Turning a mountain of debt into a molehill (From Bradford Telegraph and Argus)

Turning a mountain of debt into a molehill

3:30pm Monday 8th January 2007 in Analysis By Sally Clifford

Christmas is a time for over-indulging. We eat more and spend more, but come the New Year many of us are left counting the costs of our festive frivolities.

The caution we threw to the wind when stretching ourselves to buy that extra gift comes back to haunt us as soon as the first credit card bill drops through the letterbox in January.

January is seasonally and statistically one of the busiest times of the year for Nisar Afsar, who has spent 15 years working as a debt adviser.

Within the first few days of the New Year celebrations Nisar - a debt advice co-ordinator with national charity the Family Welfare Association, based at Canterbury Nursery School and Centre for Families and Children in Bradford - was fielding phone calls from 40 or so clients seeking his help to pay bills following their seasonal spending.

He tells of one single parent being forced to sacrifice precious family time by taking on extra part-time jobs to ease the financial burden she faces.

Says Nisar: "She was already in financial difficulty through her personal situation but this Christmas she has spent on presents and decorations and now she realises she will not be able to pay back her debts."

She's not alone. The time for celebration turns to commiseration for many come the New Year.

Nisar believes on-line offers cutting the cost of gifts on the high street entice consumers who can't really afford to part with their cash. "It is very tempting. People on low incomes think they haven't been able to treat their children or family members all year round, Christmas only comes once a year and they feel obliged to do something just to give something back," says Nisar.

"But they're already on a tight budget and on a low income so when it comes to the New Year they find it extremely difficult especially when they get the winter fuel bills."

Financial experts are already predicting that more and more people will be filing for bankruptcy as a result of their festive spending.

Mike Gerrard, head of Grant Thornton's personal insolvency practice, said:m"Last year, during the period straight after Christmas when most bills hit the doormat, we witnessed the highest-ever number of people going into personal insolvency. This year things could be even worse.

"Since last Christmas several developments such as interest rate rises, sky-high utility bills and increases in unemployment have contributed to pushing more people into financial trouble."

In Bradford alone there were 671 personal bankruptcies in 2005. Over the last year that figure escalated to 843, proving debt is increasing at an alarming rate. And that, says Nisar, is why they need more debt advice workers.

"It's devastating," he says. "In Bradford the average person we have seen owes £12,000 and that may be owed to approximately 13 different creditors and doesn't include rent or mortgage arrears."

Debt is no longer determined by class. Those people you would perceive to be financially secure are scrimping to make ends meet. "More and more middle-class families are now getting deeper into debt," says Nisar.

Remortgaging to pay off existing debts and car loans, he says, leaves people with few funds to survive. Some parents are also stumping up the cash to get their children on the property ladder. Nisar says the danger of parents becoming mortgage guarantors is that they suffer the consequences should their offspring get into debt.

IVAs (Individual Voluntary Arrangements) are proving a favourable alternative to bankruptcy, the traditional way of escaping overwhelming debt. An IVA is a deal between the debtor and creditor overseen by an insolvency practitioner which involves paying some of the debts in one go or over a number of years. Unlike bankruptcy, you don't necessarily risk losing your home.

But bankruptcy and IVAs are a last resort, according to Nisar, whose advice is to get help.

"And do it as soon as possible," he says. "Don't think ignoring an outstanding debt will make it go away. Seek advice."

Similar sound advice is being given by the national charity, Citizens Advice. They warn the Christmas debt hangover' could turn into a nightmare if ignored.

"If you've over-spent don't panic and bury your head in the sand," says Liz Reveley, specialist services manager at the organisation's Bradford bureau.

Borrowing further to pay off existing debt will only lead to future problems. Liz's advice is to talk to creditors: "Don't just stop payments without explaining why. They can sometimes be more understanding than you'd expect."

Liz also advises to calculate how much you owe and how much you need to fund priority payments such as household bills. "Don't fall into the trap of paying whoever shouts loudest first," she says.

"Make sure you pay the priority debts first every month and then work out how much you need for food, travel to work and other everyday expenses. Once you've done all that you can work out what you can afford to pay each month to non-priority creditors like credit cards, store cards etc."

She says if what is left doesn't cover payments to non-priority creditors each month, speak to them and come to an arrangement.

"Only offer to pay off debts at a rate you can keep up - it is easy to be panicked into offering more than you can afford," says Liz.

l Free confidential advice is available through Nisar Afsar at the Canterbury Nursery School and Centre for Families and Children on (01274) 577571; Bradford's Citizens Advice bureau on 0845 120 29 09, or visit www.adviceguide.org.uk; Consumer Credit Counselling Service Freephone 0800138 1111 8am-8pm Mon-Fri; or the National Debtline on 0808 808 4000 (Mon-Fri) and Saturday 9.30am-1pm.

HOW TO STAY OUT OF THE RED

Make a resolution to stay out of the red in 2007 with these top money-saving tips from Citizens Advice.

• Check you are not missing out on money you should be getting in benefits or tax credits, tax rebates or allowances. Your local bureau can help you with this.

• If you are considering taking out a loan, make sure you shop around and get the best deal. Look out for low interest rates.

• Be wary of consolidating your debts, get advice and don't put your home unnecessarily at risk. Defaulting on a loan secured against the home could mean you lose it.

• Plan to build up an emergency savings fund by saving a regular amount each month.

• Shop around for the best savings rates and check regularly that it is still the best deal available.

• Check out tax-efficient ways to save money like cash ISAs (Individual Savings Account).

• Be wary of low interest credit card transfers. Check the terms and conditions carefully.

• You may be losing money by sticking with your existing bank, shop around. It's simple to change.

• Don't automatically renew your car/holiday/house insurance without comparing prices.