TIMES ARE hard and despite some glimmers of hope in the form of three successive interest rate cuts from our European overlords and the most tentative of green shoots, most people are still struggling to make ends meet.
The most recent income survey commissioned by the Irish League of Credit Unions (ILCU) paints a very grim picture of life in modern Ireland. Personal debt is rising, disposable income is falling and a growing number of people say they are living to work rather than working to live.
According to the ILCU, once essential bills are paid, around 1.8 million Irish adults say they have less than €100 for discretionary spending each year. That, however, is not the most alarming figure to emerge from its latest study. It also found that 40 per cent of consumers have had to borrow in the past year just to pay their household bills. Help has been sought from family and friends, credit unions and banks while, worryingly, growing numbers are being forced into the arms of moneylenders just to get by.
Borrowing at interest rates that reach close to 200 per cent is financially nonsensical but for many unavoidable. Such a course of action will do nothing to help people out of their difficulties and the ILCU has called on the Government to cap the interest rates legal moneylenders can charge to stop the worst avarice taking place. The Government, however, does not seem to be listening.
The survey also showed that many consumers are very poorly informed about money management and only half of those polled said they were aware of bank fees, or the interest rate payable on credit card loans.
The tracker suggests that 47 per cent of consumers struggle to pay all of their bills on time. It shows that 44 per cent of those who cannot pay their bills on time are very stressed and worried about making ends meet. It found that television licences, telecoms, bin charges and electricity were the bills most likely to be delayed.
While that may be bad news for An Post and RTÉ it is entirely understandable that people put off paying their TV licence if it falls due on a month when they can’t make ends meet. And make no mistake, the order in which all bills are paid is important as is the containment, where possible, of those bills.
1 FEED YOURSELF
Last year an alarming story hit the headlines about a man in Kerry who was going without food for himself and his family in order to meet his mortgage repayments. This is entirely foolhardy and while people may be afraid of falling into arrears on loans, everything else is utterly secondary to keeping food on the table. There are ways to economise with the food shopping.
The average Irish family spends around €10,000 a year in supermarkets but that same Irish family is likely to throw out around a third of the food it buys. The maths is very simple: by buying less and by shopping more carefully, people could save thousands of euro each year.
They could save themselves even more by being smarter about where and what they buy. People should have no loyalty when it comes to supermarkets. Search out everyday non-perishable goods on special then buy in bulk. Make lists and stick to them. Never buy something unless you know exactly what you are going to do with it. And switch from brands to own-brand. By switching just a handful of products people can save themselves a packet.
A two-litre container of milk with a recognisable brand name costs around €2.19 while two litres of own-brand milk in SuperValu costs €1.49. So if you go through two litres daily – hardly excessive for a family – by making that one simple switch you can save yourself €219 each year. On milk alone.
2 KEEP A ROOF OVER YOUR HEAD
The next most important bill is mortgage or rent. The good news for holders of tracker mortgages is that they are paying a lot less now than they were 12 months ago. Since last autumn, the European Central Bank (ECB) has cut its rate on three occasions. For every quarter of a point it lowers its rates by, the monthly cost of servicing a €100,000 tracker mortgage declines by about €15. As a result of ECB moves someone with a €300,000 tracker mortgage will now pay about €135 a month less than they were paying this time last year which amounts to a total annual saving of more than €1,600.
Going back even further and the savings are even more significant. In February 2009 the ECB rate was 2 per cent so a €300,000 mortgage in February was costing you €225 a month more than it is today.
But people are still struggling with their mortgages. And it is difficult to save money because moving from company to company is now next to impossible. People who can’t make repayments do have options, including interest-only for a period, extending the length of a mortgage and taking a mortgage holiday. These options ultimately end up costing more but for some people, it is about getting to the end of the month and talking to a bank about the options available is much better than ignoring the problem and falling into arrears.
3 GETTING INSURNACES
Certain insurance products are unavoidable – such as those which are tied to a mortgage and car insurance, if you drive – but there is more scope for saving money in this area than when it comes to mortgages because the market is still working effectively from a competition perspective. When it comes to shopping around the most important thing is to understand the policies you have and to always ask if they are doing what you need them to do and represent value for money. When it comes to shopping around for life assurance there is more competition in the market than ever and most people could knock between 10 and 20 per cent off their annual insurance bills by making a few calls.
According to a survey published by the NCA (National Consumer Agency ) earlier this month, consumers can save nearly €400 a year by shopping around for home insurance. It reviewed a range of property types throughout the State and found that across all the profiles surveyed, consumers could make average savings of €382 by shopping around.
It also reviewed the level of “excess” attached to policies and found that the excess on policies ranged from €125 to €500 and that a lower quote did not mean higher excesses.
Insurance specialists getcover.iesay that it has noticed an estimated 50 per cent increase in calls in the past 18 months from consumers looking to re-negotiate a better deal on their home insurance or restructure their policy to produce a lower premium, and it says that two in three consumers are now prepared to invest some of their own time in an effort to cut costs compared to about one in 10 before the recession.
When it comes to car insurance, the NCA says that even more significant savings can be made. In fact, it says that more than €1,000 can be cut from motor insurance alone with just a couple of calls. You might not save such massive sums but you should still be able to shave something off your car insurance costs.
Some companies offering discounts to policy holders who use public transport to get to work – you have to ask for it and have to prove you actually do it, with a tax-saver commuter ticket for instance, but once you tick all the boxes, the cost of a policy can fall by as much as 20 per cent, or over €100 a year. Make sure to check if there are deals for buying car insurance and home insurance from the same provider as many companies offer multi-insurance discounts.
Many also offer discounts to those who book online, even if they also have an off-line presence too. Onedirect.ieoffers a 10 per cent online booking discount while 123.ieis worth checking out because despite its infuriating advertising jingle, it can save you money. And never limit your search to traditional providers – Tesco sells car insurance at competitive rates and offers discounts of 10 per cent to club card carriers and as the saying goes, every little helps.
4 DRIVING A BETTER BARGAIN
Cars are essential for many people and car loans are next in line. Keeping up repayments is even more important if you have a HP arrangement in place as failure to honour obligations will see you lose the car as you don’t actually own it until the final payment is made.
There are few ways to make savings on a car loan although transferring the debt from a bank to a credit union will save you around 5 per cent on interest repayments.
5 A QUESTION OF CHOICE
Certain insurance products are optional. Health insurance for instance is not a legal requirement – yet – but over two million Irish people are still covered with many paying way more than they have to. According to the Health Insurance Authority, only 23 per cent of people with health insurance have ever switched, despite the fact that big savings can be made by shopping around.
All providers have discounted corporate plans which are cheaper than private policies but available to everyone. The Health Insurance Authority ( hia.ie) website allows you to make comparisons between the policy you have and the other options out there. Alternatively, just contact your insurer and ask for an equivalent company plan to what you already have. They may tell you that there is no equivalent but persist and ask for the corporate plans which most closely resemble your existing plan, then use the HIA website to make the comparisons yourself.
Bear in mind that if you are prepared to take on excesses on inpatient care in private hospitals and are willing to pay a €2,000 shortfall for certain orthopaedic procedures, the cost of a policy can fall from more than €1,400 to around €800 a year. And make sure to check out the new provider GloHealth which is offering savings on many policies.
6 UTILITY PLAYERS
Utilities are next in line. Moving from one gas, electricity, phone or broadband provider is genuinely simple and can save you hundreds of euro each and every year.
The price comparison site bonkers.ieallows you to see at a glance what offers are out there and what savings are available by switching from one energy provider to another.
If you are in arrears on your gas or electricity bill, it is absolutely essential that you don’t bury your head in the sand and you keep a dialogue with your provider going. Also consider the installation of a metre.
Modern metres have a come a long way from the coin operated boxes of times gone by and do allow people to budget for their energy usage.
7 HIGH INTEREST FOR A REASON
Unsecured debt is the lowest priority of all although you would not know it from the noise some companies make when they are trying to get money from people.
Credit card companies are notorious and they hound people who owe them money. The reality is, however, they have factored in a huge level of default already which is why their interest rates are sky high.
One school of thought suggests that credit card debt should be the first thing cleared because of the sometimes savagely high rates of interest charged but the reality is the companies have very little comeback if someone does not pay their debts.
We are not suggesting that people default on such a debt but if it comes to feeding your family, paying your mortgage or paying your credit card debt we know which one we would knock on the head first.
Before it gets to that point, however, there are ways a person can make significant inroads into a credit card debt with some judicious switching.
If you owe a lot the first thing to investigate are the providers that offer 0 per cent for a limited time.
If you have outstanding debt of €5,000, by switching to a 0 per cent provider for 10 months it will save you €708 in interest payments. And if you switch again, you’ll continue to save. MBNA currently offers 0 per cent for 10 months if you switch to its Platinum card, or 1.9 per cent for six months on its standard card.
Similarly, An Post’s One Direct card, which is also issued by MBNA, offers 0 per cent for 10 months.
Both Tesco and Permanent TSB also have a zero rate for six months.
Be warned however. Some companies will approve you for a card and then when you have jumped through the hoops offer you a limit well below what you thought you were going to get.
One reader recently applied for a Tesco card and reasonably presumed she would get a limit of €3,000 for a balance transfer. Instead the company offered her a limit of just €750 which made the whole switching thing seem a lot less attractive.
There was also a complete absence of transparency as to how the company had arrived at this limit for her and her attempts to find out more proved to be frustratingly difficult.
8 WHISTLE FOR IT
Did we say unsecured debt was the lowest priority of all? Well, there is something below it in the pecking order. Monies owed for services you may have discontinued because you no longer wanted them or no longer could afford them.
Last week we carried an item about Sky Television’s debt collection agency threatening to call round to a pensioner’s house to try and collect a debt of €23 while we have also, in the past, documented the lengths gyms will go to get money from someone who has cancelled a contract early. The reality is that these companies may shout and scream but if you can not afford to pay them, you cannot afford to pay them and you should ignore all their threatening letters. Bank overdrafts, catalogue debts, credit sales agreements, credit union loans and personal loans with finance companies are all unsecured and while failure to pay such debts will damage your credit rating, you will not lose your home.
You can be taken to court for failing to keep up the agreed payments but once you don’t ignore the problem and attempt to engage with the lender and respond promptly to court documents you will, generally speaking, only be required to pay what you can afford.
9 SEEK HELP
Mabs is becoming increasingly important to Irish consumers who are struggling with debt and while waiting lists for personal consultations can be long, its website should be the first port of call for anyone looking for help.
The site has a personal budget sheet which allows you to see what your income and expenses are, in a safe and secure environment, on a monthly or weekly basis. It will also show you how much money you can afford to put towards repaying your priority and secondary debts.
It also has a self-assessment guide which will offer people in need a structure for dealing with their financial difficulty; information to help them manage their debts; interactive and downloadable tools to help put a plan in place; advice and materials you can use to communicate with those you owe money to; and it offers a programme to help to plan future finances.
10 DEBT MANAGEMENT FIRMS
It does not matter how far you are falling behind in your credit card or loan payments or how tiresome or stressful the constant calls coming in from hard-edged debt collectors demanding instant payment get, you should think very carefully before you enlist the services of a debt management company. Think very carefully about it and then don’t do it.
There are no rules governing the dozens of debt management companies which have sprung up promising to help people scale the personal debt mountains they have created and this failure of successive governments to introduce legislation has led to the quite ridiculous situation where Pricewatch could set up a debt management company today and start handling people’s cash.
All we’d need would be a snazzy name – something that people will remember – a flash looking website with an address that is similarly easy to recall and a serious brass neck.
Pricing structures vary from company to company but the fees are universally high and when people are already drowning in a sea of debt, up-front fees of as much as €750 and a monthly fee of 15 per cent of any agreed repayment are outlandish.
The NCA and the not-for-profit organisations which help Irish consumers manage debt are increasingly concerned at the proliferation of such companies.
Neither the Money Advice and Budgeting Service (Mabs) or the Free Legal Advice Centres (Flac) have much that is positive to say about the companies.
And both urge struggling consumers to make contact with them first before giving money to such a business.
More than €1,000 can be cut from motor insurance alone with just a couple of calls
Debt management companies: The questions you need to ask
FOR PEOPLE trying to juggle the demands of several creditors, taking on a debt management company can seem a hassle-free – albeit expensive – option.
Before committing yourself to any company, ask the following questions:
What are the fees for the service and when do I have to pay the fee?
Is the fee paid up front?
If the fee relates to the size of the debt, what percentage of the total debt is payable?
What exactly will I get for that fee?
Will you work on and resolve all of my debts?
Will I pay a fee even if you cannot assist me to get the solution I want, or a solution that works for me?
Are you connected to any other organisation that sells financial products?
What training or skills do your debt advisers have?
