One in Ten adults permanently overdrawn

What traditionally was considered a facility to cover yourself for the unintentional ‘slip-up’ towards the end of the month (when your wages had run out!) is increasingly becoming a necessity, new research commissioned by Money Supermarket has claimed.

According to the internet company, being overdrawn is now a permanent fixture for 10% of UK adults and this figure increases to 16% in the 20-29 age category.

It is this youngest age group which caused researchers most concern as almost half this age-group had fallen into the red in the last year requiring debt advice UK.  When this is combined with the poor savings habits of the young it makes for grim reading. 

Unsurprisingly it is the ‘grey’ bank account holders that seem to manage their money best, with only 18% of those aged 70+ using their overdraft at all during the past 12 months!

So is this increasing use of the overdraft facility a worrying trend, slack financial management, or simply a reflection on the extraordinarily tough economic conditions that preside in the UK at the start of 2011?

• This blog writer is of the opinion that a combination of all is to blame.

The hidden mystery and respect for the local bank manager has dissipated over the past 20 years, to the point where they are now little more than sales managers.  The banks would have you believe that all staff are ‘customer service representatives’, but make no mistake, the smiling friendly face in your local branch has sales targets tattooed on their brain!  This culture means that when you go into the bank, the banks staff actively try to sell you an overdraft, instead of pointing you to the virtues of impeccable fiscal restraint and planning.  When this is coupled with the fact that having an overdraft (or at least applying for one) is tagged on to the account opening process – in the same way that having a debit card is – it is hardly surprising that the trend for having overdrafts in the first instance is increasing.  And of course, once you have one… its easy to spend!

Next on the ‘blame’ list is the slack financial management that pervades the UK.

• But where has this come from?
• Were we always this bad?

Internet research suggests not and indeed if you ask any person of pensionable age and they are likely to blame the ‘I want it and I want it now!’ age.  Re-wind back to the 1960s and it was normal to save hard before finally making a purchase.  But that wasn’t all… the modern age is said to have become a time when an incredible variety of gadgets, cars, items, jewellery, clothes and indeed furniture are said to be ‘needed’. 

Whereas our relatives who saved in the 60’s and before were saving to buy one item, rather than several!  Add in the fact that very few households truly understand their monthly outgoings and Houston, we have a problem.

The tough economic conditions are the final leg of this increasing tendency to use the overdraft.  It has been well documented that food price inflation, energy bill increases and the sky-high cost of petrol are hitting ‘Alarm Clock Britain’ hard.  As this creates an increasing squeeze on household budgets, the inevitable consequence is to dip into the overdraft.  However, this type of overdraft usage isn’t the occasional slip-up… it’s the use of a credit facility to fund every day living.

If you find you are in this position and are living in your overdraft each and every month, then you might want to consider a financial health check from Lewis Alexander.

By calling us FREE from land lines using 0800 018 6868, our trained debt management consultants can help review your financial position and can offer options to help you get out of debt.  It is rare for UK adults to only have one line of credit – an overdraft – and because of this we have a wide range of experience in helping clients with a variety of personal debt problems, from struggling with a small loan, through to those with on the verge of bankruptcy.

• Call today using 0800 018 6868 to see if we can help you!

Why the doorstep loan and cash loans are not a long term debt solution

You can hardly watch 30 minutes of TV without catching at least one advert break in 2011 - and the chances are that this commercial interlude will include at least one entry from a financial services provider! 

Increasingly, these companies are concentrating their efforts on the lowest earners in the UK and the most recent phenomenon of the doorstep or pay-day loan.  Typically ranging between £50 and £1500 and lasting for between 5 and 30 days, these loans are designed to help those who run out of cash at the end of the month and need a cash injection before their wages are paid, in order to meet pay their everyday expenses.

According to a recent survey, most households run out of cash on the 22^nd or 23^rd of each month.  As most of the employed workforce in the UK are now paid once per month they will be familiar with these barren final few days until the next pay check comes in. 

In the not-to-distant past, this gap would be filled by taking ‘overtime’ at the factory or by pawning your grandfather’s watch, but the modern equivalent is to walk into the various cash shops that have opened up offering payday loans or to visit the websites or indeed i-phone applications that are available.

An alarming number of UK households are now using pay-day loans on a semi-regular basis to help see them through.  In many cases those taking the loan do not realise that rates of up to 3000% can be charged for such loans.  Crass calculations for sure, but what these ‘telephone number’ APRs do demonstrate is that a closer look into this areas is required. The fact that the loan is repaid in such a short period of time does have an effect on the APR being higher.

By the time that you have borrowed £100 for 2 weeks, it is common to repay a total of in and around £120.  That £20 might seem like a small price to pay, but in effect this ‘eats’ £20 into your wages each month that you use a doorstep or payday loan company.

Furthermore, should you fail to make the agreed repayment, then the £100 borrowed can quickly turn into hundreds and even thousands as late payment penalties, bounced bank direct debits and the somewhat dubious administration charges are applied to the cost of the loan.

So why is the UK turning ‘en masse’ to this form of lending?  In the past, if you were short at the end of the month, it would involve one quick call to your bank to request a short-term overdraft or extension to your overdraft.  Now with the state of bank finances, these short-term requests are increasingly falling on deaf ears as banks tighten their purse strings.  The result is that increasing numbers flock to doorstep loan companies for what they see as a quick fix to their financial struggles.

Is it this ‘ease of availability’ that customers are drawn to? Or the flashy ‘friendly’ looking advertisements? Or indeed the fact that these companies are not the large corporate banking organisations that the public increasingly blame for the hard-times experienced in the current economy.

Perhaps it is more appropriate to blame a lack of education and public understanding of what a failure to repay the short-term advance would entail.  Instead of the government looking to legislate around these large APRs, a more sensible option would be to ensure that customers taking such loans were fully aware of what might happen should they fail to repay the loan – but this subject sounds like an all together different subject for a blog!

If you are experiencing financial difficulty caused by taking out such a loan, then you may want to get some independent help to review your overall financial circumstances to at least stop this debt from escalating further.  Here at Lewis Alexander we are available to listen to your personal circumstances before appointing one of our independent debt management consultants to assist you with your case.

Call us today on 0800 018 6868 and we will work with you to help you out of your financial difficulties.  All we ask is that our clients have a regular income and a will and determination to improve their circumstances.

Sitting on a situation and taking no action rarely helps, so call us FREE from a land line today on 0800 018 6868 and start to take control of your finances again.