High Interest Debts
One of the major reasons why some people get themselves into serious problems with their debt is the excessively high interest that some lenders charge. If you don’t manage to pay off you credit card in full every month it’s only a matter of time before your debt will start spiraling out of control. Before you know it you card will be maxed out and you will only be able to afford to pay the minimums. The more debt you have on your cards the more difficult it is to try and obtain a loan to consolidate them.
Know what companies you should stay away from
Some people who are struggling to meet their repayments turn to sub-prime lenders and loan sharks for additional funds. These companies offer Bad Credit Loans to people who cannot acquire funds from the banks or major loan companies. They usually charge an extortionate amount of interest which results in the debtor being in far more debt than when they first started. A typical example offer from a bad credit loan company would be; Borrow: £300, Repay: £504 thus resulting in a typical APR of 182%!!! These companies should be avoided unless absolutely necessary.
Beware of sub-prime lenders
Sub prime lenders usually advertise in the back of newspapers, by mail shots through your door or by spam email. If you absolutely need to use one of these companies make sure you don’t sign any paperwork until you have read and fully understood the terms and conditions and/or any small print. Whatever amount you ask to borrow be sure to confirm what the total repayable amount is and the amount of each monthly payment. So many people get themselves in more debt by not reading and understanding the terms of their contract.
Do your research on high interest lenders
Do your research before signing to any particular high interest lender. Compare APR’s and terms and conditions. Be wise in your choice of services. Another area to be careful of is PPI (Payment Protection Insurance). This is very often miss sold by not only sub-prime lenders but by the major high street lenders and banks as well. PPI is meant to protect you from a sudden change in circumstances, e.g. redundancy from your employment or a drop in income due to illness, but has obtained a very bad stigma over the years as most companies will often find a way not to pay out if required. Be sure to check if you actually need to take out PPI cover as most of the time it is unnecessary. If you decide it is not needed make sure you make it very clear to the advisor.
Here are some of the factors that you need to know whether or not it is a high interest deal:
- Any figure that goes beyond 29% APR (annual percentage rate)
- Junk mail advertising consolidation loans or loans for bad credit
- Catalogues and Store cards tend to be very high interest
- ‘Door to door’ and ‘call at home’ repayment collectors
- Tiny newspaper advertisements offering easily obtainable money
These methods may seem to be a last resort, but there are debt help services available that you may not be aware of. These come in the forms of Debt Management Plans, IVA’s, Trust Deeds, Consolidation Loans or even Re-mortgaging. Try our Product Advisor to see which one suits your situation.
What other options are there?
While some people chose this path to sort their finances out and get out of debt, there are companies out there that offer genuine debt help. These companies, also called Debt Advisors, can provide a form of Consolidation Loan without having to borrow any more money. One form of this is called a Debt Management Plan which can get you want easily affordable payment per month and reduce or eliminate hassle from your creditors. It is a great way to avoid taking out another loan as you can never actually borrow your way out of a debt. Be careful when selecting a suitable Debt Advisor. Make sure the company adheres to guidelines set down by the Office of Fair Trading. Also be wary of any company offering free home visits. These companies are usually sub-prime Debt Advisors. One of the reasons it is not a good idea to take advice from someone who visits your home is that the conversation is not recorded. Select a debt advisor that is professional, adheres to the correct guidelines and is absolutely transparent when it comes to fees.