Lloyds TSB Study Says Disposable Incomes Are Squeezed
2nd January 2013
Lloyds TSB has analysed the current accounts of their customers to establish whether their disposable income continues to be squeezed. In November 2012 they discovered that inflation continues to push up costs and that this is outstripping their client’s income growth.
The calculation of disposable income used by Lloyds TSB will be interesting to debt and trust deed advisers. For the purposes of expenditure they include the outflow of cash from bank accounts that Lloyds thinks exists to cover essential expenditure. For example, they include payment (from debit cards, direct debits and standing orders) for housing costs, council tax, utility bills, housekeeping and fuel.
Lloyds TSB also include, amongst essential expenditure, debt repayments. It’s not surprising that a bank would do so. It’s also perfectly appropriate for this to happen where an individual is in a position to manage their full contractual debt repayments. However, the process is slightly different for debt advisers working with financially stretched clients.
When someone gets in touch with a debt or trust deed adviser a key part of the advice process is to measure disposable income. How is disposable income measured in this scenario? It quite simply deducts essential expenditure (excluding unsecured debt repayments) from total income. You can read more about calculating disposable income here.
Why are unsecured debt repayments left out of the equation? The issue for most people (that contact debt or protected trust deed advisers) is that they are simply no longer in a position to fully repay all of their commitments. Their expenses have escalated to a point that they exceed income. The aim of the exercise is therefore to work out how much money is left over to pay unsecured debts once essential bills and expenses have been covered. This process therefore involves prioritisation.
Establishing how much money is truly available to service unsecured debts is a key part of the debt advice process. It enables the adviser to analyse which options might be available to you. For example, in some cases it may be possible to resolve the problem with just some careful budgeting and/or income maximisation. In other cases a Scottish trust deed, debt arrangement schemes, or even sequestration (bankruptcy) may be suggested depending upon the circumstances.
The given expenditure figures will be tested against a set of guidelines. These expenditure guidelines attempt to find a fair balance between the interests of the debtor (who must be able to live reasonably and cover necessary bills and expenses) and the creditors (who can expect to be repaid according to how much the debtor can truly afford to pay). This part of the process adds a degree of fairness to the calculation of disposable income which helps debtors and creditors to reach voluntary compromises and settlements.
The findings of Lloyds TSB, that there remains a general squeeze on disposable incomes, points towards a couple of possible outcomes. It may encourage some people to take on new debts that may later become difficult to repay. It may also mean that people with existing debts find them increasingly difficult to manage in the future.
Should you find yourself struggling to repay debts as a result of diminished disposable income it’s important to take action. Obtain advice from your CAB, local authority money advisers, a reputable provider of Scottish trust deeds or contact our own professionally qualified debt advisers at Trust-Deed.co.uk. Taking advice is the first step towards taking control.
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