Credit agreements: don't sign your life away this Christmas
30 11 2004
Christmas can be an expensive time especially for people on a tight budget Your family
look forward to a wondrous feast, and expect a pile of presents under the tree. Not an
easy task if you’ve not got the cash to flash.
As a result, the festive season can be a time when the number of credit agreements
signed grows. Inundated with interest free offers and ‘buy now, pay later’ deals, many
people just sign on the dotted line. But many are falling easy prey to credit companies by
failing to understand the actual cost of borrowing and so often fall into deeper debt.
Click here to enter the chat.
TRANSCRIPT:
Gabrielle wants to know: "Hi Kym, what's the worse debt situation you or
someone you know has got into? Thanks"
Kym and Ray said:
Kym: The worst situation I experienced was borrowing money from a finance company
and not being able to pay it back. I used to have to pay it back weekly and of course I
couldn't always do that as I was on single parent benefit. So I ended up in more and more
debt and I ended up having my telephone cut off and having my electricity put on a card
meter so that I could afford it. It amounted to hundreds of pounds worth.
Leilah wants to know: "My kids are just bombarded with adverts and just turn
round and bombard me, I so want them to have a lovely Christmas but I can't
afford what they want - help?"
Kym and Ray said:
Kym: I know exactly what you're talking about! It is hard when you have children at any time
but especially around Christmas. They do always want the latest toy and you can't always
afford it. That's why people need help..
...Ray: People need to remember that what they spend at Christmas they will have to
repay after Christmas. So they seriously need to consider what their budget is and look
for the best deal.
Emma wants to know: "Kym - how did you cope financially when you had your two
children?"
Kym and Ray said:
Kym: Well I still have my two children!? But if you mean when I was living on benefit with my
two children then I found it hard as I am sure lots of other single parents in that situation
do too. But I tried to budget as best as I could and only wish that I had read the small
print on my loan.
Helen wants to know: Did your parents help support you or did you have to
manage all on your own? You seem like a very courageous young woman."
Kym and Ray said:
Kym: My parents have always supported me throughout my life but unfortunately due to
ill health my father has been unable to work for the past eleven years so therefore
borrowing money from them was out of the question.
Beth wants to know: "I've been offered a consolidation loan to clear all my debts
and any Christmas spending to one monthly payment. It sounds neat but I will be
spending over a third of my monthly income just on debt repayment. Is that
about right?"
Kym and Ray said:
Ray: I can't advise on any particular product and don't know the details of your
circumstances. The key is to work out how much you can afford to repay on any loans or
other credit that you have and then decide whether you want to pay a lower amount for a
longer period or a higher amount to clear your debts more quickly. One very important
thing you need to check is whether any consolidation loan you decide to take out if you
decide to take one out is secured on your home. If a loan is secured and you fall into
difficulty with repayments the lender may have the right to seek repossession of your
home. My advice to you before you make any decision is to seek assistance from your
local citizens advice bureau, which will have money advisors available. Visit www.
adviceguide.org.uk
Mrs Bestern-Gates wants to know: "Is it better to take out a small loan as
opposed to using a credit card?"
Kym and Ray said:
Ray: It is not possible to say whether a small loan is better than using a credit card or vice
versa. The right credit whether a loan, a card or others such as HP will depend upon the
circumstances...
Nelly wants to know: "How does one go about finding the best credit card
agreement? Thanks"
Kym and Ray said:
Ray: it is important to compare the various offers that are available. There are many
types of credit cards all of which have different interest rates, introductory offers and
charges. One simple way to compare these offers is to look at the APR. The higher the
APR generally the more expensive the card.
Neil W wants to know: "I'm confused about APRs. I thought APR referred only to
interest rates, but I've heard that they also sometimes include other charges. Is
this true, and if so what kind of other charges can APRs include?"
Kym and Ray said:
Ray: The APR does indeed refer to interest rate and certain other charges. Details of
what is included in the APR for any credit product can be found on the OFT website. www.
oft.gov.uk
Maureen wants to know: "I'm always weary of credit cards offered by high street
shops - are they as safe as getting a credit card from a bank?"
Kym and Ray said:
Ray: Credit cards, whether they are issued by a bank or retailer, are controlled by the
same laws. There is accordingly no difference in them.
Pete wants to know: "I am currently at university and guess I'd probably be
considered a typical student as I'm constantly falling deeper and deeper in to
debt. I do try to manage my money but my debts are so out of control now that I
avoid thinking about it but the problem constantly gets worse. Are there
specialist advisors for student loans?"
Kym and Ray said:
Ray: If your debts are out of control it's important that you do two things immediately.
You should speak to those companies with which you have loans and see if you can come
to some agreement on spreading out payment. You should also visit your local citizens
advice bureau and ask them if you can have some free money advice. They will be able to
deal with all your debt problems whether to do with your student loan or other debts.
Jerry wants to know: "I've recently taken out a loan - what will happen if I miss a
payment?"
Kym and Ray said:
Ray: You need to check the terms of your agreement. This will tell you what will happen in
the event that you miss a payment. I would strongly advise for the future that you check
this before you take out a loan.
Roy wants to know: "My daughter got herself in to terrible debt last year and
through re-mortgaging my house I have managed to lend her enough money to
get her head back above water. However, she is still in debt and constantly
paying out money to several different companies and never seems to get
anywhere. Would it be wise to take on some of these debts for her and help her
pay them off or will that be very bad for my own credit - I realise this sounds harsh
as she's my only daughter but I can't keep saving her from her spending habits, I
feel she has to learn sometime!"
Kym and Ray said:
Ray: The best advise I can give you is to seek urgent advise from an independent money
advisor. Your local citizens advice bureau will be able to provide details.
Kate F wants to know: "Do you have any advice to stop me getting ripped off if I
decide to borrow money this Christmas?"
Kym and Ray said:
Ray: Before you borrow any money this Christmas you should make sure that you know
how much you will have to pay for that money. This means checking what the APR or cost
of the loan is and looking at how much per month you will have to pay and for how long.
Once you have this information you should check to see whether you are getting the best
deal available to you. Shop around!
Amber wants to know: "Hi Kym, I'm a young mum myself and have found it hard to
provide for my son on my own. He is now 5 and the most beautiful boy and the
best thing that ever happened to me. Although i am now a bit better off than i
was when I first had him, I constantly worry that i won't be able to provide
everything he needs and that he will miss out on things as he grows up. For
example, he would really love a climbing frame for Christmas and I'd love to give
him one but think it's money that I can't afford to spend. I have never had a credit
card but am tempted to get one just to buy Christmas pressies and then pay it
off in the new year - is that a really bad idea?"
Kym and Ray said:
Kym: I totally understand how you feel in wanting to give your children all that they want.
Unfortunately, we are not always able to do that. If you can afford repayments on a credit
card or loan then of course it seems a good idea. But, please make sure that you really
look into it and seek some advice before you make a decision. After all there will always be
something in life that we cannot give our children. Don't put yourself in debt now! Look into
it properly.
Emms wants to know: "Kym - how do you try to teach your kids to manage their
money?"
Kym and Ray said:
Kym: Oh dear! Funny enough they have just started to earn pocket money and each have
a piggy bank. Whenever we go shopping and they see something they would like we talk
about how much it costs and how much they will have left over once they have purchased
it. Nine times out of ten they don't want the item that badly!
Gem21 wants to know: "Kym, what do you find the hardest challenge is when
being a single mum?"
Kym and Ray said:
Kym: I guess the hardest challenge in being a single mum is budgeting. As there is always
something a child desires that you just can't afford.
Sarah wants to know: "Ray - what is the best thing to when your lender sends you
letters offering you more credit? I find it very difficult to say no."
Kym and Ray said:
Ray: If you do not want or need credit there is no reason for you to take it simply because
it is offered. There is no magic answer to your question. If you find it difficult to refuse you
need to consider the danger of getting into debt to a level where you cannot manage to
repay. So, the advice must be to make sure you do not take on more credit than you can
manage. I notice you refer to your lender. This suggests that you are responding for one
offer of credit. If you decide you do want credit you should always shop around for the
best deal.
Thom wants to know: "Hi all, a lot of credit cards ads say they give interest free
balance transfers, what are balance transfers and what are they for?"
Kym and Ray said:
Ray: Balance transfers are simply the moving of one debt usually on a credit card to
another account. So for example, a customer may transfer £200 owed to one card to
another card. Many card companies advertise balance transfers as a way to attract new
customers.
Alice Jones wants to know: "Do loan companies have a maximum amount of
interest they can charge you - I have around £1500 on my card and am getting
charged at least £90 per month!"
Kym and Ray said:
Ray: There is no legal maximum interest rate as such...
Said wants to know: "My sister in law took out a card with a well known high street
store for young girls (she's 18). A couple of months after that she got a letter
from the company that take payments saying she owed £50 for card protection.
She doesn't remember agreeing to this but they insisted she had - she had
signed nothing and they said she'd agreed to it on the telephone - could they do
this? Is a telephone agreement binding?"
Kym and Ray said:
Ray: I can't advise on your sister in-laws case. But what I can tell you is that the
agreement signed would probably have included a card protection policy. You need to get
independent advice on this. It does underline the importance of reading properly the
terms of an agreement before signing up.
JJ wants to know: "I have debts piling up on all sides and a large mortgage should
I just hand in the keys, declare myself bankrupt and clear the debt?"
Kym and Ray said:
Ray: I cannot advise you on your particular circumstances but would urge you to seek
financial advice on your current difficulties. There are a range of free independent advice
services details of which are available on www.oft.gov.uk
Billy wants to know: "Kym, do you still have to budget and watch your money or
have you really found fame and fortune?"
Kym and Ray said:
Kym: ha ha! You should always budget and watch your money regardless of what your job
and how much you earn. So yes is the answer really!?
Daphne wants to know: "I'm thinking about taking out a loan. Will the interest rate
still be the same in a year's time as it is today?"
Kym and Ray said:
Ray: Whether or not the interest rate will remain the same will depend upon the type of
credit agreement. If you take out a fixed rate loan the interest rate will remain the same
throughout. If you take out a variable rate loan the interest rate may change. So you need
to check the details of any loan before you sign up. Most loans are variable rate with
changes reflecting movements in the bank base rate.
Sue wants to know: "My sister was offered a credit card in a shop but was told
she had to sign there and then. Is this right?"
Kym and Ray said:
Ray: It's important to make sure before signing any agreement that you fully consider
whether the deal offered is the right one for you. Pressure to sign should be ignored. Our
advice is to take any agreement away and think before signing.
Kym: Thanks for all the questions. I hope that some of my experiences have helped. Have
a good Christmas and a Happy New Year and remember shop around for the best deal!
Ray: Don't treat credit differently from any other major purchase you would make. As Kym
said, it is vital that you shop around and make sure you get the best deal.