.

With a jam jar account, you only have to manage one bank account. It is not as complicated as having numerous separate accounts. The account provider should manage all your Direct Debits and standing order for you. Some account providers even offer helpful budgeting advice to keep you on track. You are charged an administration fee of up to £5 and £15 a month. Then again, some social housing landlords and councils have aimed to work with credit unions. This is so they can offer tenants current accounts with lower fees. See if your landlord is one of these as they may pay your admin fee for you.

Parties urged to commit to council tax revaluation ahead of general election

With the general election less than a year away, attention is starting to turn to manifestos and the policies that the major political parties hope will earn them votes. Next year’s general election takes on an additional layer of intrigue of course, due to the fact that there was no outright winner last time. This led to the formation of a coalition between the Conservatives and the Liberal Democrats, who each had to compromise on certain policies in order to create a functioning government. With the coalition’s term nearing its end, parties will be reverting to type and attempting to show the British public why they and they alone, should be elected to run the country in the next parliament.

One policy that it could be argued would earn any party support would be a promise to commit to council tax revaluation. It has long been claimed that a property tax system still reliant on valuations from 23 years ago is outdated and no longer fair. The British Property Federation (BPF) has already said that successive government failures to revalue properties since the tax was established in its current form in 1991 have brought the council tax system ‘into disrepute’.

It is no surprise then that the BPF, which represent the commercial property industry, has said that a council tax revaluation should feature prominently in all parties’ manifestos. They claim that any fear of a backlash from voters who saw their bills increase following a revaluation would be irrational. This is due to research from the Joseph Rowntree Foundation, which showed that 70% of taxpayers would see only a negligible change. London has predictably been identified at the area to have experienced the steepest property price rises, but even there about half of bills would be largely unaffected, the BPF said.

They also suggest that a promise to allocate any increased tax revenue to affordable housing in or near the area where it was raised would help make revaluation more publicly acceptable. In addition to the revaluation itself, the BPF has backed the creation of several tax bands higher than the current upper ceiling of Band H. They view it as a favourable alternative to the ‘mansion’ tax being proposed by Labour and the Liberal Democrats for homes valued in excess of £2m.

BPF chief executive Liz Peace said that if a tax based on property values is going to work, then it needs more regular revaluations. She insisted that technical advances since 1991 mean revaluation need not be expensive or viewed as an overly administrative process by those in power.

If you are struggling with your council tax payments, contact Council Tax Advisors for free, independent advice. We can liaise with your local authority on your behalf to work out a repayment plan that is both affordable and sustainable.

Insolvency Service Consults Over Increasing Minimum Bankruptcy Threshold and DROs

The number of people being declared bankrupt in the UK has soared in recent years. The debt crisis has seen people get into unmanageable arrears on an unprecedented scale. Such is the number of people in debt, and at shockingly high levels, the current £750 threshold that signifies the point at which creditors can force bankruptcy proceedings against individuals in England and Wales seems disproportionately low and woefully out of touch with the reality of the debt situation in this country.

Now it appears the UK government is taking steps to address this issue by exploring the possibility of raising the minimum debt threshold. Business minister Jo Swinson says claims that the current figure no longer represents a fair and reasonable point at which to enforce bankruptcy are entirely valid. The £750 threshold was implemented nearly 30 years ago so, much like with the accusations about council tax valuation, there are widespread claims that it has not evolved and is no longer fit for purpose. According to research by the Insolvency Service, if the bankruptcy threshold had risen annually in line with inflation it would now stand at £1,700. They claim that a threshold set at nearer £2,000 would have removed 400 cases from the bankruptcy process last year, a figure which equates to 3% of all cases brought in 2013/14.

‘Bankruptcy has serious consequences and there is a strong argument that bankrupting someone for a debt of £750 is no longer fair or reasonable, especially when there are often alternative cheaper ways for those owed money to seek repayment,’ said Swinson.

In a move that will be welcomed by those seeking professional help with their debt problems, the Insolvency Service is also gathering advice on whether debt relief orders (DROs)could be improved as part of its call for evidence.

DROs came into force on 6 April 2009 and apply in England and Wales only. Unlike bankruptcy which is a court-based procedure, a DRO is an administrative-type of debt resolution and only protects those debts included in the DRO from action against creditors. Any remaining debt included in the DRO is written-off after the DRO expires, which is usually after 12 months. The procedure was introduced to provide debt relief to individuals without access to existing procedures because of their low income and asset levels. People who fall into this category are prevented from entering bankruptcy or repaying those debts. The stringent qualification criteria currently in place is designed to protect the rights of creditors to collect against debts owed by people that have the means to pay.

The Insolvency Service is trying to ascertain whether access for vulnerable debtors to DROs can be improved as part of its review process. Specifically, it is seeking clarification about how far DROs are providing individuals with a long-term solution to problem debt. It is also assessing how the various monetary limits which restrict access to the system, plus its overall design and integrity, are working in practice.

If you are struggling with debt and need professional help, contact Council Tax Advisors for free, independent advice. Our team of friendly and knowledgeable experts will be happy to discuss your options and can help you implement a course of action that is most appropriate for your situation.

Dealing with the debts of someone who has died

Losing a loved one is always a challenging time. When it comes to grieving, money and finances are probably the last things on your mind. Unfortunately, it is very common for unpaid debts to be left by the deceased. It is important not leave the finance side of things for too long. Debts are renowned for getting out of hand, so being aware of what exactly you owe will be a weight off your mind later on.

The best way forward is to start going through the deceased’s papers and statements. Making a list of everything owed will be helpful when trying to resolve each one. Whether or not these debts will be paid from the deceased’s funds or assets will depend on whether the debts were owed by the deceased and another person jointly.

A joint debt is where two or more people are responsible for the full debt. All of the names should be on the credit agreement of the mortgage. It is common practice for the survivor of the joint debtors to be entirely responsible for the payment of any outstanding debt. You should always check the terms of the agreement to make sure that this is the case. An individual debt, however, is a debt solely owned by one person alone and has been taken out in their name only.

It is important to establish whether the outstanding debts are joint or individual. If you have joint debt then the paperwork might state the survivor is responsible for the outstanding debt. It is imperative you notify them of the death. At this point, they should be able to send you a letter showing the outstanding balance of the debt.

Make sure you check whether there is any insurance that covers the debt. Mortgages, for example, commonly encourage life insurance that will clear the debt if either person dies. Payment protection insurance (PPI) is often used to pay off a personal loan or credit card when someone is unable to work due to illness. It’s worth checking with the lender if your PPI policy includes life cover that will pay out in the event of the death of the borrower. Checking the terms of any insurance policy purchased may help you pay off debt quicker.

If you do have joint debts with someone who has recently died and it cannot be paid off by insurance, you should always contact the lender. This could be a bank, mortgage Company or credit card company. Ask them to check the terms of the loan, and if needs be, ask them to transfer all future bills to your sole name.

Double checking that any regular repayments are not coming out of a bank account in the deceased’s sole name as any such account will now be frozen.

You may feel overwhelmed with any new influx of debt and have problems meeting repayments. Talk or write to the lender and explain your situation. You might be able to renegotiate the repayments or temporarily freeze the interest.

It can be a stressful and upsetting time, but time is of the essence in these situations. If you feel confused about how to deal with a loved one’s debts, then get in contact with CTA CIC. We can give you free, independent advice about how best to deal with the process. Speak to one of our friendly, personable staff today to start getting any finances on track.

Data reveals shocking extent of credit card debt denial

There has been much talk recently about how council tax and utility bill debt have usurped more traditional forms of arrears, such as credit card debt. Debt charities have said enquiries about the former now account for the highest volume of calls from members of the public. Some have suggested that the rise in prominence of council tax and utility bill arrears is a sign that debt today is much less about reckless and uncontrolled spending and more about the fact that household income is failing to keep pace with rising prices. While this is undoubtedly a major contributor to the UK’s increasing debt problem, it would be naïve to suddenly dismiss other forms of debt as being a thing of the past. Indeed, a look at some recent figures in relation to credit card debt suggests that it is still very much a problem. Even more worryingly, perceptions and attitudes towards credit card spending are showing minimal signs of improvement.

As reported in Moneywise magazine, data provided by peer-to-peer lending firm Zopa has revealed the true extent of credit card debt that still exists in Britain. According to their research, people in this country have an average debt of £4,500 that could take up to 17 years to pay off. It found that two-thirds of credit cardholders are not following the standard advice of settling their balances in full every month and, instead, are only paying interest on their balance each month, with 20% paying only the minimum amount. By using credit cards this way, borrowers can take up to 17 years to repay the average debt of £4,500 and, due to the interest they will have incurred, will actually pay back more than double the original debt.

Astonishingly, more than half of borrowers in the UK are unaware of how much their credit card provider charges in interest, with research showing that people pay back their debt at an average interest rate of 17.9%. These findings are at odds with the unrealistic expectations that many Britons have about when they will be debt-free, with many claiming that it will take an average of just three years and 11 months to pay off their credit cards. Less than 3% of debtors thought they would still be paying off their credit card debt after 16 years, and only 13% believe it will take more than 10 years to be free from debt.

Unsurprisingly, this is doing little to ease the anxiety and stress among those in credit card debt with nearly two-thirds admitting their situation was unmanageable and more than a quarter feeling overwhelmed.

Such an analysis into credit card debt shows that mismanagement of it remains rife, as is an understanding of the implications of adopting such ill-advised practices for paying it off. The reality is that by simply making minimum interest payments, borrowers are increasing their level of debt and length of time it will take to pay it back. This adds to the debt problem rather than relieving it.

If you are struggling with credit card or any other kind of debt, contact CTAS today for free and independent advice on how to deal with it effectively.

Localisation of benefits sees council tax arrears soar

It is difficult to argue that deficit reduction measures were needed when the coalition government came to power. Having inherited a record deficit, it was inconceivable that government spending at previous levels could continue. Nevertheless, the widespread reforms and cuts that followed have been contentious to say the least, with some arguing that the reduction in the budget deficit has come at the cost of deterioration in the standard of living for many families across the UK. Indeed, the opposition are adamant that many are worse off and a look at the recent figures detailing the number of people seeking help with debt suggests they have a valid point.

Such claims will be further strengthened by LGC’s revelation that council tax arrears rose by a fifth last year to their highest level for a decade. The startling increase is seen as a direct result of another fundamental component of a government plan, in this case the controversial welfare reform programme. In-year arrears reached £836m in 2013-14, up from £691m the previous year. The figures give us the first opportunity to assess the impact of Westminster’s decision to slash the budget for council tax benefit by 10% from April 2013, when responsibility for providing this support was shifted to local authorities. The policy caused 80% of English councils to reduce entitlements to council tax support, a move that resulted in many homeowners having to pay council tax for the first time, according to the Institute for Fiscal Studies.

This comes as no surprise to the Citizens Advice charity, who already reported a 17% rise in the number of people in council tax debt in the first three months of 2014 compared with the same period the previous year. Their figure was released before the benefit localisation policy was implemented and so does not take into account the effect of the 10% cut, which shows to highlight how hard people were finding the payment of council tax in the first place.

Gillian Guy, chief executive of Citizens Advice, is in no doubt as to the impact the reform has had, saying: “Since the localisation of council tax benefit last year we’ve seen a huge increase in the number of people coming to us for help with council tax arrears as they struggle in the face of low incomes, rising prices and reduced financial support.”

The 20% rise in arrears occurred alongside an overall drop in council tax collection rates of just 0.4 percentage points in 2013-14, from 97.4%in 2012-13 to 97%. This can be explained by the fact that the arrears are still relatively small when compared with the £23.4bn collected in council tax in 2013-14.

Interestingly, the rise in council tax debt seems to have had a disproportionate impact on councils in deprived areas. Analysis by the Special Interest Group of Municipal Authorities found that councils scoring higher on the 2010 Index of Multiple Deprivation posted lower tax collection success rates in 2013-14. It follows therefore that those areas with the highest average council tax bills were found to be better at collecting council tax. This pattern adds credence to the argument that councils, particularly in metropolitan areas, are underperforming when it comes to collecting council tax, which runs the risk of a further increase in bills for everyone else.

Unsurprisingly, the ability of councils to keep council tax support levels unchanged in spite of the 10% cut in central government funding that accompanied its transition was restricted to a quarter of councils in the wealthiest areas. Conversely, 90% of the most deprived councils had to make adjustments to the benefit in the form of a reduction of support entitlements for working-age households. The IFS thinks the likely explanation for this is that there are fewer council tax benefit recipients to support in affluent areas, making it easier for councils there to sustain funding for the provision as it used to be known.

Central and local government are adamant that welfare reform is an essential part of the strategy to reduce the inherited deficit, but these figures suggest it is doing little to help those who are already struggling to pay their council tax.

If you are in council tax arrears or are worried about the effect that cuts in council tax support is going to have on your ability to keep up with your repayments, contact CTAS for free and independent advice.

Save vs. Repay – Which comes first?

Should you save now and repay later? Or should you repay now and save later? Balancing your finances in this way is a difficult decision – and the likeliness is you’re actually choosing wrong. Ingrained in to British culture is the ‘rainy day fund’. This is the idea of continually putting some cash aside in case of an emergency. This logic works fine, as long as you don’t have repayments to make. We are here to tell you that you should definitely repay first before you save. This may seem controversial, but here are the reasons why.

We recommend that you pay off your debts with your savings. It may be hard to watch all that hard earned in your sensible savings account suddenly fly out, but we promise it’s for the best. This is predominantly based on the logic that debts usually cost more in interest than savings earn in interest. By cancelling your repayments out you will eventually be better off.

Banks make their profit from borrowing interest rates. This is why it’ll always cost more to borrow than you can earn from the savings rate. It is common for people to have both a borrowings and savings account, often with the same bank. This is a bad financing decision as effectively the bank is lending you back the money you lent it, but charging much more to have it.

For anyone with expensive debts, especially on credit cards, using your savings to pay off your debts is a must. Once you’ve done so you shouldn’t cut up the credit card. By keeping the credit available you can use that in the case of a substantial emergency.

Are you still not sure? Think about it like this. Say you do have an emergency and you use your emergency fund to pay it off. Now you have no savings and you have to borrow more money on your credit cards at a higher interest rate.

You are no better off using your emergency fund to pay for an emergency. The outcome is the same as if you keep both a debt and savings account open.

You should get rid of your most expensive debts first by using your savings. More often than not people have more debts than savings, so you will still be in debt. Although eliminating the most expensive debts means you will only have to worry about paying off the cheaper ones with your pay checks. This will massively reduce your costs altogether and free up extra cash for you in the long run.

Whether it’s to pay bank loans or council tax debts using your savings to pay off your debts is the way forward. If your savings aren’t enough to pay off your council tax debt then CTAS are here to help. We can provide you with free and independent debt advice. Call us today to speak to one of our friendly advisors.

Social spending deepens UK debt crisis

There is no escaping the fact that more people than ever in the UK are struggling with debt. It is well-known that the rise in living costs and stagnation in wages is seeing an increasing in the number of families struggling to meet monthly bill repayments. Those that are able to pay their bills are often left with nominal sums of disposable income, which increases the chances of them spending money they do not have in order to fund their social activities.

This final point has been the subject of discussion recently, following the results of a survey that revealed half of all adults blame the demands of their social lives for getting into debt. The government-funded research has pinpointed ‘social debt’ as a growing problem, which is being driven by a fear of being perceived as tight by friends. It claims the average social debt among adults now stands at £1,260, with more than half of people revealing they spend more than they budget for on social occasions.

The difficulty in keeping track of how much we spend when in social situations is understandable, when you consider that we often participate in rounds when we go to the pub, or split bills equally in restaurants even when we may not have spent as much per head as the rest of the group. The findings of the survey appear to bear this out, with two out of three people saying they spend more on a round of drinks than they get back, and a third of those questioned admitting they lose out when settling a group tab after eating out.

Worryingly, it seems the propensity for overspending on lifestyle choices has extended to significantly more expensive activities. One in six disclosed to researchers that they go on holidays they cannot afford. The idea of using credit cards to pay for holidays is not new and a lengthy 0% interest on purchases agreement can be a handy way of spreading the cost of a holiday as opposed to paying for it in one lump-sum. But if you’re using credit to pay for seven days in the sun and it’s simply adding to debt you cannot pay off, it will only worsen your situation.

Social spending should be the one of the first things you review if you are struggling with debt. The importance of being honest with friends and family about your financial situation is critical if social debt is not to get out of control, as is the need to seek help if things have already got to that point. For more information and to get free and independent advice on debt management, contact CTAS today.

Managing Repayments

The backdrop of British society is now one that is coloured with debt. However big or small, households across the country are struggling to make ends meet due to their financial difficulties. The amount of disposable income people are left with after paying for essentials such as rent, utility bills or loan repayments is shrinking drastically.

The number of British adults that only have around £10 left to last the month after these expenses is thought to be at almost 5 million. The majority of those affected are young, between 18 and 24, but these are issues that affect the entire population. More and more people are turning to loans, whether from the high street banks or from payday loan companies. The average monthly disposable income is little over £200, a figure that does leave much room from manoeuvre in terms of managing your finances.

There are some telltale signs if you begin to slide into difficulty. For example, do you know how much you owe? If you have got a clear picture of your debts and bills, knowing exactly what is owed and when it needs to be paid, you immediately remove any hidden stresses. Tackling it head on means first you have to confront your problems yourself, and that is often half the battle. Once you have made this step, you can explain your situation with clarity should you choose to seek advice.

Whether or not you have a loan or other unsecured credit outstanding, it is extremely likely that other expenses are still factored into your budget. Utility bills, credit cards or overdrafts can be equally as problematic. If payments are missed, it is likely that extra charges will be added to your existing bill. Without prioritising your debts or payments, you run the risk of damaging your credit rating as well as having to pay out more money in the long term.

With credit cards, you need to be aware of the details of the account. Things like the rate of interest and charges that may be applicable should you use them to withdraw money from a cash point are important to stay on top of. Hidden withdrawal fees can add up, especially if you find yourself only meeting the minimum repayment amount each month.

Another aspect is how you’re paying off these repayments. Are you having to borrow money to pay off another debt? While it may offer a quick fix, in reality it is just placing you deeper into the vicious circle of multiple debts. This is a common feature of payday loans and their selling point, but it is important to try and manage your finances rather than just transfer your debts between one creditor and another.

Being able to act appropriately is vital if you are serious about regaining control of your finances. Without the right guidance it is very difficult to know how to manage them, what to tackle first and what your options are. At CTAS our aim is to help you move forward into the black. Contact us today for expert advice from our team of experienced consultants.

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