The Liberal democrat Leader has spoken out about the welfare of our financial education.

In a speech yesterday afternoon, Nick Clegg the leader of the Liberal Democrats warned that the UK's addiction to debt will leave the younger generation suffering in the future.

Speaking at a Youth Parliament event, Mr Clegg pointed out that personal debt has spiralled in recent years, having risen by £1 trillion in total since Labour came to power.

The Lib Dems' solutions to the problem of personal debt involve greater education about finances at all levels and a campaign by the BBC to give people access to independent financial advice.

Mr Clegg said: "Personal finance is enormously complicated - we can't just imagine people will muddle through and magically understand APRs and SVRs and IVAs."

He compared the UK's spiralling personal debt to an addiction and said "now we are having to go cold turkey."

Writing in the Guardian yesterday David Cameron criticised the Labour's policies on debt at a national level, saying that new tax cuts would be "reckless and wrong".

At least some politicians seem to be grasping the nettle and trying to get to the root of the problem and not simply “Papering over the cracks” as Gordon Brown seems to be doing. The trouble with his solution of “Borrowing our way out of debt” is that is has been proven time and again to be total lunacy and doomed to undeniable and unstoppable failure. The cracks are wider than the Grand Canyon and Mr. Brown does not have enough to glue all the pieces together!

Best Solution was formed to help average people with larger than average debt problems. Over the years we have noticed many shifts in the way people view borrowing and what they do about it, mainly the vastly increased levels at which it has been occurring.

We agree wholeheartedly with Mr. Clegg in as much as people need to be educated about finance. The problem is until recently the most trusted financial advice came from those lending the money i.e. the banks and credit institutions. There was therefore a massive and undeniable conflict of interests as lenders fought to gain market share and bolster their already huge profits.

Now the bubble has well and truly burst, where are they all? They don’t seem quite so keen to lend now! In fact, many will go out of business as a direct result of the carnage they have created. This is poetic justice but does however leave a trail of human misery with all the victims of debt abuse.

If people still want to take out any form of credit and are able to do so, they don’t need to understand all the technicalities of how debt works. By investing in a cheap calculator which will normally cost less than £5.00 from any store or market stall, they can often save themselves many thousands of pounds and much heartache!

Companies are often very sly in the way that they mask their fees and charges, which is the root cause of many of the associated debt problems. APR or Annual Percentage Rate can be used in many misleading ways. As an example with credit cards a lower APR on its own does not always mean lower repayments!

If you have two comparable cards and one has an APR of 12% and the other is 13.5% most people would automatically assume (and naturally so as that is the intention) that the lower APR would be the cheapest. However, if a card with 12% APR has the interest calculated DAILY and the “more expensive” card has it calculated MONTHLY, the one at 13.5% can actually work out cheaper! Confusing? That’s what they hope for!

By taking a calculator and working out what you will pay back, you can decide in an informed way whether or not the deal presents value for money. As an example if you borrow £10,000.00 over 5 years and the repayments are £230.00 per month, you can work out the total cost of the loan very easily and quickly as shown in the example calculation below.

(payment amount) 230.00 x (number of payments) 60 = Total Payable

230.00 x 60 = £13,800

This will be what you have to pay back; you borrowed £10,000.00 in the example so by subtracting one from the other you can determine exactly what it has cost you.

(Total Payable) 13,800 – (amount borrowed) £10,000.00 = cost of borrowing

13,800 – 10,000 = 3,800

In this example you would pay back the original debt plus £3,800.00 which may or may not in your view be a reasonable amount for the use of the money. Taking inflation and other factors into account, you may well decide that the cost of the loan represented value for money and go ahead. But what if the values changed? Just a few pounds extra per month on the repayment have a huge effect. Look at the further examples below to see how things can change very markedly for not much increase in payment.

250.00 x 60 = £15,000.00 (an extra £20.00 per month adds £1,200.00 to the cost

275.00 x 60 = £16,500.00 (an extra £45.00 per month adds £2,700.00 to the cost

300.00 x 60 = £18,000.00 (an extra £70.00 per month adds £4,200.00 to the cost

If you imagine having four or more such debts (which in the experience of our company is very commonplace) a few pounds per month extra payment on the same can make a huge difference to a family’s budget! By understanding what you are committing to and the full implications as well as being realistic about your ability to repay the debt, you can save yourself a small fortune as well as much heartache and stress.

Welcome financial education as a way forward however, more needs to be done to stop “Shark practices” and help people to steer clear of the slippery slope to financial oblivion. Money lenders ARE NOT the people who should be offering prospective borrowers advice as they cannot ever be impartial.

There should be an independent consultancy that offer advice on all products and are funded by the Government therefore completely impartial. The revenue could be raised by levying extra taxes on money lenders profits.

There should be compulsory “Cooling Off Periods” with all forms of finance and extra protection for Consumer Rights.

Best Solution would welcome any change that would offer sound practical help and advice. As an ethical debt solution company we specialise in picking up the pieces and repairing the damage after the event. We would like to become more proactive in a preventative consultancy role whereby we could help prevent the misery we have witnessed.

If anyone reading this article is affected by any of the issues raised we would like to hear from them. If they need debt advice, counselling or help no matter what the situation, we will always try to guide them in a professional and totally confidential manner. We offer all manner of debt help and advice and will be happy to help in any way we can.