Presentation on theme: "Financial Management Issues for Consumers"— Presentation transcript:
1Financial Management Issues for Consumers Debbie ForseyStudent Debt AdviserQueen’s University Students’ Union
2Issues to be covered How to achieve financial stability Exploring consumer credit optionChoosing the best credit optionAnalysing financial dataStrategies to deal with debt
3How to Achieve Financial Stability Effective BudgetingKeeping track of financesPlanning aheadChoosing the right financial productsStaying informed about financial matters
4Budgeting Budgeting is a positive rather than a negative. Stops unwanted and unnecessary debtHelps with planning for the futureHelps reduce spending in some areasAllows increased spending in othersLets you stay in control of your finances
5How to BudgetWork out how much money you have regularly coming in each week/monthSalariesBenefitsMaintenance allowances.Work out how much you spend each week/monthKeep a spending diary for one monthLook back over bank statementsThink of everything that requires payment over the yearUse a budget sheetBe realistic
6How to Budget Spending more than you earn? Make changes – sooner rather than laterReview Direct DebitsAre you paying bills by the cheapest methodCheck if you can get it cheaper elsewhereReview broadband, phone and TV packagesSave on food bills - plan menus, stick to a list, shop at discount stores, avoid ready meals etc.Are you covered already?
7How to Budget Spending within your means? Don’t become complacent! Review your budget regularlyThe money spent on that daily Starbucks could buy a new laptop without having to use credit!
8Keeping Track of Finances Get the right account for your needsBasicCurrentStudentSavingsPost OfficeCheck statements regularly and thoroughlyAsk the bank about anything you don’t recognise or seems strangeUse on-line bankingBe familiar with the fees and chargesBe aware of fraud and scams
9Planning Ahead Consider life events and their financial impact School and CollegeFirst job after schoolLeaving homeUniversityGraduate jobBuying a homeStarting a familyRetirementDeath!
10Choosing 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 youLook beyond the attractive advertisingLook at the detailUse several comparison sitesMake sure it meets your needs
11Staying Informed About Financial Matters Don’t automatically disregard the literature that comes with your bank/credit card statementGather information from banks, building societies, credit unionsSeek free impartial adviceFSA Moneymade Clear WebsiteRegulated independent financial adviserSign up to moneysavingexpert.com
13Exploring Consumer Credit Options Secured LoansSecured against propertyLower interest ratesHouse can be repossessed if payments are missedUnsecured LoanNot secured against propertyInterest rates, fees and charges varyCan be taken to court if payments missed
14Exploring Consumer Credit Options Student LoansAdministered by Student Loan CompanyInterest is charged based on the rate of inflationRepayment commences after graduationAuthorised OverdraftsSet agreed limitsSome banks offer interest free overdraftsCheck out charges and feesUnauthorised OverdraftsHigh charges if overdrawn without agreementCan lead to further difficulties
15Exploring Consumer Credit Options Credit CardsExpensive way to borrowSet credit limitMust make a minimum payment each monthPenalties for missed paymentsAdded protectionStore CardsLike a credit card but only for certain retailersVery expensive interest rates
16Exploring Consumer Credit Options Hire PurchaseOften used for products such as cars and large electrical itemsPay goods off monthly within a specified periodGoods remain the property off the supplier until the last penny is paidExpensive form of creditGoods can be repossessed if payments are missedRead the small print!
17Exploring Consumer Credit Options Credit UnionsCommunity basedNot for profitEncourages saving and will only allow affordable borrowingCan’t lend out all members’ savings or invest in anything riskyOffers small loansInterest rates varyAdded benefits
18Exploring Consumer Credit Options Door Step LendersPayments are made to an agent who calls at your home weekly or monthlyVery high interest ratesOften provide credit to those with a poor credit ratingMust have a licence – if not- they are illegal
19Choosing the best credit option Before entering into any credit agreement consider the following:What is the APR?The length of the loan agreementCan you afford the payments?What if things go wrong?
20Choosing the best credit option The APR (Annual Percentage Rate) takes account of the following:the interest ratehow you repay the loanfees associated with the loancompulsory premiums for payment protection insuranceThe lower the rate, the betterVary from lender to lenderCan change during the term of an agreement
21Choosing the best credit option The length of the loan agreementGenerally the longer it takes to pay back, the dearer it will beBe 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 agreementIf your interest rate is variable can you afford an increase
22Choosing the best credit option What if things go wrong?The unexpected does happenAre you coveredWhat are the penalties for missed paymentsCan the agreement be altered at a later date
23Analysing 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 £1,200You 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%; butThe APR will be roughly 40%.
24Analysing 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.
25Analysing Financial Data What a difference 'the pay' makes£3,000 debt at 17.9%RepayingTime to repay in fullInterest CostMinimum (2% or £5)41 years£6,300£60/month7 years£2,100£80/month4 years 6 months£1,250£120/month2 years 7 months£700£240/month1 year 3 months£315Minimum repayment calculator
26Strategies to deal with debt Don’t ignore the problemContact your creditors – follow up in writingSeek advice from a free advice agencyCitizens AdviceConsumer Credit Counselling ServiceMaximise your incomeDo not pay debt with debtCalculate how much you have available to pay your creditors after paying for all the essentials such as rent, food and utilities.
27Strategies to deal with debt Priority debtsMortgage/RentAnything secured on your homeRatesElectricity/GasFinesIncome TaxNon – priority debtsCredit CardsStore cardsUnsecured loansMail OrderHire Purchase for non essentials
28Strategies 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 offerAsk for interest to be suspended.If the creditor refuses the offer- pay anywayIf the informal approach fails explore more formal routes
29Strategies to deal with debt Individual Voluntary ArrangementSelf Petition for BankruptcyLet the courts decideSeek specialist advice in all of the above casesRemember - there is always a solution