Credit Cards, Loans and Financial Problems - Advice for you!
Posted 12th April 2008 at 14:58 by MikeCracknell
This is taken from my original post made a week or so back:
Having seen the number of posts being put up over the last few months about debt and credit cards (AlexR's Thread), I thought I could share some of my financial expertise with you all
(and some of my bad experiences too)
THIS IS ADVICE ONLY. I AM NOT RESPONSIBLE FOR THE ACCURACY OR ANY WRONGDOINGS IN THIS POST
I worked in a bank as a financial advisor for three years, and really saw some people in sticky situations.
First things first:
Credit Cards
Simply put, a piece of plastic with an amount you can spend up to. You spend the money and get sent the bill later. Very convenient and good to use for online purchases (security) but can be addictive if you can't control your spending.
A bit more in depth
When you sign up for a card, you get an agreed limit. The banks work this out by looking at your detaisl such as your age, how long you have been with your current bank, how long you have been in your current employment, how many times you have moved in the last few years (yes, that does count, fraudsters move every two to three months to cover their tracks!), how much you earn a month, and your credit score. If you have never had credit facilities before, you may find that you get a very low limit to start off with, or you may get declined all together. You should always try your own bank first when applying for credit cards, as they "know" how you spend your money and how much you earn, so that will tick more boxes than a "non-customer" situation.
When you get your new shiny credit card, you are ready to go out and spend money, but remember to always bear in mind...Can I afford to buy this item? Is there a reason you have bought it on a credit card and not by cash?
Your first bill will come through about a month later, and as you are new to the credit card scene, you should be aware that you MUST make a minimum repayment by a certain date - it is usually 5% within 3 weeks of the bill. Set up a direct debit with the card company so that you don't miss the payment date. If you miss the payment date, you will have to pay a "late payment fee".
Missing payments also registers on your credit file too, in other words, a little black mark. Nothing too serious if you miss the odd one every year, but get into the habit of doing it, and you will have difficulty obtaining credit from other lenders.
Try and repay your card in FULL every month, get into that habit, then you won't end up getting into debt. REMEMBER TOO, that when an introductory offer is in place IT ISN'T PERMANENT, and the banks will make money out of you!
EG. If you balance transferred say £100 from another card to your new one as it had a 0% offer on it, then including the fee they charge you, the total amount on your card will be about £103. If there is only a 0% offer on balance transfers and not purchases, then if you had used your card to spend another £100 that month on it then the balance would be £203.
If you then paid £100 off the balance, the bank uses that £100 to pay off the balance transfer amount first and you will be left with £103 left to pay on the card, and you will be charged an EXTORTIONATE amount of interest on the £103 left (usually about 18,9% Per Year)
If it is your first card and you have a 0% on all purchases for the first 12 months, then you will be ok, BUT REMEMBER when that 12 months is up, because you will be charged the high interest rate. Read the small print to find out the figures.
If you find you are struggling to repay your credit card, DO NOT ignore the problem. TALK to your lender, they can put you on a reduced rate repayment program (and freeze your credit card account). If you are willing to give up the credit card all together, then you may want to get a fixed term, lower rate personal loan.
Credit Card Offers at the moment...
Source: Moneysupermarket.com
Balance Transfer Card: Virgin Card, 15 months 0% APR, 2,9% fee. www.virginmoney.com
0% on Purchases Card: Halifax One Online, 10 months at 0% then typical 15,9% after www.halifax.co.uk
Personal Loans
You borrow a fixed amount over a fixed period of time. (e.g £2000 over 24 months)
Usually speaking, doing this is cheaper than having a balance outstanding on a credit card, but some banks charge a very high rate for amounts borrowed under £5000. I once did a loan for a customer where the rate was 21,9% on £2000!!!!
If you are looking at a loan to buy a new car, then shop about, but again, if you are new to the credit scene, use your own bank first as they "know you".
Make sure you know how much you want to borrow, and make sure you can realisticlly afford the repayments.
Do you want to take out insurance on the loan to cover accident/sickness/death? (legal bit: I am not authorised to give specific advice on Insurance, to gain full advice, refer to your bank)
Always think "What if?" e.g. You borrow £2k for a car, insure it 3rd party only, write it off. You still have to pay the loan, even though you don't have the car!
Keep 2 months repayments aside in a high interest account (ISA) incase the unexpected comes up (and trust me, it does! £2k on Suki in 4 months!)
Avoid applying for lots of loans. If you get declined 1st time by your own bank, it is unlikely you will get accepted elsewhere. If you start applying everywhere, your credit score deteriates rapidly!
Your first repayment is usually 1 month after the loan is drawn down, but some banks give a three month repayment break, and most will let you choose the date the money comes out of your account (2 days after payday at the end of the month for most). Remember that most banks require the money for the repayment in your bank account the day before the money leaves the account. If your repayment gets turned down through lack of funds, you'll get charged the earth. Keep on doing it, then bank will register a Default in your name, and you won't be able to get any credit anywhere lol!!!!!!
If you find you are struggling with repayments, TALK TO THE LENDER as soon as possible. They may be able to reschedule the loan over a longer term (usually upto 60 months).
AVOID redoing the loan every three months because you need a "little bit extra". This is the first sign of financial problems!
MAKE SURE you use the money for what you planned on. If you borrowed £5k with the intention of paying off a credit card and buying a car, then do that, and make sure you cut up the card otherwise you will find yourself using the card, maxing it out, and needing to borrow more, and that is where it all goes wrong! Don't think "Well I won't pay all the card off as I want to buy a Zetec S"
How to deal with too much debt
This REALLY IS a bad situation to be in. If you lose your job through redundancy or similar, check to see if you have insurance on your borrowings, as that will normally cover it (legal bit: I am not authorised to give specific advice on Insurance, to gain full advice, refer to your bank). If you are sacked, then the insurance will not pay out for that.
You should go through your income and expenditure - try and get rid off all unnesscary expenses (smoking, drinking and the like!)
Call the bank, they will be more grateful if you tell them before it gets too late, they will always try to arrange a repayment program with you as don't forget, it is in their interests too.
The Following is if all else fails. You should TOTALLY AVOID this situation as it is NOT NICE, and makes your life a lot less fun, and hinders you chance of getting credit for more than 6 years.
If you owe more than £15k, and your income is less than your outgoings, and your banks will not come up with a decent repayment program that means you can live reasonably, then you should consider the Citizens Advice Bureau. AGAIN A LAST RESORT. They will contact your creditors and negotiate for you. Lets say you owed £30k - your monthly repayments are £600 and your income is £1000. Your lving expenses are £800 which leaves you £200 to repay your loan. The CAB (or IVA company) will arrange with your creditor(s) through a face to face meeting, a repayment program over 5 years. You will have to provide details of EVERY PENNY you spend to them, and they will then say "you can ONLY afford £200 every month". The creditors then vote to say if they accept your offer (done through the CAB.) The rest of the debt is "written off" after the end of the IVA, BUT during the IVA, you MUST provide them with receipts, wage slips and bank statements, and any excess income you earn has to be paid in to the IVA for five years. You are effectively bankrupt (yes, it goes through a court too), and even when the 6 years is up (there is a 1 year buffer zone at the end of the IVA) you may still find it difficult to obtain credit.
Do everything you can to avoid getting into an IVA, it really is not a nice position to be in, and even things like holidays are difficult to have. Life is very difficult under IVA's!
ANYWAY if you can control your spending habits, and are good with money, there is no reason why credit cards and loans can be a useful tool for you.
Having seen the number of posts being put up over the last few months about debt and credit cards (AlexR's Thread), I thought I could share some of my financial expertise with you all
(and some of my bad experiences too)THIS IS ADVICE ONLY. I AM NOT RESPONSIBLE FOR THE ACCURACY OR ANY WRONGDOINGS IN THIS POST
I worked in a bank as a financial advisor for three years, and really saw some people in sticky situations.
First things first:
Credit Cards
Simply put, a piece of plastic with an amount you can spend up to. You spend the money and get sent the bill later. Very convenient and good to use for online purchases (security) but can be addictive if you can't control your spending.
A bit more in depth
When you sign up for a card, you get an agreed limit. The banks work this out by looking at your detaisl such as your age, how long you have been with your current bank, how long you have been in your current employment, how many times you have moved in the last few years (yes, that does count, fraudsters move every two to three months to cover their tracks!), how much you earn a month, and your credit score. If you have never had credit facilities before, you may find that you get a very low limit to start off with, or you may get declined all together. You should always try your own bank first when applying for credit cards, as they "know" how you spend your money and how much you earn, so that will tick more boxes than a "non-customer" situation.
When you get your new shiny credit card, you are ready to go out and spend money, but remember to always bear in mind...Can I afford to buy this item? Is there a reason you have bought it on a credit card and not by cash?
Your first bill will come through about a month later, and as you are new to the credit card scene, you should be aware that you MUST make a minimum repayment by a certain date - it is usually 5% within 3 weeks of the bill. Set up a direct debit with the card company so that you don't miss the payment date. If you miss the payment date, you will have to pay a "late payment fee".
Missing payments also registers on your credit file too, in other words, a little black mark. Nothing too serious if you miss the odd one every year, but get into the habit of doing it, and you will have difficulty obtaining credit from other lenders.
Try and repay your card in FULL every month, get into that habit, then you won't end up getting into debt. REMEMBER TOO, that when an introductory offer is in place IT ISN'T PERMANENT, and the banks will make money out of you!
EG. If you balance transferred say £100 from another card to your new one as it had a 0% offer on it, then including the fee they charge you, the total amount on your card will be about £103. If there is only a 0% offer on balance transfers and not purchases, then if you had used your card to spend another £100 that month on it then the balance would be £203.
If you then paid £100 off the balance, the bank uses that £100 to pay off the balance transfer amount first and you will be left with £103 left to pay on the card, and you will be charged an EXTORTIONATE amount of interest on the £103 left (usually about 18,9% Per Year)
If it is your first card and you have a 0% on all purchases for the first 12 months, then you will be ok, BUT REMEMBER when that 12 months is up, because you will be charged the high interest rate. Read the small print to find out the figures.
If you find you are struggling to repay your credit card, DO NOT ignore the problem. TALK to your lender, they can put you on a reduced rate repayment program (and freeze your credit card account). If you are willing to give up the credit card all together, then you may want to get a fixed term, lower rate personal loan.
Credit Card Offers at the moment...
Source: Moneysupermarket.com
Balance Transfer Card: Virgin Card, 15 months 0% APR, 2,9% fee. www.virginmoney.com
0% on Purchases Card: Halifax One Online, 10 months at 0% then typical 15,9% after www.halifax.co.uk
Personal Loans
You borrow a fixed amount over a fixed period of time. (e.g £2000 over 24 months)
Usually speaking, doing this is cheaper than having a balance outstanding on a credit card, but some banks charge a very high rate for amounts borrowed under £5000. I once did a loan for a customer where the rate was 21,9% on £2000!!!!
If you are looking at a loan to buy a new car, then shop about, but again, if you are new to the credit scene, use your own bank first as they "know you".
Make sure you know how much you want to borrow, and make sure you can realisticlly afford the repayments.
Do you want to take out insurance on the loan to cover accident/sickness/death? (legal bit: I am not authorised to give specific advice on Insurance, to gain full advice, refer to your bank)
Always think "What if?" e.g. You borrow £2k for a car, insure it 3rd party only, write it off. You still have to pay the loan, even though you don't have the car!
Keep 2 months repayments aside in a high interest account (ISA) incase the unexpected comes up (and trust me, it does! £2k on Suki in 4 months!)
Avoid applying for lots of loans. If you get declined 1st time by your own bank, it is unlikely you will get accepted elsewhere. If you start applying everywhere, your credit score deteriates rapidly!
Your first repayment is usually 1 month after the loan is drawn down, but some banks give a three month repayment break, and most will let you choose the date the money comes out of your account (2 days after payday at the end of the month for most). Remember that most banks require the money for the repayment in your bank account the day before the money leaves the account. If your repayment gets turned down through lack of funds, you'll get charged the earth. Keep on doing it, then bank will register a Default in your name, and you won't be able to get any credit anywhere lol!!!!!!
If you find you are struggling with repayments, TALK TO THE LENDER as soon as possible. They may be able to reschedule the loan over a longer term (usually upto 60 months).
AVOID redoing the loan every three months because you need a "little bit extra". This is the first sign of financial problems!
MAKE SURE you use the money for what you planned on. If you borrowed £5k with the intention of paying off a credit card and buying a car, then do that, and make sure you cut up the card otherwise you will find yourself using the card, maxing it out, and needing to borrow more, and that is where it all goes wrong! Don't think "Well I won't pay all the card off as I want to buy a Zetec S"
How to deal with too much debt
This REALLY IS a bad situation to be in. If you lose your job through redundancy or similar, check to see if you have insurance on your borrowings, as that will normally cover it (legal bit: I am not authorised to give specific advice on Insurance, to gain full advice, refer to your bank). If you are sacked, then the insurance will not pay out for that.
You should go through your income and expenditure - try and get rid off all unnesscary expenses (smoking, drinking and the like!)
Call the bank, they will be more grateful if you tell them before it gets too late, they will always try to arrange a repayment program with you as don't forget, it is in their interests too.
The Following is if all else fails. You should TOTALLY AVOID this situation as it is NOT NICE, and makes your life a lot less fun, and hinders you chance of getting credit for more than 6 years.
If you owe more than £15k, and your income is less than your outgoings, and your banks will not come up with a decent repayment program that means you can live reasonably, then you should consider the Citizens Advice Bureau. AGAIN A LAST RESORT. They will contact your creditors and negotiate for you. Lets say you owed £30k - your monthly repayments are £600 and your income is £1000. Your lving expenses are £800 which leaves you £200 to repay your loan. The CAB (or IVA company) will arrange with your creditor(s) through a face to face meeting, a repayment program over 5 years. You will have to provide details of EVERY PENNY you spend to them, and they will then say "you can ONLY afford £200 every month". The creditors then vote to say if they accept your offer (done through the CAB.) The rest of the debt is "written off" after the end of the IVA, BUT during the IVA, you MUST provide them with receipts, wage slips and bank statements, and any excess income you earn has to be paid in to the IVA for five years. You are effectively bankrupt (yes, it goes through a court too), and even when the 6 years is up (there is a 1 year buffer zone at the end of the IVA) you may still find it difficult to obtain credit.
Do everything you can to avoid getting into an IVA, it really is not a nice position to be in, and even things like holidays are difficult to have. Life is very difficult under IVA's!
ANYWAY if you can control your spending habits, and are good with money, there is no reason why credit cards and loans can be a useful tool for you.
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