DEBTS. The good, the bad, and the consequences

Transcription

1 DEBTS The good, the bad, and the consequences

2 Credit Most students need to borrow money to get through university there are student loans for tuition fees and living expenses. These are provided at low interest rates and do not have to be paid back until you earn over a certain amount. There are also other forms of borrowing that you might be tempted to use to supplement your income. With a little knowledge, you can use credit wisely. There are five golden rules: 1. Treat credit with caution. Credit providers make their money out of your borrowing either through interest or penalty charges. 2. Be aware of how much your borrowing is going to cost you. 3. Look around for the cheapest credit compare rates. 4. Keep to any agreements, whether it is an overdraft limit, a credit card limit or the date when you must make a repayment, to avoid charges. 5. If you can t afford to pay it back, don t borrow it! Student overdrafts These are usually interest free as long as you keep within the agreed limit. If you go over the limit, it becomes an unauthorised overdraft and you may be liable to high interest and penalty charges. When you stop being a student, you will have to pay your overdraft back. Other agreed overdrafts These usually have a small interest charge. If you go over the agreed limit, you are usually charged higher interest and high penalty charges. Unauthorised overdrafts These often carry high charges and interest. Unauthorised overdrafts are often hard to get out of because the level of charges means that, even though you may be repaying significant sums, much of this goes towards the charges rather than reducing the overdraft. Credit cards and store cards Ideally these should be avoided. However, always shop around for the best deals if you do choose to get one. Always be aware of: Borrowing rates are often in terms of APR (annual percentage rate). This allows you to compare the costs of borrowing from different cards. For example, if a shop is charging you 29.5% APR, you will have to pay back every year for each 100 you borrow. Some cards quote monthly interest rates these may be more expensive because interest is compounded. Store cards tend to charge higher interest rates than credit cards. Typically interest rates are 21% APR for credit cards and 29.9% for store cards. Some banks offer student credit cards with lower interest rates. The easiest way to manage your borrowing is to always look at your statements. If your repayments are getting too high, stop using the card, pay it off or switch the balance. Act wisely Try to pay off the balance each month. Sometimes a credit card can help with essential expenditure, for example, to pay the rent, but don t be tempted to spend on other things cut it up and pay off the balance as soon as you can. If you are paying for a payment protection plan, consider if you really need it. If you don t, then cancel it. Watch out! Some cards offer 0% interest for a limited time, but when it ends the costs are often very high. If you only make the minimum payments every month, it could take you many years to pay back even relatively small balances. If you miss a payment or go over your limit, you will be charged for that month. If your payment is late and you are over your limit, you could face monthly charges and interest.

3 Credit rating Credit rating refers to your credit reference file. This has details of your credit history. Creditors can access your credit reference file to assess whether or not you are a good risk to lend money to. County court judgements and other records stay on your file for six years. There is no credit blacklist Creditors will decide whether or not to lend money based on a number of different criteria. Possible information that a creditor may be interested in includes: personal details employment status credit history income bank details whether you have a mortgage or rent and your payment record for either of these. Payment due means you must usually allow three to five working days for any money transfers or cheques to clear when making repayments. Don t leave making your payment until that day or you could be charged. How to improve your credit rating You are allowed to write a statement of up to 200 words to explain any relevant current or past circumstances. Make sure you are on the electoral register; creditors use this to confirm your name and address. If you have been refused credit, make sure that you do not keep making applications. It is noted on your credit reference file each time and creditors feel uneasy if you repeatedly submit applications. Useful websites UNIAID student charity: Financial Services Authority: Money Saving Expert: Money Advice Trust: National Debt Line: If you have more than one debt, it is important to divide them into priority and non-priority. How to see your credit file You can write to the credit reference agencies (or apply online for a 30-day free trial, but will be charged if not cancelled after this). You may have to pay a fee ( 2 to Equifax and Experian if you apply by post). What to do if there are any inaccuracies When you are sent your credit file you will also receive information on how to correct inaccuracies. If you have any problems, you should contact you nearest trading standards board. Priority debts Some debts are considered priorities because of the enforcement action that can be taken if they remain unpaid. This includes losing your house, having the gas or electricity supply cut off, losing your possessions or even imprisonment. These can be any of the following: rent or mortgage electricity or gas hire purchase magistrates court fines Council Tax water rates. And may also include: TV licence if you have a TV car insurance if you run a car telephone if disconnection is going to cause exceptional difficulties.

4 The Debt Adviser at the university was able to act as a person of recognition and authority in dealing with my creditors. They also created a structured approach to my debt management.

5 Non-priority debts These are debts where non-payment will not lead to loss of your home, essential services or liberty. These can be any of the following: overdrafts credit cards store cards unsecured loans (such as personal loans) catalogues. Sometimes non-priority creditors will put you under more pressure through phone calls and letters, but their sanctions are usually limited. Although it s a debt you need to repay, it may be possible to negotiate reduced payments while you are having financial difficulties. You should: pay your priority debts first, even if they re less than your non-priority debts check if you have payment protection insurance which may cover any of these repayments talk to the person/organisation you owe money to as soon as you think you are going to miss a payment come and see a money adviser, where they can negotiate on your behalf. Debt collectors Debt collectors will usually try to contact you by telephone, letter or by calling at your house. Whatever they do, it must be within the limits of acceptable behaviour laid out by the Office of Fair Trading Debt Collection Guidance. Debt collectors can send you letters phone you but only within certain hours visit your home apply for a county court judgement. Debt collectors cannot visit you at work/university or other places such as in hospital visit when you have said you don t want them to refuse to leave when you ask them to act deceitfully, such as suggesting that they come from the court or a government department or imply that nonpayment is a criminal offence contact you too frequently (what is deemed too frequently is open to interpretation but five times a day for a short period may be considered ok) contact you at anti-social times (between 7am and 9pm is thought to be acceptable). If you think someone collecting a debt has broken these rules, you should contact Southampton City Council s trading standards department. The University s money adviser can help and advise you further. If they threaten you physically, you should contact the police. Bailiffs If your creditor has gone to court to get a judgement ordering you to pay a certain amount and you have not complied with it, they can then go back to the court for a warrant of execution. This allows bailiffs to be called in to collect the debt. Beware!! of letters from collectors who suggest that they are collecting for the courts. If there is a court judgement against you, you will have been sent the papers informing you of the proceedings before it goes to court and another letter with a copy of the judgement after your case has been heard. County court judgements Most debts such as bank loans, overdrafts and credit/store cards are dealt with through the county courts. If you get a county court judgement that you cannot afford, you should apply for it to be varied to repayments that you can manage. Please get a form from your local county court.

6 What you should know if a bailiff is collecting All bailiffs must be legally authorised to collect the debt on behalf of the creditor. This authorisation is usually called a warrant. The methods they use to enforce the warrant are regulated by a set of rules. They are quite complex but you should be aware of the following key points: You don t have to let them in although they can get in by peaceful entry through an open window or an unlocked door. They cannot force entry. Pushing past you or sticking their foot in the door counts as using force. If entry is gained, either peacefully or by your invitation, you may have to sign a walking possession agreement listing goods they will take if you don t pay within a stated time. Once they have this agreement, they can break in to seize the goods if you do not keep to it. There are things they cannot take: bedding, furniture, household goods, tools, books that you need for your work or items that do not belong to the person they are trying to collect money from. They charge a fee for every visit, whether or not you let them in, and that fee will be added to the total amount that they are trying to collect. You may be able to negotiate with some bailiffs to pay in instalments. But it can be difficult to contact them and usually the instalments will have to clear the debt in a relatively short period of time. Don t forget Don t ignore your debts; they won t go away and they are likely to increase even if you have stopped spending. If you have negotiated a repayment plan, confirm this in writing and keep a copy. There is a code of behaviour for debt collectors. If you feel harassed, come and speak to a money adviser. If you ve not paid your credit card, have gone over your overdraft limit or have any other debt outstanding, your creditor will try to get the money you owe them. If you fail to repay them and they have exhausted their own procedures, they may transfer your debt to a specialised debt collector. Magistrates courts Some debts such as Council Tax, unpaid fines and unpaid television licences are collected through the magistrates court. Magistrates courts can issue a liability order to collect an unpaid debt. Failure to comply with a liability order can result in imprisonment. Debts to the HMRC (tax office) can be enforced by a magistrate s warrant and bailiffs collecting for this debt do have the right to force entry. Bailiffs recovering unpaid magistrates court fines have the power to force entry.

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