Money Magic

The Monetary Policy Committee will hold its regular monthly meeting today and experts predict the cost of borrowing will drop from the current level of 5.75 percent to 5.5 percent.

The Bank of England has been under increasing pressure to cut rates, which have risen five times since August 2006. Since July of this year, rates have held steady.

The LIBOR, the base lending rate that banks charge each other, has gone up dramatically, a factor which may influence any decision to cut rates. The increase in LIBOR is adding to the current difficulty in the credit market.

The MPC must determine how to balance a slowing economy with rising prices, so the decision could go either way, according to Reuters.

This month’s decision whether to cut the rate is “one of the tightest calls ever,” according to Howard Archer of Global Insight.

Bankers and credit providers working together have developed a new set of standards to help people with high levels of debt.  Individual Voluntary Arrangements (IVAs) will give them access to tools to help them manage their finances, according to the British Bankers’ Association (BBA). 

Providers that offer IVAs will be subject to industry-wide standards governing advertising, advice, information and documentation. The BBA explains that the standards, which should be in place by February 2008, will streamline the application process for IVAs. 

Angela Knight, Chief Executive of BBA, wants borrowers and creditors to understand that an IVA recommendation is the best way to resolve debt problems. 

The standards should give borrowers more confidence as they make decisions about their financial futures, according to Knight. 

The Government’s Insolvency Service reported 26,956 people in England and Wales were declared insolvent in the second quarter of 2007.

Many Britons will endure the headaches of holiday spending after the new year, according to Citizens Advice. Slowing wage growth, rising interest rates and high prices will contribute to their maladies. 

Citizens Advice is a free service that offers confidential advising to people facing financial and legal problems. The firm is encouraging Brits to plan carefully and be more thoughtful when making holiday purchases. 

The service answered many questions related to credit card debt, bank overdrafts and late payments following last Christmas. 

Teresa Perchard, director of policy at Citizens Advice, warns that people who get caught up in the moment often overspend. The service sees a huge increase in consumer debt right after the holidays. 

This does not need to be the case, according to Perchard.  People who go into the holiday spending season with a plan are more likely to avoid high levels of debt afterwards.  She urges people to consider the following tips, offered by Citizens Advice and Barclaycard, to help people contain spending during the festive season. 

Plan for Christmas spending in advance.

Make a budget, determine what to spend for each person, and be firm. 

Keep in mind daily living expenses.

You must continue to pay your rent, mortgage payments, money for food, money for utilities, taxes and other regular expenses. There can be serious consequences for missing payments. 

Do not bank on an overdraft.

If you must spend on an overdraft, speak with your bank first. Unauthorized overdrafts can be costly. 

Stay away from shop credit offers.

“Buy now, pay later,” offers can be costly, so avoid them unless you know they are cheap. In most cases, you will be better to pay with cash, cheque or debit card. 

Make certain you understand all the terms of any credit offer to determine if you can afford the minimum payments in your budget. Credit at zero percent interest seems attractive, but it can be very expensive if you do not pay it off entirely on time. 

Comparison shop.

Several price comparison websites let you shop for the best deals. Many shops will be cutting prices during the holiday season, so shop around before you buy. 

Do not jump into an extended warranty.

According to Citizens Advice, you can sometimes repair or replace the item at less than the cost of the warranty. And consumers have protections when they purchase faulty items.