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Majority of Scots are living beyond means

CHRISTMAS is coming, and millions of Scots could be gearing up to overspend this weekend in the run-up to the big day.

TAKING ACTION: Maria Doherty is now getting her finances back on track after taking out loans from payday lenders. Picture: Colin Templeton
TAKING ACTION: Maria Doherty is now getting her finances back on track after taking out loans from payday lenders. Picture: Colin Templeton

But the urge to keep up appearances by splashing out on food, drinks and presents is doing serious harm to our finances and could result in a debt hangover that lasts well into the new year.

A worrying new survey has found the majority of Scots, 55%, are getting used to living beyond their means, typically spending £119 that they do not have each month. Over a third now view their credit cards and overdrafts as mere extensions of their bank balance and 12% do not put any money away for a rainy day.

A key driver for overspending is widespread frustration with stagnant wage packets, with a third of respondents saying they did not earn enough money to fund extravagant spending.

Some 15% of respondents also admitted to Christmas pressure, saying they were anxious to appear more affluent than they really were, according to the survey conducted for Aviva.

That motive is understandably strong among families, as a ­quarter stretch their finances to ensure their children do not go without.

Many suspect that their bad habits could lead to disaster, yet 19% are not prepared to change their lifestyle to reflect their financial situation, however strained it may be.

Tim Orton, of Aviva UK Pension & Investments, said: "Money has been tight but worryingly, rather than cutting back, it seems there are some who are continuing to live way beyond their means."

According to an HSBC survey, the average household bill for Christmas will fall by 7% this year, but will still hit could £488.

Only 15% of us have a festive budget and stick to it, while 58% set a budget but don't stick to it, 27% set no limit and 22% will have to borrow to fund it all - up from 17% last year.

The 37% of Brits who rely on credit cards or other borrowing to cover the cost of Christmas take on average three months and six days to pay off their festive spending, according to a survey by website Gocompare.com. A recent Money Advice Service survey found that more than a third of Britons do stretch themselves financially over Christmas and one in 10 adults are still paying for Christmas 2012.

As many as 8% of adults in the UK opted to use a payday loan last December - could that figure be even higher this year? John Hall of the insolvency accoutants' group R3 notes: "Payday loan take-up has increased in part due to the clever marketing campaigns of the big payday lenders."

Stuart Carmichael at Debt Support Trust in Glasgow said: "People will tell us that they felt obligated to buy their family and friends a present at this time of year, even if that means using credit. Payday loans must be repaid on time, otherwise the debt will accrue additional interest. It's a problem which often spirals out of control."

But as this controversial market maintains its hold over financially troubled Scots, plenty of other services are opening up to offer a more affordable lifeline at this expensive time of year.

Traditional credit unions are now aiming to compete with shrewd web-based lenders, with My Community Bank becoming the first to offer an online service for both borrowers and savers.

Borrowing £500 over 30 days from My Community Bank would cos just £11.01, compared to £122.70 from QuickQuid, £125 from Zebit and £150 at Wonga.

However, My Community Bank is seeking to break the cycle of short-term borrowing among its users by stipulating a minimum period of six months, though it does allow these to be repaid early without penalty.

Another innovative business seeking to change borrowing behaviour for the better is Quidcycle. Set up by former financial adviser Frank Mukahanana, the service is effectively a peer-to-peer lending scheme but with a twist; families who have gone through the debt consolidation and repayment programme will be the ones lending money to those starting out on the scheme - once they have paid off their debts and attained financial ­security, that is.

According to Mr Mukahanana, a typical household with £20,000 worth of debt will see repayments reduced from 19% to 12%, with additional cash incentives of 4% offered if they keep up repayments and agree to receive financial education online.

That could mean that they will eventually only have to pay £4000-£5000 back.

In time, they also get the opportunity to earn 4% to 6% interest by lending to people starting on the debt elimination programme.

Alternatively, drawing on family or friends for financial help may not be as risky as is often portrayed, says Ronnie Ludwig, private specialist at Scottish accountancy firm Saffrey Champness. He says: "Whether a borrower or a lender, you could save yourself thousands of pounds by 'doing it yourself'.

"Obviously, there has to be a lot of trust involved between the two parties and it is not for complete strangers to become involved in. But friends and family members who know each other well could do a lot worse than help each other out so both could benefit."

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