Credit card defaults on the horizon

This week Moody’s – a provider of credit ratings, research and financial services– warned that trouble could be on the way in the credit card market and wider economy in general. Moody’s said that although at present the number of defaults on credit card payments remains stable compared to 2007, the “aggregate delinquency rate” (the number of people with credit card payments that are at least 30 days behind) has been increasing for three months in a row.

This seems to suggest that it is only a matter of time before we start to see significant increases in the number of people defaulting on their credit card repayments.

If you have credit cards with an outstanding balance and are wondering how you are going to pay it off, it is vital to take action now. Although it sounds dramatic, it may be in your interest to cut your credit card up with scissors to stop you using it to buy ‘non-essentials’. Besides, isn’t it better to feel a little pain now by not being able to buy that new DVD or computer game in exchange for taking control of your financial future?

Try out the Moneybasics Credit Card Calculator to see how much you are spending and how much you could save.

Please read on for a summary of the top personal finance news stories for the week beginning 19th May 2008.

Wednesday 21st May

‘Sale and rent-back’ investigation launched – The Office of Fair Trading (OFT) has started an investigation into the practice of firms that offer to buy your home from you, before renting it back to you and making you a tenant: known as sale and rent-back schemes. This type of scheme is particularly attractive to those who stand on the verge of repossession and are afraid of losing their homes. While in theory the scheme seems like a great way for homeowners to stay in their property, it has been suggested that, in reality, the scheme allows lenders to buy homes from the vulnerable – those with mortgage arrears and close to repossession – at a price below the true market value of the property. Moreover, it has been proposed that these property firms will try to evict you at the earliest possible opportunity.

With these claims in mind, the OFT has launched their investigation and will report back with their findings at a later date.

Parents spend kids’ inheritance – Research by Saga has shown that only 12% of parents, just over one in ten, agreed that they should leave their homes untouched for their children to inherit, rather than taking out equity release schemes. The report shows that exotic holidays, new cars and gold club membership are popular ways for parents to spend what their children may be thinking they may inherit.

Thursday 22nd May

Employment and housing fears – A Bank of England report yesterday showed that both the housing market and employment prospects remain in precarious positions. In addition to the prediction by the Council of Mortgage Lenders (CML) that house prices in the UK will fall by 7% this year, the Bank of England showed that the number of businesses that are looking to hire is at its lowest level since 1997.

With uncertainty surrounding future economic growth and tighter credit conditions reducing the construction of residential property and the amount of investment throughout the UK it is important, arguably more so than ever, to make sure that you are budgeting effectively. Moneybasics has an online Budget Calculator that will help you to keep track of your finances. Moreover it is important to do your best to try and stay on top of the latest developments in the financial press as this will help you to plan more effectively for the future. One way that you can do that is by visiting the Moneybasics Newsroom every week.

Prepared for Moneybasics by Jason Taylor, Advocacy Officer (Credit Action).