A) Budgeting, managing debt, and borrowing Flashcards
What are the two key pieces of information you need to determine a client’s budget for spending on financial services?
- income details; and
- main outgoings.
What is the purpose of budgeting assessment?
To determine whether the client is living beyond their means or whether there is surplus income available for financial planning purposes.
What is a disposable income?
The difference between income and expenditure
Expenditure can be considered under three headings:
- Essential spending. For example, housing costs, insurance, council tax, utilities, childcare etc.
- Everyday spending. For example, food, cleaning, travel, school etc.
- Occasional or non-essential spending. For example, clothing, entertainment, birthdays, holidays etc.
What are Priority debts?
- mortgages,
- utilities and
- council tax
What is debt management plan (DMP)?
The DMP provider will negotiate with their client’s creditors and establish acceptable repayment plans with each one. They will also consolidate all debts into one monthly affordable payment. On receipt, the payment is distributed fairly between the creditors
What Debt consolidation means?
This means negotiating a new loan to repay an existing loan or loans, often with a lower interest rate and lower monthly payments.
Why should particular care be taken when taking out a consolidating loan secured on the family home?
It is important to take care when consolidating loans as part of a mortgage to ensure that clients will not simply run up further debts and make their position worse. They may also have incurred extra charges and costs and ultimately could lose their home if they persistently fail to make repayments
How clients can reduce their spending?
- Consider making small cut-backs on non-essential items. What could they do without to help them get back on track?
- Check the annual percentage rate (APR) on their credit cards and loans. This shows the overall cost of borrowing including interest and charges. See if they can shop around for a better deal.
- They may get a better deal by switching services such as phones, electricity or gas to new suppliers. There are various online switching sites they can use.
DMP providers must be properly licensed under the?
Consumer Credit Acts 1974/2006 and authorised with the relevant permissions from the Financial Conduct Authority.
What **advice agencies **can help clients tackle their debts?
For example, Citizens Advice, National Debtline, PayPlan and the StepChange Debt Charity.
What are the final options for clients who fail to repay their debts?
Individual voluntary arrangement (IVA) or bankruptcy
