Consumer rights: Trying to wriggle out of debt could cost you

Offers to escape credit card dues can be expensive / Selling furniture at auction: what to look out for / How best to use a premium bond windfall

(JASON ALDEN)

I got back to my car at the weekend to find a flyer on my windscreen for a debt firm. It says they can help you get "debt free" and that "your credit agreements may not be enforceable". I'm not in trouble but I have quite a lot of loans and cards. Are these companies reliable?

SC, Cardiff

Companies – and there are dozens – offering this sort of help claim that up to three-quarters of loans, outstanding credit card balances and credit agreements made before April 2007 are unenforceable. That's because often the paperwork wasn't drawn up correctly and the agreements don't comply with the terms of the Consumer Credit Act 1974. If the agreement wasn't drawn up properly, you still owe more than £2,500 on the card or loan, and it has more than nine months left to run, the lender may not be able to enforce the terms in court and you could cancel your payments. However, that's a lot of ifs.

In the past few months, the Office of Fair Trading (OFT), the Ministry of Justice, and the Solicitors Regulation Authority have all warned firms not to make misleading claims about debts that could be challenged, saying they must not exaggerate the chances of success.

A claims management website was recently told by the Advertising Standards Authority not to repeat such adverts. The ad said: "If your credit card or loan was taken out before April 2007 it could be completely unenforceable and will not need to be repaid." But the ASA said the company hadn't produced enough evidence to back this up and that it "was likely to mislead readers as to the likelihood of their debts being written off".

What the ads and flyers usually don't tell you is that you'll be charged a hefty fee for sorting things out for you. Moreover, they may keep part of that money as an administration fee even if they can't help. They are doing this to make money, after all.

So, it's true: you may have unenforceable loans because of a legal loophole. In the light of that, you need to think about whether you want to try to get out of repaying what you borrowed, or whether, since you borrowed it, you'd rather pay it back. If you do want to press ahead, get copies of your consumer credit agreements from your lenders. Make your first port of call your local advice centre or Citizens Advice Bureau. You'll find details in your phone book or online. Check that any company you deal with is licensed by the OFT. And think carefully about handing over big sums of money in advance even if there's some sort of "money back guarantee". Remember: if the firm disappeared you'd lose that money.

The OFT also says there's been a surge in adverts claiming you can sell your debts. Debts can't legally be sold without a lender's permission; and if yours was sold, you'd still be legally responsible for repaying the loan and could well lose money you had already paid.

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My aunt died recently and I'm clearing out her house. There's some furniture I remember from childhood that I think would be worth selling. I want to sort things out quickly so I'm thinking about giving them to a local auction house. However, I don't know where to start. Can you advise?

FP, Gloucester

First, visit your local auction house. There's no point in selling furniture there if it specialises in other things. If it does sell furniture, consider whether it seems to be in the same price range as yours (or what you estimate yours will fetch). You need to know that the auction will draw buyers interested in what you have to sell.

Once you feel you've found the right firm, ask for someone to come out to see what you want to sell to give you an estimate of what it is likely to make. The auctioneer is your agent, so ask all the questions you can to find out more about the items and their value. Then together you can set a reserve price, which is the minimum amount you would be prepared to accept. The auctioneer will also want to be sure that the furniture is yours to sell. Ask what commission the company charges and whether there are other charges, such as for photography (if there's to be a pre-sale brochure) or advertising fees. There may also be a charge if an item fails to reach its reserve price.

At auctions, goods are sold "as seen" so anyone buying should have had a good look at the furniture first. However, if there is a problem later and a buyer isn't happy, his or her contract is with you, not the auction house. Ensure everything is described accurately so that there's no reason for a buyer to complain.

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I won some money on premium bonds last week – the first time ever. I want to use it to pay off some bills. Which should I pay first?

IJ, Lothian

If you haven't got an emergency fund, put some of your windfall into an easy-access savings account in case you need it. You'd feel pretty bad if you left yourself without any cash and then the car conked out. And buy yourself a little treat if possible. You'll regret if later if you don't have something to show for your win.

Then pay off your bills in the order of importance. If you're getting threatening letters, or risk being fined or disconnected, pay those bills first for peace of mind.

If you don't have any pressing arrears, pay the credit bills that are most expensive. Store cards and credit cards charge high interest rates. Loans and overdrafts come next. Your mortgage is likely to be the cheapest loan you have.

Find out if there are any penalties for paying off a loan early and ask the credit companies for a figure in "full and final settlement". If that figure isn't much less than you would pay in total by continuing to pay in instalments, open a separate account, put in the amount you owe, leave it to earn interest (shop around because some accounts pay next to no interest at the minute); then carry on paying instalments.

Once you've cleared the bills, if you still have money over, think about paying a lump sum into your mortgage to bring that down faster, or adding to your pension fund. If you are lucky enough to be in this position take financial advice.

www.moneyagonyaunt.com

Do you need a financial makeover?

Write to Julian Knight at the Independent on Sunday, 2 Derry Street, London W8 5HF

j.knight@independent.co.uk