Credit and Debt

If you are having money worries it can often be tempting to think about applying for a credit card but it is important to be careful. Credit cards are not 'free money' and they could lead you to living well beyond your means.

Credit card companies exist to make money. You may not feel that you have a problem with credit but are you paying back more than you should?

Credit Agreements
You may have seen adverts on the TV for furniture or cars where the company will allow you to set up a credit agreement, this means that you can pay for an item on a monthly basis for a period of time. If the advert says the offer is interest free you will pay no more than the price of the item. If there is interest attached you will pay more than the item is worth. The longer it takes to pay for the item the more you will pay.

Credit Cards
If you are having financial problems it may be tempting to apply for a credit card. These cards have good and bad qualities – it’s always a good idea to have some way of accessing money if you are stuck, also if you can keep up with the payments it will improve your credit rating which will improve your chances of getting a mortgage when you are ready to buy a house. On the downside many credit card companies charge a lot of interest so again you will be paying more for items in the long run. Also if you don’t keep up with the regular payments the company will add more debt to your account.

APR?
Both credit agreements and credit cards will advertise their APR (Annual Percentage Rate). This shows how competitive a loan is, so the lower the rate the better. This should always be taken into account when applying for a loan, credit card or agreement.

Debt
Getting into debt is something that many people struggle with at some point in their lives.  If the debt is managed effectively and you commit to paying it off then you will probably be more reluctant to get into that situation again. However, if you are finding it hard to deal with debt it can seem like a never ending problem.

Here are a few suggestions on how to manage any debts that may build up over time:

• Cutting up store cards and credit cards is the best way to start, live within your means and get use to it.
• Cut back on spending money on clothes and non essential items. Cut down on big nights out, make the most of special offers in supermarkets and make your own lunch instead of buying it
• Explain the situation to your friends. They may have ideas for cheap alternatives to expensive nights out. Make staying in the new going out!
• Start keeping records of your spending – this will give you a clearer idea of where you are slipping up.

If you have a serious debt and are being threatened with legal action:

• Get in touch with your creditors and explain your current situation, negotiate a repayment plan and don’t be bullied into paying back an unrealistic amount. Work out how much you can afford and set up a monthly direct debit
• Try to get the creditor to freeze any interest on the account. You will probably end up paying more than you should but they must put a limit on this
• Creditors are allowed to remind you from time to time about debt repayment but they are not allowed to harass you – it’s against the law! Contact your local trading standards officer or the police.