At this time of year, many of us throw caution to the wind so we can ensure our loved ones have a good time over Christmas.
After all, there are the pre-Christmas sales, the bumper food bills, travel costs, kids’ wish lists and holidays to pay for. Credit cards take a hit, as do catalogues, store cards, overdrafts and other types of borrowing.
So what happens if you’re in financial difficulties? The government recently announced that it was consulting on introducing a “breathing space” period of six weeks to help people get back on top of their finances. I don’t think that’s enough – and I don’t see why people in difficulties should have to wait for the consultation. So, here’s a few tips if you’re struggling now.
◆ Don’t wait till January. Grit your teeth and check out the bank or credit statements now. Interest rates can be high, so the sooner you get help the more you’ll save. Less anxiety too.
◆ Speak to the lender. Banks and lenders are obliged by the regulations to come up with solutions to help you if you are going further into the red. They can suspend interest, remove charges, offer interest-free loans and more. So ask them what they can do to help. If they refuse, the ombudsman can look at your case.
◆ Consolidate. If you’ve got lots of high-interest loans and cards, it might make sense to combine them all in to one. This should be much cheaper than the rates you’re currently paying, but factor in things like transfer fees (if you move to an interest-free credit card) or total interest (if you take out a loan).
◆ Do the diary. If you’re using a catalogue or online retailer for your shopping, note down in your diary when any interest-free or low-interest periods end. These methods of payment are super-expensive when the real interest kicks in, so pay them off before this happens.
◆ Prioritise. Make a list of all the outstanding regular payments you have. Things like rent and mortgage payments have to take priority. With utilities like energy and water, check with your providers to see if you’re on the cheapest tariff – and with energy switch providers to reduce your bills. With non-essential contracts like broadband and mobile (yes, they are non-essential) find out of your contract has ended – you might be overpaying.
◆ Online shopping traps. Virtually all of the big lenders offer online credit. This looks seductive, especially with interest-free periods and other deals, but they’re all designed to part you with your cash. Unless you’re really disciplined, don’t take out the credit. These forms of lending work like traditional catalogues. You don’t get clear warnings when the interest-free period ends and payment dates vary considerably month to month.
◆ Check your credit. The details on your credit file might affect the price of credit you’re being offered. Credit reference agencies hold information about you that means your loan or credit applications are upheld or denied. They also hold information that can indicate what level of risk you are (and what level of interest you pay) if you do pass the application. Order your credit file today from Experian, Equifax or Clear Score. Ask for the free credit file and challenge anything on there that is wrong or unfair. Don’t forget that not being on the electoral roll will affect your credit.
James Walker is the founder of online complaint-resolution service Resolver.co.uk