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

If your school is interested in participating in Money+ please email Money+ Project If your school is interested in participating in Money+ please email d.forsey@qub.ac.uk

Thank you Any questions?