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Interest rates - Over one third of consumers have just £101-£150 disposable income PDF Print E-mail
Thursday, 03 December 2015

Recent confusion and apathy around an interest rate rise could mean those with the lowest levels of disposable income in the UK see their finances suffer even further in 2016.

· According to research from Experian, 62% of people with relatively low disposable income of between £100 and £150 per month don’t feel confident about their financial situation in the year to come. Yet more than 8 in 10 (81%) of this group aren’t taking any steps to prepare their finances ahead of a potential interest rate rise. Not taking steps to prepare their finances now before any interest rate rise could leave people on limited budgets at risk of losing a significant proportion of what they have to spend after bills are paid.
· It seems that recent conflicting reports of when - and by how much - rates will rise mean that 25% of people don’t believe rates are going to shift any time soon, and 20% are confused about what an interest rate rise will mean to them if it does happen.
· An astonishing 34% of consumers are left with just £101 - £150 of disposable income after each month. Whereas many with higher levels of disposable income are looking to capitalise on low interest rates through schemes such as Buy-to-let, only 6% of this group are taking advantage of the historically-low rates and in turn British consumers are borrowing at the fastest rate in almost a decade. This is despite 81% paying back between £100 and £200 a month in credit repayments (excluding mortgages), which can equate to their entire monthly disposable income.

James Jones, head of consumer affairs at Experian, said: “While an interest rate rise of 0.25% might sound insignificant, for anyone with a lot of unsecured borrowing the impact could be very noticeable, especially as credit card interest rates can be pegged to the bank base rate. As a result, those who could be significantly impacted are people carrying hefty credit card debt who are only able to meet the minimum repayments each month, as they’ll be paying back a bigger proportion of interest as part of their bill.

“While the majority of this group aren’t taking steps to improve their credit rating, anyone with a healthy credit rating could look to protect their disposable income by shopping around for attractive deals, like better rates on credit cards and loans to give them the chance to clear their debt, or spread the cost of large purchases without the added worry of increasing interest.”

Nine steps from Experian to help safeguard your disposable income:
· Get organised: While it may sound tedious, make sure you are absolutely clear where every pound goes each week. Choose whatever method suits you best – from a pen and paper, to an excel sheet, or one of the many budgeting apps available.
· Plan ahead: Use interest rate calculators and other online tools to find out how much additional cost will be added to your monthly outgoings if rates do rise. This will help you plan for the future and work out if you might need to cut back.
· Pay it down: If you know you won’t be able to repay what you owe if rates do rise, start trying to pay down your credit balances now by increasing what you pay by a little each month. The less you owe on credit, the less interest you’ll have to pay back. Remember that missed payments and defaults will stay on your report for six years and could impact your chances of being approved for credit in the future.
· Scrutinise your spending: Review your monthly expenses and identify any ‘weak points’ and try take steps to address these. These could be simple things like planning meals in advance and bulk-buying ingredients.
· Shop around: Use eligibility calculators to see if you are likely to qualify for better deals on your credit accounts, such as credit cards, loans, insurance, and utilities. Before you sign, make sure to check the terms and conditions of any new credit agreement to understand whether the rate is likely to increase in the event of an interest rate rise.
· Check your credit report to understand what a lender will see if you apply for credit. Ensure everything is accurate and up to date and reflects your current circumstances – e.g. that old accounts are marked as ‘closed,’ all of your active accounts are recorded and that your name and address are shown correctly.
· Room for improvement: If your credit rating is less than impressive there may be steps you can take to improve it, including: ensuring you’re registered on the electoral roll; paying down outstanding balances to less than 50% of your limit; paying off more than the minimum repayments on your cards each month and making sure never to miss a repayment.
· Choose wisely: If you do choose to take out additional credit, make sure you can afford to pay it back. Remember, if interest rates rise your borrowing could become more expensive and, as a result, harder to manage.
· If you find yourself in financial difficulty, there are lots of organisations who can help. Ignoring financial problems could leave you vulnerable with long-term damage to your credit rating. Seek independent, expert guidance to understand the options available to you based on your personal circumstances.

Research was carried out online by Canadean in October 2015 among a sample of 1,000 UK adults.
*340 people reported £100 - £150 disposable income per month.

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