Simon Read: Putting payments on plastic is the road to debt disaster
Saturday 08 January 2011
We know that 2011 is set to be our toughest year yet as the Coalition's cutbacks start to bite hard, but this week's news that two million people are resorting to credit cards to cover their mortgage or rent payments is shocking. The housing charity Shelter warns that, as a result, many people have started the new year with the threat of homelessness hanging over them.
It points out that anyone relying on plastic to cover the costs of running their home is living on the edge. It means that defaulting on credit card payments can lead to the misery of repossession. Even a simple bout of illness, a rent increase or a drop in income could push people into a spiral of debt and arrears that could lead to the loss of their home.
For those forced into taking such drastic steps there is a wealth of help and advice available, not least from Shelter itself (www.shelter.org.uk/debt). But the fear is that many families may be in such dire financial difficulties that climbing out of debt is near impossible. But the first step for anyone facing debt problems should be obvious – rip up your credit card and throw it away.
For those that do have large debts on plastic, the temptation to switch to a 0 per cent balance transfer deal, as loudly trumpeted by self-proclaimed money-saving experts, can be strong. But such attractive-looking deals can put people into an even worse position unless the debt is managed properly.
Take the latest market-leading deal from Barclaycard. It is offering an apparently mouth-watering 0 per cent balance transfer over 17 months. That's a great way to avoid racking up huge interest charges on debt, isn't it? Not quite. For starters, you'll have to pay a 2.9 per cent transfer fee – that's £58 if you transfer £2,000, for example.
Then, if you ever use the card, the charges soon mount up. Buy anything with the card after three months and you will be charged 16.9 per cent interest on your purchases. If you are foolish enough to withdraw cash on the card, you will be charged 2.5 per cent of the amount, and the interest will mount up at 27.9 per cent. In other words, use the plastic again and it will cost you dearly.
But even if you think you can control the debt on the card, the lender will hope to trip you up in 17 months' time. If you haven't paid off the debt by then, you will start to be charged 16.9 per cent and, if you fail to make the minimum repayment on time, you will be charged £12. In short, Barclaycard isn't doing people a favour by offering a market-leading deal, but is blatantly hoping to profit from people's financial mismanagement by making big fat profits out of them. Don't give Barclaycard the chance. Avoid the often costly 0 per cent deals and, instead, pay off your credit card and tear it up. Getting rid of the temptation may help you to avoid slipping into debt problems.
Do you have cash ying around at home? You're not alone. Britons have about £7bn stashed at home, according to the Financial Services Compensation Scheme. Research by the FSCS suggests that one in 10 people keeps £1,000 at home, while a tenth of those has more than £10,000 stashed away under their mattress.
Anyone keeping cash under the bed or in a biscuit jar is not only losing out on interest but risking the danger of having their nest-egg stolen with no recourse. I know that savings rates still remain paltry but, to my mind, keeping cash in a financial institution makes far more sense.
For anyone worried about their bank or building society going bust, the compensation limit per institution has risen to £85,000, as we reported last week, which should offer enough peace of mind to even the most anxious.
New year's eve celebrations may have cost you more than you think if you used a credit or debit card on 31 December. It turns out that more than 200,000 people who paid by card at retailers which use Lloyds TSB's Cardnet payment processing service have been charged twice for each transaction. The problem was apparently a "system error" and the bank says anyone affected should have their money repaid.
But it is clearly worth checking January's bank or credit card statement for double transactions. If you spot any, contact Lloyds's telephone helpline on 01268 567100, option 4. The bank says it will "consider all reasonable and evidenced requests for reimbursement". Let's hope it honours that commitment.
Cut tax call charges
HMRC charges its telephone callers up to 40p a minute. No one chooses to phone the taxman; it's an unpleasant necessity on occasion. So HMRC shouldn't rip people off with an expensive 0845 number that hits the hard-up. It's time to switch our tax services to a free 0800 number.
Hooray, you're going to live longer! But what should you do to celebrate?
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