Something Really Good About Income Protection for Company Directors

Own a business? Pay your spouse?

Good idea for tax purposes (and ideally they should actually be doing something for the income too!).

But, does it cause problems and disadvantage you in other areas?

Take getting a mortgage as an example.

If you pay your spouse £11,500 (tax allowance) and for some funny reason you don’t want them on your mortgage (maybe they have other credit commitments or some other valid reason why you wouldn’t want them to part own the property) then you could be reducing your borrowing potential by as much as £11,500 x 5 = £57,500.

Quite substantial.

That’s just one possible example of being potentially disadvantaged for paying your spouse a salary from your business.

breakfall

So what is so good about income protection for company directors?

Well, I’ve just had a conversation with a well known UK insurer with a rich pedigree of providing Income Protection insurance and I’ve learned the following.

If you are responsible for bringing home the bacon and your spouse could not generate the business income if you were off sick then, with this particular insurer, you can add back their income & dividends to the total income figure used to calculate your cover.

Example:

Let’s use a low figure of £30,000 profit for simplicity.

You both get £10,000 salary + £5000 dividends. (£15k each).

With some insurers you may only be able to use your £15k to work out how much cover you can get.

The maximum income protection possible is 50% – 60% of ‘gross annual income’.

Using the lower figure; 50% of £15k = a measly £7500 of possible income protection.

But, if you can add back and use the total business profit you can cover 50% of £30k = £15k per annum.

And this is paid TAX FREE.

So imagine 2 scenarios:

1/ You’re sick, at home and you have no money and the stress is piling up. You don’t know how the hell you’re going to pay the mortgage – you might lose your house.

2/ You’re sick at home, the bills are getting paid by an insurance company and you can slowly recuperate and get back into work in your own time.

Which would you prefer?

So if you are a company director / business owner and think scenario 2 is preferable then get in touch with an adviser, get a quote and get yourself covered!

But make sure you speak to someone who knows what they’re doing and which insurance companies to turn to for the best deal.

So What’s New?

Well how about this! First post in over 2 years. Is anybody there? Is anybody reading this?

Regardless of dwindling readership I think it’s a good time to start writing again. There’s no guarantee this will become regular again or if there will even be another post after this one. Who knows what tomorrow will bring!

I might decide to become a YouTuber or start tweeting!

For now, a bit of an update.

I’ve self studied and passed all the required exams to become a Level 4 qualified financial adviser and now provide independent financial advice. I chose the CII (Chartered Insurance Institute) route and despite the IFS now having a route to Chartered Status I’m thinking of sticking with the CII. Some might say that’s madness, it’s like swimming in treacle but others will know it’s the right choice.

I’ve renewed my mortgage permissions so I’m doing them again now too. So full steam ahead in that department.

This site however will still not provide actual advice. Just helpful ideas and information. If you want advice, head on over to my financial adviser site and we’ll go through the correct regulated procedure to ensure you’re properly protected!

In addition to becoming an IFA I’ve also had a baptism of fire into WordPress developments I hadn’t been keeping abreast of.

I’m now using a much better and more flexible theme builder (Ultimatum), Visual Composer and CSS Hero for much greater design flexibility. I’ve beefed up security after some hacking attempts and I’ve even converted almost all my sites to mobile compatibility (some with images that only appear or disappear on mobile devices!). SEO has been improved thanks to plugins that have evolved into truly credible optimisation tools.

You may (or may not) however notice that this site has not undergone any updates, changes or improvements.

They will come. After much head scratching.

So, that’s where we’re at now.

With a bit of luck the next post will provide you with something useful to take away and digest or put to good use.

PS. Did I mention I met Jordan Belfort? AKA The Wolf of Wall Street?

Over 50’s Plans vs Whole of Life Cover

So you’ve hit the Big 50 which immediately makes you eligible to consider an over 50’s plan. Great! Insurance without the hassle of lengthy forms and no prying medical questions!

Nice and simple.

But possibly expensive and with less cover available than other options.

The two options being looked at here are:

Over 50 plans

The idea of an over 50 plan is to provide life cover until you die, whenever that may be.

It is not medically underwritten so acceptance is usually guaranteed.

Key points to be aware of:

  • Cover is usually restricted to a pre-set maximum amount (usually 10’s of thousands).
  • The ‘sum assured’ (amount of cover) is often fixed
  • There is often an ‘exclusion’ period during which the policy will pay less than the cover is actually for.

Whole of Life Cover

The idea of a Whole of Life policy is to provide life cover until you die, whenever that may be.

It is medically underwritten so acceptance is not guaranteed. In the event of serious medical conditions cover could be refused or the price could go up.

Key points to be aware of:

  • Cover may be restricted but the maximum may be in the 100’s of thousands.
  • The ‘sum assured’ can be fixed or can increase with inflation
  • There are no ‘exclusion’ periods (except possibly suicide in the early years).
  • Any medical conditions not disclosed at time of applying could void the policy.

There are similarities and also fundamental differences.

And then there’s the cost.

The main appeal of an over 50’s plan is that they are not medically underwritten and acceptance is usually guaranteed.

If there are medical conditions this can be the deciding factor but ‘Whole of Life’ cover can be MUCH CHEAPER so if you don’t know for certain if a medical condition will cause a problem, speak to an adviser about it before going down the Over 50’s route.

A lot of people over 50 take medication for minor conditions and sometimes the medication is preventative only.

If a condition is minor or is very well controlled (i.e. cholesterol or blood pressure) it might not have any effect on the cost or the availability of a Whole of Life policy.

An example of cost:

Eg. Female (let’s call her Mildred), aged 54, non-smoker, no medical conditions to speak of wants £10,000 of cover.

Whole of life policy = £12.83 (Pruprotect)

Over 50’s plans usually ask how much you want to spend so I got a quote from Sainsbury’s (which is actually Legal & General) and used a monthly premium of £15.

Over 50 plan = £15 per month will buy Mildred £4,515 of cover.

So it costs more for less than half the cover you’d get from a Whole of Life policy.

By tweaking the monthly payment it would actually cost £31/month for £9,993 of cover from the Over 50 plan.

More than double the price.

So if Mildred lives to the ripe old age of 84 she will pay £6,541.20 MORE for the over 50 plan.

She would have paid a total of £11,160 for £9,993 of cover.

With the Whole of Life cover she would have paid £4,618.80 for £10,000 of cover.

Even if Mildred is taking cholesterol medication and blood pressure tablets to keep everything nicely controlled she’ll probably pay exactly the same price as someone who isn’t.

To reiterate, if there are no medical conditions or if they are minor or well controlled, a Whole of Life policy could save someone thousands!

What if Mildred needs £50,000 of cover?

  • Sun Life has a maximum of £25,000
  • Sainsbury’s (L & G) maximum premium of £50 would buy Mildred £16,597 of cover
  • Asda (LV) has a maximum of £25,000
  • Aviva with maximum premium of £50 would buy Mildred £17,023 of cover

Just not enough….

An over 50 plan could cost more and be restricted by the amount of cover available.

If someone does have a serious medical condition then it could be the only option but beware the exclusion period!

Sun Life & L&G have a 2 year exclusion period whereby if a policy holder dies within the first 2 years due to natural causes the total amount paid in the event of a claim will be 1.5x the total of the monthly premiums paid to date.

LV has a 1 year exclusion period.

If Mildred, aged 54 dies from natural causes after 10 months the payout could be 1.5x the total of the premiums paid = £31 x 10 = £310 x 1.5 = £465

If she has an equivalent Whole of Life policy the payout would be £10,000.

Huge difference.

Don’t rush into an over 50 plan.

Speaking to an adviser about the options could save £1,000’s

Guest Post: Why Cost Shouldn’t be the Only Factor When Choosing Your Life Insurance

When it comes to choosing a life insurance plan to protect your family it’s tempting to primarily look for a low-cost option. After all, this is a premium that you’re likely to be paying for many years and possibly the rest of your life so you don’t want to tie yourself in to something overpriced. However, sometimes low-cost premiums can be misleading, and if you’re not confident in what you’re looking for, you could end up out of pocket. Here are a few of the other factors you should consider before you take out a policy.

Inflation

Inflation is a fact of life that all too many people overlook when they’re making long-term investments. What seems like good value today could be worth considerably less in an altered financial climate. Keep an eye out for insurance companies that offer a voluntary increase in your premiums to keep your lump sum in-line with the market value.

Health

Some insurance companies will charge a much higher premium, or even refuse to cover you outright, if you’ve experienced health problems in the past. However, other insurers have a policy of not asking questions about your medical history, which can help you to get a fair deal. The attitudes towards health concerns in life insurance vary wildly, so if you have had any issues take the time to shop around before you commit.

Age

There’s a common contradiction in life insurance wherein young people tend to think they don’t need it, and older people can fall into the trap of assuming they’ve left it too late for it to be of value. Neither of these assumptions is true. Some brokers cater specifically to older consumers, which allows them to negotiate better value from the insurers.  If you’re younger you can often get a larger lump sum for a much lower monthly premium, as you’re likely to be paying it over a longer period of time. But again, this varies from broker to broker.

Value for money

Finally, before you settle on one life insurance provider, you should look at the additional benefits on offer. A slightly higher premium might be worth more if it’s more secure or flexible. Some brokers offer tailored partner insurance, while others have benefits such as a freeze on payments when you reach a certain age or have been paying for a certain amount of time. You should also read the small print carefully and balance out the exclusions. The last thing you want is for your loved ones to lose out due to a gap in your eligibility. Stick to trustworthy and fully accredited brand names to avoid disappointment, and take the time to explore your options. The peace of mind that comes from knowing your family is protected is well worth the effort.

Credits:

RIAS take great care to meet the needs of over 50s, offering insurance cover that is relevant and flexible. To learn more about the life plan, download their > 10-step life insurance guide.

How to Use a Mortgage Calculator

I’m not just talking about using a mortgage calculator to work out what the monthly payments will be but how to make use of a calculator that shows the ‘amortization’ or monthly & yearly breakdown of payments and balance as well as the difference an overpayment could make.

Anybody who has any exposure to mortgages will know there are several options available which include fixed rate deals, trackers or lender’s ‘standard variable rates’.

Fixed deals last for a set number of years and for those set years the interest rate stays the same.

Tracker deals may offer an interest rate that ‘tracks’ another rate such as the Bank of England base rate with a set percentage difference. e.g. BBR (Bank Base Rate) +2%. (The base rate is 0.5% so the tracker rate would be 0.5% + 2% = 2.5%).

Variable rate or lender’s Standard Variable Rates simply start at a certain rate and can fluctuate up or down from that point. These rates are usually higher than fixed or tracker deals to encourage people to tie themselves into a lower rate deal with a particular lender (or to make a tidy profit from people unable to switch lender due to credit problems or reduced income).

A fixed rate deal offers security because monthly payments will not change for the term of the deal but what if the safety of fixed payments is not your main agenda?

What if the thing that really motivates you is getting clear of your mortgage as quickly as possible?

In order to clear your mortgage more effectively and pay less interest in the process it will be important to know if a fixed deal or a tracker will leave you better off.

Will the outstanding balance be lower after a 2 year deal at 3% compared to a 5 year deal at 5%…?

For the purpose of this exercise I will be using the mortgage calculator I put here:

http://www.creditmarket.co.uk/mortgage-calculator/

I hunted high and low for a good calculator to place on that site and I think I found a good one!

It produces amortization tables with a month-by-month breakdown.

Let’s look first at an example of a £150,000 mortgage over 25 years.

Assuming an initial fixed rate deal of 3% the calculator shows this:

If you then click on the ‘Amortization Schedule’ tab it shows this:

As you can see it shows a monthly breakdown for the first 12 months and you can scroll this amortization schedule to look at every month for the full 25 years.

In the graph the black line represents the timespan which is 25 years. The red sections are the interest (which goes down over time as the debt reduces) and the green sections are the ‘capital’ (how much you are actually paying off the debt).

The big thing wrong with this is that fixed deals only last for a set number of years, typically 2, 3 or 5.

Going for the middle, if the mortgage is on a 3 year fixed rate then we need to scroll down to month 36 and look at the numbers.

This shows the outstanding balance after 3 years.

Now that we know where to look, let’s see the difference between taking a 2 year fixed at 2.49% with a £995 fee compared to a 2 year mortgage at 3.45% with no fee.

2.49% with £995 fee:

Note the ‘total’ shows £150,995 to include the fee – this assumes the fee is added to the loan.

3.45% with no fee:

As you can see, even by adding an extra £995 to the mortgage, a rate of 2.49% will see you about £104 better off.

But wait! The mortgage at 2.49% works out at about £676/month so in 24 months costs £16,224. The mortgage at 3.45% is about £746/month or £17,904.

The 2.49% mortgage saves £17,904 – £16,224 = £1680 over 2 years and still reduces the mortgage by over £100 more!

Worth finding out in advance? I think so.

Now how about this option. Take the £1680 saved and divide by 24 = £70.

Instead of saving this, how about using it to overpay the mortgage each month? Put £70 in the ‘overpayment’ box and:

The mortgage could be paid off in 21.9 years and after 2 years the debt is £1721 lower even though you only paid an extra £1680.

Try more overpayment figures and see how drastically you can reduce a mortgage by overpaying.

If making overpayments it’s important to know there could be penalties if you’re tied into a fixed or tracker deal but probably not if you’re on the lender’s SVR (standard variable rate).

When comparing tracker rates it’s also important to know the rate could change so any calculations can only be estimates.

Thinking About Mortgages Again

After several years skirting around the field of financial services I finally decided to obtain the necessary qualifications to provide mortgage advice, in 2007.

Yep, I became a qualified mortgage adviser about 6 months before the industry collapsed. It was a fun time.

Like many advisers, when the mortgage enquiries started to dry up, I started looking more closely at protection products like life insurance, income protection etc. and for the last few years that’s where I have been focusing my efforts (I even have some testimonials from happy customers!).

At one time I toyed with the idea of taking financial adviser exams but there were so many changes going on I waited but I have recently picked this up again and I’m part way through the exams (reading about pension tax & law is like trying to read a foreign language).

As a qualified mortgage adviser I am still registered with several lenders and I get regular updates about the industry and new product releases. Just today I received one such email that made me think it might be time to start looking at mortgages again.

There is hope for first time buyers!

If they earn enough money, have a squeaky clean credit history and can raise the necessary deposit.

Those have been the key problems for first time buyers of late but recently products have become available that take at least one of those out of the equation.

90% loan to value mortgages at sensible rates with sensible fees.

The rate I’ve seen advertised is 4.84% for a 2 year fixed rate with a £495 fee.

There may be better rates available from other lenders. I’m going to look into that now too.

Some might say a rate of 4.84% is not really competitive when other lenders are offering rates below 2.5% for lower loan-to-value products but that’s only if you look at a snapshot of the present.

If you go back a few years those kinds of rates were very competitive. Even at lower loan-to-values.

Things don’t appear to be too bad for first time buyers but of course the cost of living has gone up and lenders are still trying to avoid risk like the plague so actually getting accepted is another thing altogether.

Does anybody reading this know of any first time buyer success stories they’d care to mention?

How to Start and Grow Your Business in Latin America

Below is an article I have been sent by a business owner in Argentina whose business is an expanding start-up. I’ve not changed any part of it so it has an authentic Latin American flow and it contains some universal lessons that any new business owner should be aware of.

How to Start and Grow Your Business in Latin America

We are the biggest Price Comparison Site (Aggregator) in Latin America with more than 4.000.000 unique users and 20 employees in Argentina, Brazil, Colombia and México.

But this is not about who we are or what we do, this is about how you can replicate this tactics and use them in your Start-Up.

1) Be diligent: There is not shortcut or trick, you have to work hard day and night, no other option. We start 4 years ago and we focus first of all in creating a great Service, you absolutely need to have a product that is a “Solution to an specific Problem”.

Perseverance when you are starting is your best friend. Forget about competition, when you are young what will kill you is not competition it is: Lack of work, lack of a great service or a bad relationship with your co-founder.

2) Always be learning: In order to grow without a big budget (since in this region of the world, Angel Investment and Venture Capital at the time was not an option), we have to learn and keep learning everyday about SEO (Search Engine Optimization) and Email Marketing. For more information you can check out the SEOMOZ community with a lot of free resources about SEO and MailChimp for newsletters.

We get very close to be experts in these fields, we need new customers and with them we will to generate Revenue in order to grow organically our business. The reality, is that most of the Start-Ups needs to do this, and even more in the first days, when they are testing if their business model will actually work or not.

3) Keep focus on Feedback: What we learn by doing good things and also mistakes, is that listening to your customers is the best way to improve. There is no one in the world, no even the Founders, that know more about what the product should do, than the Customers.

Ask for comments and make surveys about what the Client need and start developing from there.

4) Iterations are the secret to Success: When you start you have only an idea, but the proof of concept in the first touch with the customers always almost fail. That is why you have to be prepare and confident to pivot your business. The best source of information in this subject is Eric Ries with The Lean Startup Movement.

Finally, forget about the Tech Stars like Facebook, Twitter, Google, etc., focus first on solving a real problem, what happens next is a matter of testing and learning, all the nice companies that I just mention start this way: no magic, no tricks, no shortcuts, only hard work and dedication.

Christian Rennella CoFounder at elMejorTrato.com the leading Price Comparison (Insurance and Loans) in Argentina. Now also working in Brazil, México and Colombia with oMelhorTrato.com. The Internet market is growing at 43% a year in the region.

 

My First CreditFocus Experience

In these times of austerity, cut-backs and rising costs the amount of disposable income is less for many people.

The slow economy is putting a strain on businesses as well as consumers and the paying of bills is prioritised by what is essential and who is making the most noise.

This is the same for everybody and essentials such as the mortgage, food and electricity are clearly top priorities for homeowners and I found a helpful guide of ‘Priority Bills’ here: http://moneyaware.co.uk/2012/08/which-bills-should-i-pay-first/#more-3788 with a link to an ‘infographic’ (a picture with information) detailing the consequences of not paying these priority bills.

Losing your house is quite a big incentive and when faced with this as a consequence people tend to get motivated and do whatever they can to meet the payments.

Some people also bury their heads in the sand and hope the problem sorts itself out but my recent experience focuses on the former, more motivated kind of person (well, eventually!).

A company owner/director of a one man band working in the building industry had a bit of trouble getting motivated to pay his bills.

This went on for a while and a small, friendly business kept doing little bits of work for the company director without receiving monies owed.

Naturally this couldn’t go on forever but the service provided by the small business was not unique so the reluctant payer could easily up sticks and go elsewhere and although the small business could quite easily stop doing any further work there was no incentive for the bills to be settled.

One had to be created!

Now there’s often no need to ‘send the boys round’ at the first sign of trouble. It could be considered overkill when there’s a far more sensible approach.

CreditFocus!

As a point to note I am not familiar with any other systems or similar solutions so I don’t know if there is better or worse available.

CreditFocus was introduced to me through Barclays with whom I bank but don’t own shares in.

It is an online system that costs £10 per month (+VAT – which I found out after the first payment was taken!).

In my opinion it’s still worth it!

What you do is….. Once registered, sign in and create a record of clients. You can add them all or just the ones who are already a bit behind.

Then add the details of each outstanding invoice.

Then (and here comes the science) click a few buttons and hey presto, a letter is sent out to your client from a solicitor politely suggesting they pay their bills or face potential legal action.

7 days later that same solicitor gets in touch (by email) to ask if you’ve managed to recover the debt or if you’d like them to pursue it further (for a fee).

At no point do ‘the boys’ get called into action!

I found the first stage was a sufficient incentive for my reluctant payer.

A nice letter….

So far I’ve only had to use it once but since registering for the service I have recovered 36x the cost of the service!

All in all a very easy system to use and effective.

To be honest I actually send statements out to clients now with just a footnote mentioning that unpaid debts may be referred to a debt collection service and that has also worked on occasion!

Sometimes people just need a gentle shove in the direction of their wallets!

Something about a Tax Refund?

Our tax pays for the public services that we all use, so most of us don’t see it as a problem that we have to pay it. However, a high tax bill can put a serious dent in one’s income and when it comes to tax refunds, not all of us know if we are entitled to one or what we’re entitled to.

Let’s delve into some of the factors that can influence how much we pay and if we may be able to receive a refund.

Your tax code

An incorrect tax code is possibly the most common cause for overpaid tax (if you are employed). This can happen for several reasons such as information not getting updated at the tax office, your employer making a mistake on a PAYE return or simply accepting that you must be one of the lucky people that pays a lot of tax and not questioning it.

The number on your tax code, when multiplied by ten (give or take £5), is the amount of money you can earn before you pay tax. This is known as your ‘personal allowance’. The letters mean various things:

L – you are entitled to the basic personal allowance (currently £8,105 for the 2012/13 tax year)
P – You are aged between 65-75 and eligible for full personal allowance (£10,500)
Y – Over 75 years old and eligible for full personal allowance (£10, 660)
T – The HMRC believes there are other items that need to be considered when calculating tax
NT – No tax is to be taken
BR – ‘Basic rate’, which is at 20%
D0 – You income is tax at a higher rate, around 40%

If you think that your tax code is wrong you can get in touch with HMRC on 0845 300 0627 (I got the number from here: http://search2.hmrc.gov.uk/kb5/hmrc/contactus/view.page?record=hpkspulskxM

Check your previous Tax Returns

If you are self employed or have additional income to your usual job you should be submitting a Tax Return every year. This provides HMRC with details of your income and your expenses. The simple way to work out how much tax you pay is to subtract the expenses and then your ‘personal allowance’ from your income and you pay tax on the rest (profit!).

If you haven’t entered all of your expenses then the profit will be higher and so will your tax bill. It’s best to get advice from a good accountant about this or you could be paying too much tax and you (or a bad accountant) could have been making the same mistakes for years.

Go back through your previous tax returns. You can amend the figures and claim for a refund from up to four years ago.

You can’t just make up more expenses; you need to have the proof and as you’re supposed to keep everything for 6 years anyway that shouldn’t be too much trouble should it?

The important thing to note is you can only use expenses that have occurred in your direct line of work.

To make the process simple there are (as one would expect) companies that specialise in helping people obtain tax refunds. One such is RIFT who started in 1999 and to date have helped claim back over £30 million!

Make an effort not to declare tax free income

There are a few savings and investment products that can be utilised to ensure your savings aren’t hit by tax. The most well known of these is the ISA which, offers you tax free interest on your savings. Don’t declare the interest as income from these types of savings to the HMRC. It’s not evading tax – these savings are tax free for a reason!

If you’re not sure about that it actually confirms as much on the HMRC website.

The specific wording is: You do not have to declare income and capital gains from ISA savings and investments or even tell your tax office that you have an ISA.

Are you saying ‘Doh!’ about now?

If you are then decide if you need to seek professional help (for your tax). If you are paying too much tax because of a mistake in your self-assessment form it may take a keen eye to spot it and may require an audit by a bookkeeper but once you get it right you will get the tax back that you didn’t need to pay.

Look into everything you earn and what you spend to make sure that you’re paying the correct amount of tax.

Keep every receipt! In fact, keep everything! Let your bookkeeper sort it out! That’s what good ones do!

Is it buy now pay later or buy now pay more?

There are many things that happen in life which need quick and decisive action.

Things like the washing machine breaking down when you need to get the kids’ school clothes clean, the car conking out which you avidly rely on to ferry you to work every day or your TV going on the blink when the race is about to start.

If you have emergency funds you will be able to get these things repaired or replaced but what happens if you don’t have the money to hand or don’t have insurance to cover it?

One option a lot of people consider is to buy new on a finance.

It seems these days that nearly every retailer out there is offering some kind of finance deal and one such deal that remains popular is ‘buy now pay later’.

For small purchases this scheme isn’t really fit for purpose but for buying big items such as white goods for the kitchen, high-end electrical goods or furniture it can come in handy and work out to be a sensible option by spreading the cost.

The premise of buy now pay later is as simple as it sounds. You buy a product now and start paying for it at a later date.

Often these schemes are run over the course of several years. You could have a year where you pay nothing and then begin paying off the balance over an additional 48 months for example.

Sounds great but how do you know you’ll be able to afford the repayments in a year’s time?

In life you can never know what is around the corner so taking out these deals is always done with a little bit of speculation thrown into the mix.

According to DirectGov’s guidelines for borrowing, any person taking out credit should first ask themselves whether they can realistically make all the payments and whether they can get a better deal by shopping around.

That’s sound advice, but sadly many people sign up to agreements on impulse or because they just can’t say no to that charming salesman. Logical thinking goes out of the window and before they know it they are saddled with a debt they neither need nor can afford.

With so many retailers offering credit, people who are already stretching their budget can soon find themselves getting behind with their payments.

Something else to be aware of when looking at credit options is the total cost of the item. While there are interest free offers out there (particularly from the large furniture stores), a large proportion of finance deals still work on the basis that you will be charged interest on your debt.

This is when ‘buy now pay later’ becomes ‘buy now pay more’.

Interest charges aren’t the only way in which retailers offering credit squeeze a few extra pounds out of consumers. Often the items offered on monthly terms will be priced much higher than the product’s actual RRP.

Despite this, recent figures show that the number of people buying items on monthly credit terms has risen sharply in recent years.

When the credit crunch hit in 2008, millions of households found themselves without the level of disposable income they had previously enjoyed and understandably needed to look at other ways to pay for things.

As a result the number of items like sofas and televisions, bought on store credit rose by 24% during the first three months of 2009 and has showed little sign of slowing down since.

For people looking at taking out finance, the advice is clear and simple; only do it if you are sure you can afford the payments and always make sure you check to see if there is a better deal before putting pen to paper.

Debt advice is available for people who find themselves in sticky situations but the problems that lead them there are best avoided whenever possible.

Unforeseen circumstances can lead to unavoidable turmoil but with careful financial planning it is possible to be prepared for the worst.