Your Money: Debt alert as '92 rings out

FOR AN awful lot of people, 1992 was the year of debt. Even those who were solvent began to feel the weight of their debts.

Where having a large mortgage was once almost a status symbol, it turned into an unwelcome drag and a reminder of the dwindling value of property. The banks became the messengers of doom for thousands of small businesses and were reviled for their hard-edged attitudes.

Interestingly, two separate strands of debt counselling for individuals have emerged, and they are typified by the stances taken by Barclays and National Westminster.

NatWest is giving money to the National Association of Citizens Advice Bureaux and has backed the development of a practical self-help action pack, Dealing With Your Debts. This will only be available through the bureaux, where debt counsellingis free.

Meanwhile, Barclays is backing the newly formed Foundation for Credit Counselling, which is a self-financing debt recovery service. Counsellors will take cash from the struggling debtor and distribute it among the creditors after taking 15 per cent to finance their own operation. This idea is due to get under way in Leeds in the spring. It has been adapted from a scheme in the US, where it seems to work.

However, it can grate on liberal sensibilities when people in dire financial straits fund an organisation that exists solely to help them.

MANY mortgage lenders have their year end on 31 December and are only willing to credit lump sums to the loan account on that date to reduce the debt.

People keen to limit their debt burden who have been deliberately overpaying may have believed that every extra pounds 1 paid was reducing the debt - and hence the amount of interest charged. Not so. Most lenders will credit overpayments below a certain sum - usually hundreds of pounds - on only one day in the year, usually the end of their own financial year.

In most cases, homeowners would do better to reduce their payments to the lender at every opportunity, pay any extra they can afford into an interest-bearing savings account, and make the transfer once a year on the most effective date.

NatWest, one of the top 10 mortgage lenders with around 200,000 borrowers, is about to make it more difficult for customers to pay down their debt. The bank is doubling the minimum lump- sum payment from pounds 500 to pounds 1,000 from 1 January and imposing a maximum of two lump-sum payments in a year. Monthly overpayments will still be credited just once a year.

A spokesman could offer no justification other than it makes the bank's operation more efficient. But borrowers naturally object to obstacles being put in the way of arranging their affairs more effectively.

So those lucky enough to have some surplus cash to reduce their mortgage debt should check their lender's policy and ensure that they do not miss the day, particularly if it is next Thursday.

ONE American book currently being plugged in at least one alternative bookshop seems to have overlooked these practices in the UK. Slash Your Mortgage in Half by Dr Tag Powell ( pounds 7.95) claims it can save you thousands of dollars. 'Pay off your mortgage in sixteen and a half years rather than 30,' goes the hype.

It all works by paying the mortgage as often as possible - say weekly - and then a bit extra at every opportunity.

Only someone has failed to notice that the system will not work over here.

FRIDAY 1 January is the deadline for the self-employed to pay the first half of their income tax bill.

But if the cheque looks enormous, take heart - it can be cut at a stroke. All it entails is promising to make a payment into a pension.

Higher-rate taxpayers can slash 20 per cent of the amount of the pension premium off their tax bill, and basic-rate payers 12.5 per cent.

And the really good news is that you can reduce the tax payments immediately by merely telling the taxman that the payment will be made - get the other half of the relief on 1 July when the second half of the tax bill is due. But you need not make the payment into the pension for another 15 months - before April 1994.

However, you do have to make the payment or there will be all sorts of trouble, like interest charges for late payment.

A happy (and less debt-ridden) new year.