High Personal Debt by Annette J Dunlea
After 24 years of continuous growth at an annual level during 1984-2007, Ireland first experienced a short technical recession from 2007, followed by a long 2-year recession from 2008 - 2009. In March 2008, Ireland had the highest level of household debt relative to disposable income in the developed world at 190%, causing a further slow down of the private consumption, and thus also being one of the reasons for the long lasting recession. The hard economic climate was reported in April 2010, even to have led to a resumed emigration. The Irish have responded by cutting down on their spending and paying their debts.
Irish banks and businesses are the most heavily indebted in the euro area, according to new figures from the European statistics agency. Total Irish indebtedness, taking in the debts of households, banks, business and the State, is more than double the eurozone average. Irish debt, taken in the round, stands at 722pc of GDP -- compared to an average of just 315pc across the 17-country zone. Only Luxembourg has a greater debt pile, but its official debt levels are high because companies from across Europe, including the likes of Eircom, issue debt through the country for tax and legal reasons. Ireland's national debt stands at 108.5pc for the gross domestic product and is expected by most forecasters to peak at close to 120pc in 2014.However, as depressing as that figure is, the Irish State is only the fourth most indebted in the euro area -- behind Greece, Italy, Portugal. Belgium is the sixth euro country where the national debt currently stands above 100pc of gdp. The average of 89pc is still well clear of the 60pc level set out in the Maastricht criteria. Irish household debt, at 113pc, is second only to the Netherlands.
After three years of reducing debt, to the tune of €28 billion over the period from 2008 to 2011, household liabilities relative to income remain close to the scary peaks reached in the credit-frenzied boom years. The household debt to disposable income ratio is a common metric for comparing debt levels across economies. At the end of 2011, this ratio stood at over two times disposable income. In other words, the aggregate debt level for all households is more than twice the combined disposable income of all households in Ireland. In Ireland, mortgage problems first began to surface in 2009, before worsening in 2010 and 2011.
The level of personal debt in Ireland has spiraled to unprecedented levels, leaving some households in real difficulty. The number of outstanding home mortgages at the end of December 2011 was 768,917, with some 359,000 of these (excluding top-ups) taken out during the years 2005-2008.Many of these were approved at a time of very high property prices and incomes. Yet many households’ ability to service their debt has been affected by the downturn, with unemployment at 14.2 per cent and with real declines in income due to reduced work, pay cuts, higher tax, austerity and interest changes. In recent years the banking sector has been in reactive mode, dealing with many more clients experiencing difficulty in paying mortgages. Sometimes the difficulties are short-term, and so the solutions we have put in place up to now are focused on short-term forbearance. How Ireland deals with its high personal debt, including mortgage debt, is currently the focus of the Government’s proposed personal insolvency legislation. The purpose is to resolve unmanageable personal debt and unsustainable mortgage debt.
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. 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.
47 per cent of consumers struggle to pay all of their bills on time. Research 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.
Here are some tips for surviving the recession:feed yourself. There are ways to economise with the food shopping. It is easy 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. Always hand in your loyalty card to save up vouchers. Keep a roof over your head. The next most important bill is mortgage or rent. Make sure you have insurance but shop around for best value for money. You will often get a discount if you have a house and car insurance with the same company. 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 National Consumer Agency consumers can save nearly €400 a year by shopping around for home insurance. 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. Shop around for the cheapest utilities. Moving from one landlord,gas supplier, oil merchant,electricity provider, phone or broadband company is genuinely simple and can save you hundreds of euro each and every year. The price comparison site bonkers.ie allows 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 contact the company and agree to pay a little each week. 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. Cancel all unnecessary bills: cancel private health insurance and tv channels and buy a free to air or saorview box with a once off payment. We all have mobile phones so we can afford to cancel the landline and switch to pay as you go. You can also get broadband with a landline or investigate package deals with your telephone supplier: sometimes you can tv channels, telephone line and internet broadband together at a discounted fee. Now the phone companies will examine your telephone land or mobile bills and advise you on the best package for you.
Consumers in Ireland may want to avoid thinking about personal debt but new figures revealing that the country's total amount owed has fallen. The Central Bank Indicate has shown that the average debt for each person in the country has decreased from €47,400 in 2008 to €41,000 this year. This takes into account everything from home loans and hire purchase orders to credit card bills and means households have paid back a collective €27 billion over the past three years. Ireland is still the highest in the European Union, suggesting homeowners should not stop budgeting yet. Recent statistics from the National Consumer Agency and the Central Bank found that the average Irish person owes €1,274 on their credit cards, but have only reduced the debt by €41 in the past 12 months. Irish households have reduced their debt levels by €36 billion since 2009 but still have the second highest ratio of debts to disposable income in Europe. The figures, compiled by NCB using Central Bank data, shows that Irish household debt as a percentage of disposable income stands at over 200pc.Only households in the Netherlands fare worse, where the figure is closer to 250pc.The IMF have stated that with the Irish savings rate still high and households paying down debt, consumption remains subdued. KBC said that spending power is still severely constrained.
If you are drowning in debt contact The Money Advice and Budgeting Service helps people to deal with debt problems. Find out how this free and confidential service works. The Money Advice and Budgeting Service is a free, confidential service for people in Ireland with debt and money management problems. If you are in this situation, for whatever reason, you may find yourself having some of the following difficulties:missed payments and letters from creditors,borrowing money to pay bills and catch up with arrears,paying whichever creditor is putting on most pressure,making promises to pay unreasonable amounts and more pressure from creditors or legal action.MABS can help you to identify your priority debts and deal with your situation.
Causes Annette Dunlea Supports
The National Council of The Blind, Ireland