Financial Management Issues for the Consumer, Debbie Forsey

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9 Νοε 2013 (πριν από 3 χρόνια και 9 μήνες)

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Financial Management
Issues for Consumers

Debbie Forsey

Student Debt Adviser

Queen’s University Students’ Union


Issues to be covered


How to achieve financial stability


Exploring consumer credit option


Choosing the best credit option


Analysing financial data


Strategies to deal with debt



How to Achieve Financial Stability


Effective Budgeting


Keeping track of finances


Planning ahead


Choosing the right financial products


Staying informed about financial matters


Budgeting


Budgeting is a positive rather than a negative.


Stops unwanted and unnecessary debt


Helps with planning for the future


Helps reduce spending in some areas


Allows increased spending in others


Lets you stay in control of your finances



How to Budget


Work out how much money you have regularly
coming in each week/month


Salaries


Benefits


Maintenance allowances.


Work out how much you spend each week/month


Keep a spending diary for one month


Look back over bank statements


Think of everything that requires payment over the year


Use a budget sheet


Be realistic



How to Budget


Spending more than you earn?


Make changes


sooner rather than later


Review Direct Debits


Are you paying bills by the cheapest method


Check if you can get it cheaper elsewhere


Review broadband, phone and TV packages


Save on food bills
-

plan menus, stick to a list,
shop at discount stores, avoid ready meals etc.


Are you covered already?




How to Budget

Spending within your means?


Don’t become complacent!


Review your budget regularly


The money spent on that daily Starbucks
could buy a new laptop without having to use
credit!




Keeping Track of Finances


Get the right account for your needs


Basic


Current


Student


Savings


Post Office


Check statements regularly and thoroughly


Ask the bank about anything you don’t recognise or
seems strange


Use on
-
line banking


Be familiar with the fees and charges


Be aware of fraud and scams




Planning Ahead


Consider life events and their financial impact


School and College


First job after school


Leaving home


University


Graduate job


Buying a home


Starting a family


Retirement


Death!

Choosing the Right Financial Products


Choosing a financial product is like eating a
bag of Revels!


Any company’s job is to make money out of
you


Look beyond the attractive advertising


Look at the detail


Use several comparison sites


Make sure it meets your needs



Staying Informed About Financial Matters


Don’t automatically disregard the literature that
comes with your bank/credit card statement


Gather information from banks, building societies,
credit unions


Seek
free

impartial advice


FSA Moneymade Clear Website


Regulated independent financial adviser


Sign up to moneysavingexpert.com

Exploring Consumer Credit Options


Secured Loans


Unsecured Loans


Student Loans


Overdrafts


Credit Cards






Store Cards


Hire Purchase


Credit Union


Door Step Lenders



Exploring Consumer Credit Options


Secured Loans


Secured against property


Lower interest rates


House can be repossessed if payments are missed


Unsecured Loan


Not secured against property


Interest rates, fees and charges vary


Can be taken to court if payments missed

Exploring Consumer Credit Options


Student Loans


Administered by Student Loan Company


Interest is charged based on the rate of inflation


Repayment commences after graduation


Authorised Overdrafts


Set agreed limits


Some banks offer interest free overdrafts


Check out charges and fees


Unauthorised Overdrafts


High charges if overdrawn without agreement


Can lead to further difficulties



Exploring Consumer Credit Options


Credit Cards


Expensive way to borrow


Set credit limit


Must make a minimum payment each month


Penalties for missed payments


Added protection


Store Cards


Like a credit card but only for certain retailers


Very expensive interest rates

Exploring Consumer Credit Options


Hire Purchase


Often used for products such as cars and large
electrical items


Pay goods off monthly within a specified period


Goods remain the property off the supplier until
the last penny is paid


Expensive form of credit


Goods can be repossessed if payments are missed


Read the small print!

Exploring Consumer Credit Options


Credit Unions


Community based


Not for profit


Encourages saving and will only allow affordable
borrowing


Can’t lend out all members’ savings or invest in anything
risky


Offers small loans


Interest rates vary


Added benefits

Exploring Consumer Credit Options


Door Step Lenders


Payments are made to an agent who calls at your
home weekly or monthly


Very high interest rates


Often provide credit to those with a poor credit
rating


Must have a licence


if not
-

they are illegal



Choosing the best credit option


Before entering into any credit agreement
consider the following:


What is the APR?


The length of the loan agreement


Can you afford the payments?


What if things go wrong?

Choosing the best credit option


The APR (Annual Percentage Rate) takes account of
the following:


the interest rate


how you repay the loan


fees associated with the loan


compulsory premiums for payment protection insurance


The lower the rate, the better


Vary from lender to lender


Can change during the term of an agreement

Choosing the best credit option


The length of the loan agreement


Generally the longer it takes to pay back, the
dearer it will be


Be sure you can commit to the repayments for
that period
-

are your circumstances likely to
change?


Can you afford the payments?


Payments may be weekly, monthly, yearly or
payable in one lump sum at the end of the
agreement


If your interest rate is variable can you afford an
increase


Choosing the best credit option


What if things go wrong?


The unexpected does happen


Are you covered


What are the penalties for missed payments


Can the agreement be altered at a later date



Analysing Financial Data


APR works best as a tool for comparing the cost of
loans on a like
-
for
-
like basis (e.g. loans that run for
the same length of time)

Example 1:



Borrow £1,000 for one year at 20% interest, and at the end of the year
you repay a lump sum of £1,200


You will be paying an interest rate of 20%


The APR will also be 20%.

Example 2:



Borrow £1,000 for one year at 20% interest, and pay throughout the
year in equal monthly instalments (12 x £100 = £1,200)


You will still be paying an interest rate of 20%; but


The APR will be roughly 40%.


Analysing Financial Data


Example 2 is more expensive because you are
paying back the £1,000 gradually throughout
the year.


In Example 1 you have the benefit of being
able to access the £1,200 for the whole year,
which you could invest and earn interest on.


By paying in instalments you're losing out;
this increases the cost of the loan
-

hence the
higher APR.


Analysing Financial Data

What a difference 'the pay' makes

£3,000 debt at 17.9%

Repaying

Time to repay in full

Interest Cost

Minimum (2% or £5)


41 years

£6,300

£60/month


7 years

£2,100

£80/month


4 years 6 months

£1,250

£120/month


2 years 7 months

£700

£240/month


1 year 3 months

£315

Minimum repayment calculator

www.moneysavingexpert.com/cards/minimum
-
repayments
-
credit
-
card#calc


Strategies to deal with debt


Don’t ignore the problem


Contact your creditors


follow up in writing


Seek advice from a
free

advice agency


Citizens Advice


Consumer Credit Counselling Service


Maximise your income


Do not pay debt with debt


Calculate how much you have available to
pay your creditors after paying for all the
essentials such as rent, food and utilities.









Strategies to deal with debt


Priority debts


Mortgage/Rent


Anything secured
on your home


Rates


Electricity/Gas


Fines


Income Tax


Non


priority debts


Credit Cards


Store cards


Unsecured loans


Mail Order


Hire Purchase for
non essentials


Strategies to deal with debt


Calculate affordable payments to each
creditor on a pro
-

rata basis.


Provide each creditor with a financial
statement and make your offer


Ask for interest to be suspended.


If the creditor refuses the offer
-

pay anyway


If the informal approach fails explore more
formal routes



Strategies to deal with debt


Individual Voluntary Arrangement


Self Petition for Bankruptcy


Let the courts decide


Seek specialist advice in all of the above cases


Remember
-

there is always a solution


Useful Websites


www.moneysavingexpert.com


www.whataboutmoney.info


www.fsa.gov.uk


www.citizensadvice.org.uk


www.cccs.co.uk


www.creditaction.org.uk

Money+ Project


If your school is interested in participating in Money+ please email


d.forsey@qub.ac.uk


Thank you


Any questions?