It looks like the year ahead is going to be more challenging than expected and trusted advice is going to be needed now more than ever.

Trumpo has been speaking to many advisers who are now turning from mortgage adviser to debt adviser.

100,000’s of family incomes will be reducing this year as a result of the credit crunch, and these clients are the most vulnerable and most in need of professional debt advice. The citizens advice bureau and the many other charitable debt organisations operating should be praised, but they are terribly under resourced and the individuals concerned lack the qualified financial services experience needed to manage the explosion of financially distressed families expected to need help over the next couple of years.

During the last ten years, if a client needed to reduce their monthly outgoings, a re-mortgage or a consolidation loan was the normal course of action taken by millions of people. This solution is now basically extinct.

The Banks are no longer providing funding solutions for consolidation, and this is creating a massive debt time bomb, not the actual amount of debt, as this is currently static at approximately £1.4 trillion – it’s the actual servicing of the debt. Millions of people over the coming years are not going to be able to repay it, mainly as a result of job loss or reducing levels of income.

In the current economic crisis, the banks are under increasing regulatory pressure to maintain certain levels of excess capital on their balance sheets to operate.

Example:

If a client owes £10,000 on a credit card, this is treated as an asset/debtor on the banks balance sheet.

If the client or business goes bust, then the bank needs to replace the value of £10,000 so the balance sheet does not worsen.

Put simply the bank would need to make £10,000 profit to neutralise the damage to its balance sheet of 1 bad credit card debt.

To recoup this loss the bank needs in the region of £1M of new cash deposits, to lend out or put to use over the year, to hopefully deliver a minimum profit margin of 1%/£10,000.

With interest rates at all time lows, loan and mortgage arrears increasing, the banks are finding it near impossible to attract the required levels of deposits to bolster their balance sheets. The Govt’s bank bail out, to prevent the UK banks balance sheets collapsing completely, required the pumping in of £10’s billions of taxpayers money.

Trumpo predicts we will see a further £50 Billion pumped into the banks within the next six months, due to the continuing number of loans and mortgages going bad.

But where does this leave the poor and over indebted consumer? With a further 1 million people expected to be in dire straits in 2009, this needs dealing with NOW!

The interest rate drops are going a long way to help those on tracker/variable rate mortgages, freeing up monthly cash to ease the financial pressures, but it does however only help half of all mortgage payers. What we need is a government directive encouraging all banks and credit card companies to agree to freeze interest rates for genuinely distressed families, and allow these families/persons the ability to get their personal finances back on track, and they can do this by taking out a professionally organised debt management plan.

The mortgage/debt advisers, who arrange these debt management plans, can then legitimately get people onto an even keel. Historically; 10,000’s of people on debt management plans have actually seen their debts increase, because the banks and credit card companies in the past would keep piling on the unpaid interest to the original outstanding debts, making a bad situation worse. These type of debt management plans are not in anyone’s interest and should not in most cases have ever been advised to be set up.

If a mortgage/debt adviser identifies that a client can’t afford to meet their monthly bills and their debts are actually increasing, they can help their clients by negotiating to freeze unaffordable interest payments, to stop the position worsening.

The adviser can then agree to structure a repayment plan of the acutal debts over an affordable period, ensuring that the client can meet essential monthly outgoings such as mortgage, food, gas etc, and any spare cash would go to reduce their debts. This approach has to be in the banks long term interest, clients interest and now the TAX PAYERS interest. The debts stay as an asset on the banks balance sheet, as opposed to being written off in the event of Bankruptcy, thereby the banks and tax payers should get their money back over time.

Well thats the plan.

Who would have ever thought, that one tax payer, would have a vested interest in making sure loans and credit cards were actually repaid by fellow tax payers?

Your constructive Trumpo.

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