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POPULAR NEW (ISH) LENDERS GAINING GROUND

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A while ago I blogged about the new(ish) peer-to-peer lending websites, such as Zopa, the largest in the UK. I also said I’d be looking into the matter further.

So I decided to read what the established financial journalists (the people who are paid for their expertise) are saying.

I’ve looked at a few of them, following the principle of Lobachesvky, who famously said: (according to the legendary Tom Lehrer): “To steal from one source; that’s plagiarism. To steal from many: that’s research.”

Firstly, I’ve learned that Zopa stands for the “Zone Of Possible Agreement” and its aim is to cut out the middleman by putting lenders and borrowers directly in touch. The site acts as a facilitator and makes sure debts are repaid.

“Personal finance just got a whole lot friendlier”

In an earlier post on this subject I mentioned Maryrose Fison’s article with the above title (January 2011) in the Independent. See below for a link, as it’s still on their website. Here’s my inexpert précis of what some other writers have said.

Rosie Murray-West, Daily Telegraph

She says that “(new-style) Peer-to-peer lending websites and old-style credit unions have been major beneficiaries of public anger against the banks, seeing a huge level of growth in 2010.

“ …Zopa … allows ordinary people with savings to lend them out at an average rate of 8pc and has now lent a total of £110m. Its rising popularity has led to four new peer-to-peer lenders being created in 2010, and the industry is now working on becoming properly regulated and establishing a code of conduct.”

Credit Unions

“Meanwhile credit unions, which are co-operative organisations offering affordable loans and accounts without bank charges, have also grown.

A spokesman for ABCUL, the credit union association, said the amount of savings in British credit unions had risen by 27% in the two years to March despite the fact that many British people were struggling to save in the current economic climate. The number of new members of credit unions rose by 18.4% in the same period.

“Mark Lyonette, ABCUL’s chief executive, said that Credit Unions continue to grow as more and more people seek a fair and affordable alternative to the high street banks. He added that if the Government made good on its interest in making credit unions accessible through the post office network, there was the potential for many more people to join them.”

Martin Lewis’s ‘Money-Saving Expert’ site; opinions on Zopa

The ‘MSE’ site was sceptical about Zopa at first. But now they are saying that under certain conditions, it makes sense. As of today, the site’s view is:

“… for those with a good credit score, there’s an alternative. Zopa is a unique internet marketplace which couples people who want to lend with those who want to borrow. On application it gives you a credit score, and if you get its top A*, A or B ranking, you can borrow.

Loan rates vary daily and are determined by the amount needed and length of borrowing. For A* or A grade credit scorers wanting cash over 36 or 60 months, it can beat some loan rates, particularly on smaller amounts; currently, 9.6% APR is available for loans of £4,000, for example.”

View of a Zopa customer

By way of a change from the financial journos, here’s a quote from an actual Zopa borrower. (5 July 2011)

“Just thought I would let you all see my finished kitchen :o) All tiled and just about back to normal now. Thank you all to those who have helped me pay for this, you have no idea how happy I am it’s finally been done! :0} xxxxxx”

Editor’s note (that’s me): there is a video on Zopa’s Facebook page too but I’m not able to reproduce that, because I haven’t done the training course to insert video.

For your guidance, their loans are apparently mostly for the purpose of home improvement (like the above), cars or debt consolidation.

Moneywise “Most Trusted” awards

… and finally, I must congratulate this peer-to-peer lender for having achieved an important award. According to Moneywise magazine, Zopa is the UK’s Most Trusted Personal Loans Provider 2011. This was for the second year running and was against a shortlist that also included First Direct, Nationwide, Tesco Bank, Sainsbury’s Bank and Natwest.

WANT TO KNOW MORE?

1. For Rosie Murray-West’s article from the Daily Telegraph: http://www.telegraph.co.uk/finance/personalfinance/savings/8214641/Savers-spurn-banks-for-Zopa-style-peer-to-peer-lenders.html

2. Peer-to-peer lending: how to choose the right site by Emma Simon. (also in the Telegraph)

3. For the article in The Independent by Maryrose Fison: http://www.independent.co.uk/money/spend-save/maryrose-fison-personal-finance-just-got-a-whole-lot-friendlier-2173935.html

4. For the Money Saving Expert site and newsletter signup: http://www.moneysavingexpert.com/

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For a free sample of my book, “Back to the Black: how to become debt-free and stay that way”:

Kindle format: http://www.amazon.com/dp/B004PLMAQM

Other e-formats, including .pdf: http://www.smashwords.com/books/view/22886

You can follow me on Twitter: @michaelmac43, on Facebook: Michael James MacMahon, or on Linked In.

 

DEBTORS IN DANGER FROM DMP FIRMS, SAYS OFT

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A BBC investigation has found that some debt management companies have been holding on to clients’ cash rather than paying it to creditors, The practice has left many debtors thousands of pounds worse off and facing financial ruin.

If a firm goes out of business and client funds have not been kept in a protected account, some or all of the money is likely to be lost and the debtor becomes liable for the shortfall.

The Office of Fair Trading (OFT) has condemned the practice as “totally unacceptable” and has promised a crackdown.

Repossession order

One couple mentioned in the report had to put their house on the market and could face repossession, after responding to a cold-call from a debt management company and taking out a Debt Management Plan or DMP.

That company, Global Debt Solutions, based in Bolton, offered to arrange a repayment plan for £40,000 of credit card debt and loans. However, after having made payments to Global Debt Solutions for several months, the couple found the money was not being handed over to creditors.

Those creditors have successfully taken the couple to court, so they now have County Court Judgements against them. They’ll also have to go to court on their mortgage, so their debt problems have got far worse instead of being solved. It could soon be at a point where they’ll lose their home.

A widespread practice?

Global Debt Solutions, later known as 3 Step Finance, has been shut down by the Insolvency Service, which found that it did not monitor payments properly.

However, it has emerged that other companies have adopted the same tactic of accepting money from people in debt and not passing it on to creditors.

OFT action

A debtor taking out a DMP with a company using this tactic runs a real risk that the company might fail while the funds are in its account.

David Fisher from the Office of Fair Trading is promising action. “We regard the practice as unacceptable,” he warns. “Where we have evidence we will remove a company’s consumer credit licence, which means it cannot operate.

“We will also next month (i.e. June 2011) be issuing stronger rules for the entire sector, which explain what we expect of them.”

That is welcome news but sadly it is already too late for those debtors who are already dealing, or will soon be dealing, with a repossession order for their home.

Conclusion: take impartial advice

I conclude by saying what I always say: before making any important financial decision – including taking out a Debt Management Plan with a commercial company – take advantage of the free and impartial debt advice which is available these days. I stress the word “impartial”, because some advice is advertised as free but is not impartial, i.e. the organisation has a commercial motive for advising a certain course of action.

The advice you’ll get from the three major national charities working in this field – Citizens Advice, National Debtline and Consumer Credit Counselling Services – is indeed both free and impartial.

There are also many similar (i.e. “not-for-profit”) organisations that operate at a local level but check out carefully that they indeed “not-for-profit” before taking their advice. You can also refer to the Resources section of my book “Back to the Black: how to become debt-free and stay that way”; there you’ll find contact details for about 50 advice organisations.

 

WANT TO KNOW MORE?

The full BBC story is at: http://www.bbc.co.uk/news/business-13568152#story_continues_2

My book “Back to the Black: how to become debt-free and stay that way”, is available on the following retail sites:

Kindle Store: http://www.amazon.com/dp/B004PLMAQM

Smashwords store for other e-formats, including .pdf: http://www.smashwords.com/books/view/22886

 

ACCOLADES FOR BUILDING SOCIETIES

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I’ve been following articles and blog posts by Jeff Prestridge; he’s personal finance editor of Financial Mail on Sunday, thus a pretty influential guy. And he’s said some very complimentary things lately about the building society sector, especially by contrast with major banks. If I were in charge of media relations at one of those banks, I’d have found it uncomfortable reading.

One of his articles was in “Moneywise” (May 2011); on the front cover, the piece was flagged up with the words “why selfish banks put themselves first” and my first reaction was that this was just another blast at the major banks; justified, maybe, but not news. Well, yes, but there was more: a good-news story about building societies.

Customer service excellence

Prestridge’s title praised the excellent customer service records of two particular building societies, especially by contrast with the majority of banks. They were Coventry Building Society, a mutually-owned bank, and Yorkshire Building Society, who are the country’s second-largest building society, with assets of £30 billion.  That’s small by comparison with the £1.9 trillion assets of RBS in 2008, making it then the world’s largest company (did you know that?), but large by most other measures.

(I knew RBS’s total assets were larger than the entire GDP of the UK, then £1.7 trillion, but largest company in the world? As John Lanchester says in his fascinating book (see below), that’s “freakishly large”. Yet we had to bail them out. That’s scary)

Both scored highly in several categories of Moneywise’s own Customer Service Survey Awards but they were nonetheless profitable organisations. The article’s title was “Banks that look after us look after themselves”, the point being that caring for the customer makes commercial sense.

Executive pay restraint

The article also compares top management pay packages. Ian Corning, CEO of Yorkshire BS, donated both his entire 2010 bonus and his annual increase to the Society’s charitable foundation. That compares very favourably with the well-known and astronomical levels of pay and bonuses at the top clearing banks. (at RBS, bonus of £4.5 million, apart from salary).

According to a Bank of England study by Andrew Haldane and quoted by Lanchester, the bank directors were paying themselves these monster bonuses simply as result of taking bigger punts; “there was no skill, efficiency, intelligence or judgment involved: just riskier bets”. And we all know who picked up the tab if the bets went wrong: the taxpayer.

Compared with this, the relative restraint at the building societies seems even more admirable.

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Because Moneywise is a monthly, Jeff Prestridge must have written that piece in April. Writing slightly later, i.e. for the Mail on Sunday’s 8 May edition, he says, talking pithily about the PPI scandal:

“Payment protection insurance has been a blot on the financial services landscape for far too long. It has angered those who bought it only to discover it wasn’t worth the paper its terms and conditions were written on.

It has nearly brought the Financial Ombudsman Service to its knees dealing with a deluge of complaints. And it has done untold damage to the already tarnished reputation of the banks that sold it by the shovelful.”

He then goes on, by contrast:

“BUILDING societies remain a key part of the financial landscape, providing consumers with a much-needed alternative to the banks, especially in the savings and stricken mortgage markets.

Although the credit crunch has not left the industry untouched, resulting in a bout of consolidation (that will continue for a while), there are signs that some bigger societies are emerging from the financial crisis stronger than ever.

Yorkshire and Coventry are leading the way. Both have managed to absorb smaller stressed societies into their fold over the past three years – Barnsley, Chelsea and probably Norwich & Peterborough by the end of the year in the case of Yorkshire, while Coventry has snapped up Stroud & Swindon.

Crucially, they have managed to do this without compromising either customer service or the competitiveness of their products.

The strength of these two organisations is such that both have declared an interest in acquiring Northern Rock – complete with 75 branches – from the taxpayer.

Given that the building society industry has survived the crunch with its reputation intact and without falling back on taxpayers for support (the demise of Dunfermline was its only blemish), it would be a great fillip for the sector and great news for consumers if Northern Rock (once a building society) were to be remutualised.

As David Webster, outgoing chairman of the Building Societies Association, said last week at its conference in Birmingham, building societies are primarily customer-focused businesses – which sets them apart from most banks (Metro excepted).”

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At the end of his “Moneywise” article, Prestridge concluded: “Given a choice between Yorkshire, Coventry and any of the big banks, I know where my money would go any day. To the Coventry and the Yorkshire. They care about you – rather than themselves.”

 

I think he makes the point very well that this is enlightened self-interest; by caring for the customer they help themselves build a more sustainable business. What a pity not all businesses view the world in those terms.

WANT TO KNOW MORE?

Jeff Prestridge’s 8 May article in the Mail on Sunday: http://www.fmwf.com/media-type/ask-an-expert/2011/05/jeff-prestridge-banks-must-end-the-ppi-debacle-to-win-our-trust/

John Lanchester’s book “Whoops: why everyone owes everyone and no one can pay”: http://www.amazon.co.uk/Whoops-Why-everyone-owes-one/dp/1846142857/ref=sr_1_2?ie=UTF8&qid=1305882016&sr=1-2

“Back to the Black: how to become debt-free and stay that way”, is available on the following retail sites:

Kindle Store: http://www.amazon.com/dp/B004PLMAQM

Smashwords store for other e-formats, including .pdf: http://www.smashwords.com/books/view/22886

“BACK TO THE BLACK” AT #29 IN KINDLE STORE

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A week ago I announced the Kindle launch of my book “Back to the Black: how to become debt-free and stay that way”, at a promotional price of £0.70 including VAT.

 

(That promo price, by the way, is also being applied to the other e-formats already available in the Smashwords Store.)

 

Today, I was pleased to see that, within the “Personal Finance” category of the Kindle Store, my book is now ranked at #29 out of 3,902 titles. The ranking is “sorted by best-selling”, according to Amazon.

 

Many thanks, therefore, to those of you who have bought a copy and helped put it at #29!

 

 

WANT TO KNOW MORE?

“Back to the Black: how to become debt-free and stay that way”, is available on the following retail sites:

Kindle Store: http://www.amazon.com/dp/B004PLMAQM

Smashwords store for other e-formats, including .pdf: http://www.smashwords.com/books/view/22886

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You can follow me on Twitter: @michaelmac43, or Facebook: Michael James MacMahon.

INTRODUCTORY OFFER FOR KINDLE VERSION OF “BACK TO THE BLACK”

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As I write, the experts are dissecting on TV the impact of the Budget just unveiled by UK Chancellor George Osborne. I don’t claim sufficient expertise to add to the acres of coverage it will already be getting. What I do know, though, is that the uncertainties in the economy have already led more and more people into debt.

As I have just uploaded my dealing-with-debt book to the kindle store, and as I feel sure that thousands of people could benefit from it, I want to ensure it gets into the hands of as many of them as possible. I don’t want the price of the book to be a barrier.

For an introductory period, therefore, the kindle version of “Back to the Black: how to become debt-free and stay that way” is available at a launch price of £0.70 (or $0.99 plus VAT). Go to http://www.amazon.com/dp/B004PLMAQM

For the sake of consistency, this promotional price also applies with immediate effect to the multi-format versions, including .pdf, that were already available in the Smashwords store (http://www.smashwords.com/books/view/22886). The price adjustments in both stores are already active.

WANT TO KNOW MORE?

Reading eBooks on other devices

You don’t need a kindle to read kindle-format books! If that doesn’t make sense, what I mean is that if you read eBooks but don’t have a kindle, there is a neat piece of (free!) software called “kindle for PC”, enabling one to benefit from the improved readability of the kindle technology (and it really is) when reading on a PC or any other device. There is also a Mac version.

For a download link, just type “kindle reading apps” into Google.

Book links

To sample or purchase “Back to the Black: how to become debt-free and stay that way”, go to on of the following retail sites:

kindle: http://www.amazon.com/dp/B004PLMAQM

Other e-formats, including .pdf: http://www.smashwords.com/books/view/22886

Note: unlike physical books, eBooks carry VAT (I don’t understand the reason for the difference). The price in dollars is thus $1.14 to include VAT, i.e. British sales tax, even if the book is bought via www.amazon.com . In sterling the £0.70 price includes VAT.

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You can follow me on Twitter: @michaelmac43, or Facebook: Michael James MacMahon.

CAN YOU BORROW MONEY THROUGH FACEBOOK?

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I recently attended an excellent conference in London, on Facebook marketing. Somebody, I can’t remember who, made the claim that “Facebook will at some point become the world’s biggest bank”. I didn’t know whether to believe that. However, I did hear many presentations at that event from entrepreneurs apparently earning serious money through Facebook and other online resources.

What I didn’t hear that day, but I know now, was that hundreds of individuals now lend money to each other through Facebook. “Cutting out the middleman”, we used to say; and Facebook is facilitating it. I came across this interesting fact while trawling through my “newspaper cuttings awaiting reading” pile and found an article by Maryrose Fison in The Independent. It was a couple of months ago but no matter.

Debt rescheduling / consolidation / relocation?

People who are concerned about their debts often ask advisers if they should look for ways to move the debt elsewhere, for example through a debt consolidation loan. The pros and cons of that route have been discussed many times so I won’t go into it here, except to say that the general advice is always to avoid this kind of loan if it has to be secured against your home.

A zero percent balance transfer is another way of getting “free” credit. Even allowing for the fact that there’s always a fee of around 3%, it’s cheap money, provided your credit record is clean enough to get it.

Borrowing money from individuals, however, is something that was new to me; except, of course, for friends and family, who are often a source of funds from which debtors make offers to their creditors for “full and final settlement”. However, this new trend is borrowing from individuals who are total strangers.

Here’s an extract from what Ms Fison said:

“As hundreds of thousands of Britons struggle to get a foot on the property ladder, with banks continuing to crack down on new lending, social networking applications have become a lifeline. Who would willingly choose to pay through the roof for an unattractive loan package when there are millions of social network users gagging to lend you their money for less?

“The average rate of interest on a loan at the Lending Club over the past 36 months has been 9.22 per cent. On Zopa, the typical APR on a loan of £5,000 over three years is 8.3 per cent, and on Funding Circle a £15,000, three-year loan has an APR of 9 per cent -well below the 12 per cent a typical bank would charge.”

That sounds attractive, although there are lending offers on the market nearer 9% than 12%; some of them were listed on the same page of the paper under “best buys”. The issue, again, would be whether one’s credit record would be good enough to qualify. A private lender would also need reassurance but might be more flexible than a bank, as they are getting a relatively high return (much better than the high street, anyway) on their money.

Facebook apps

You’ll note that Ms Fison (excuse my formal mode of address: I’m old-fashioned and I’ve never spoken to her, though I shall be following her on Twitter from now on) mentioned The Lending Club; she says it was one of the first applications to be added to Facebook in 2007. She also mentions Zopa:

“UK-based social lending service Zopa is another provider, and the number of communal lending and borrowing sites with applications on social networks is growing at a staggering rate.”

Ms Fison concludes:

“Social networking applications may still be in their infancy, but given the popularity of personal finance and online peer lending, their influence on our day-to-day activities looks set to take off this year.”

Well, there is nothing to be lost and lots to be gained by investigating this further. I’ll certainly be doing some research into peer lending sites: watch this space!

WANT TO KNOW MORE?

For a copy of the full article in The Independent by Maryrose Fison: http://www.independent.co.uk/money/spend-save/maryrose-fison-personal-finance-just-got-a-whole-lot-friendlier-2173935.html

For a free sample of my book, “Back to the Black: how to become debt-free and stay that way”, go to:

kindle: http://www.amazon.com/dp/B004PLMAQM

Other e-formats, including .pdf: http://www.smashwords.com/books/view/22886

You can follow me on Twitter: @michaelmac43, or Facebook: Michael James MacMahon.

ANALYSING YOUR FINANCIAL SITUATION

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A few years ago, when severely in debt, I avoided opening letters from banks and credit card companies. So I couldn’t begin the process of getting out of debt, because I didn’t have a clear picture of my situation.

However, I found that when I bit the bullet and analysed my situation in detail, I felt better! Knowing the facts, no matter how bad, is better than living with a “sword of Damocles” hanging overhead.

If you too have been ignoring those letters, please start opening them now.

Sorting that paperwork

1.       Bank statements. Overdraft? How much?

2.       Credit card / store card statements

3.       Invoices from other creditors

4.       Tax correspondence (if self-employed)

5.       “Informal” liabilities, e.g. loans from friends / family

When you’ve totalled the debts in categories 1-5, now list the positive side of your “personal balance sheet”, i.e.

6.       Estimates of the value of your assets: property; car; cash at bank (if your account’s in the black); shares; insurance policies; money owed to you, including refunds; occupational pension funds [if you’re old enough to consider cashing them in]; anything that could be turned into cash if necessary.

Now prioritise your debts, as follows:

  • Priority: “roof-over-your-head” and essential utilities, for example:
    • mortgage or rent arrears (you could lose your home)
    • other debts secured on your home (same result)
    • Council Tax (they can send in the bailiffs)
    • gas & electricity (they can cut you off)
    • water (though they cannot).
  • Non-priority: all other services you need, e.g. car loan; home or mobile phone; credit cards; all other creditors.

Income and expenditure

Now you’ve assessed your liabilities and your assets, you need to evaluate your income and expenditure. It’s a “profit and loss statement” for your life, based on your current spending pattern. Then do another, based on your “survival budget”.

You’ll need a table or spreadsheet: money advisers at your local CAB (Citizens Advice) can provide a form.

Putting it in perspective: “key ratios”

Now analyse your total debt relative to your income; also to your assets. What multiple of your net monthly income is your total debt? What percentage of your net worth? These are what I call your personal “key ratios”.

Now you are in a better position to develop your options and choose the solution that works for you.

Discretionary income

A final question: what’s your discretionary income? What’s left after tax and essential expenditure? (Not after your usual expenditure: the answer to that question might be zero, as it was for me)

Whether you think you can repay debts in full or make a partial offer, you’ll need to maximise this “discretionary income”. That’ll involve tough decisions about “needs versus wants”: between what’s essential to your life and what you see as essential to your lifestyle.

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The above is an extract from Chapter 5 of my book “Back to the Black: how to become debt-free and stay that way”

Want to know more?

“Back to the Black: how to become debt-free and stay that way”, is now available as a multi-format eBook, to sample (first 20% free) or buy, at Smashwords: http://www.smashwords.com/books/view/22886

It is also in the Kindle store but only the first 10% is free (sorry: Amazon’s rules, not mine). http://www.amazon.com/dp/B004PLMAQM

PHONE CALLS FROM CREDITORS AND HOW TO MANAGE THEM

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In my post of 2 Feb 2011 (“Is there life after bankruptcy?”) I quoted an article from “Moneywise” magazine (Jan 2011), containing a useful summary of the danger signs that debts might be running out of control. The last item on that list of danger signs is the one I want to go back to today:

  • If you are not opening bills and are screening calls from creditors, seek advice. Ignoring payments will not make them go away and the problem will only get worse.

Firstly, I agree totally about seeking advice if any of those five signs fits your situation. And yes, I agree totally that ignoring payments – ignoring the situation in general – will make the problem get worse.

Not opening bills? Ten years ago, I was “guilty as charged” on that score. I know from bitter experience that mounting interest charges, penalty charges etc can result. Luckily I didn’t get to the point of being taken to court, despite many threats.

Incoming phone calls

However, it’s the question of incoming phone calls I want to talk about here. Yes, the fact that you feel you need to screen phone calls is one sign that you’re worried about your debts.

However, there is a case for letting your answering machine take those calls, subject to one important condition: that you take note of any messages left by your creditors and you respond to them in writing.

In my book “Back to the Black” I deal with incoming calls as follows:

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In order to create space between you and your creditors, I recommend that you conduct your negotiations in writing only. There are all kinds of benefits here:

  • You have time to think before responding.

  • It will look professional; if you are not good at composing letters, there are some examples in the “resources” section, which you can adapt to fit your situation; or you can get an adviser to help.

  • You have a record of everything that has been said by both parties.

  • … and most importantly, it is less stressful.

“Let the answering machine take the strain”.

Follow this strategy, summon up your reserves of patience and persistence, and the huge benefit is that you avoid verbal discussions. They are just too stressful right now and, thanks to that wonderful invention the telephone answering machine, you need never speak to a creditor in person.

When I say this, I am not advocating that you ignore telephone calls. No, you should respond if a creditor leaves a message but you do it in writing, referring to any previous correspondence and repeating your previous offer, if you have made one, or perhaps making an offer, if you have not done so. Alternatively you could simply state your position and ask for their understanding and for more time.

One slight disadvantage of the telephone “bubble” concept (Seve Ballesteros again) could be that your friends might notice that you are never in, even when they expected you to be so. Is that a major problem? Probably not. If you have an actual answering machine, rather than the service from your telephone provider, then you can use it to filter your calls, by listening to the machine before deciding whether to pick up. If you have “caller display” on your home phone, or you are being called on a mobile, problem solved: you can be 100% selective about which calls you accept and which you allow to go through to voicemail.

Now I do recognise that there are some people who simply cannot resist answering a ringing phone. If you are one of those people and you can’t break the habit, then all I can say is that I hope you are someone who is not stressed out by this kind of situation, in which case you are in the lucky minority. In such a case, carry on following your instincts and answer the phone, but I would still urge you not to conduct a negotiation on the phone. Simply take in what is said and offer to think it over and reply – but in writing.

Always respond both to written correspondence and to phone messages and do so Promptly, Politely, Professionally – and Persistently (i.e. sticking to your guns). In the resources section at the end of the book there are some examples of letter formats you could customise

END OF EXTRACT

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I hope that the above is of help. If you need more info (for example if you want to know why I refer to Seve Ballesteros!), get in touch or read my book.

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Want to know more?

Want to view, free of charge, the first 20% of my multi-format eBook (“Back to the Black: how to become debt-free and stay that way”)?

Go to:  http://www.smashwords.com/books/view/22886

IS IT SAFE TO PAY YOUR RENT OR MORTGAGE WITH A CREDIT CARD?

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A recent news item (Channel 4 News, I think) flagged up a potentially alarming problem that’s been caused by the recession. (Yes, that’ll be the recession that the experts say is now officially over. Try telling that to someone who has lost their job.)

 

What’s the problem? According to a report by the charity Shelter, there’s been a large increase – possibly 50% in a year – in the number of people using credit cards to pay their mortgage or rent.

 

Does this affect owner-occupiers? Or tenants? Or both?

 

According to the BBC website, the Council of Mortgage Lenders (CML) suggests that the problem has been sensationalised by the media. That may be true. It would not be the first time. I should point out the obvious, however: the CML’s concern is only for mortgages. What Shelter describes may well be more of a problem for tenants than for homeowners. Mortgage rates are exceptionally low at present, so it’s less likely that an owner-occupier will have difficulty meeting housing costs, other things being equal. Also mortgage payments are normally taken on a direct debit, the CML says.

 

The reduction in housing costs caused by low mortgage rates has not yet been mirrored in reduced rents (why not?? Logic tells me it should be). Therefore, other things again being equal (which they never are) a tenant is more likely to be tempted to solve a short-term cash-flow problem by paying the rent with a credit card.

 

Is the story true?

 

“In the current climate”, I would not be surprised if there has been an increase in the number using cards. But has the increase really been 50% in a year? That’s massive. What they say, if you read the various reports, is that it’s gone from 4% to 6% and that is indeed an increase of 50%.

 

Firstly, you’d have to ask how big was the sample; obviously they didn’t interview everyone in the country (well, they didn’t ask me, anyway). And secondly, here’s a bit of a giveaway. Last year’s survey calculated the number of households, rather than individuals, that fell into this category. However, “the figure for households has not been calculated this year”, according to the report. So are we comparing apples with oranges, to make a point?

 

So is it safe to pay with a credit card?

 

Back to the question at the top of this post; is it safe to use a credit card to pay your rent or (less likely) your mortgage? The answer is a cautious yes, but only under certain circumstances. Credit cards do not have the astronomically high interest rates of payday loans, but the principle is the same. IF there is no alternative, and IF you are 100% sure you can pay off the card in full before the interest kicks in (you have 4-6 weeks to do that) then fine. If not, then as I have said many times before … get help from one of the debt advice agencies (for example Citizens Advice, or Consumer Credit Counselling Services, or National Debtline) and put together a plan. If you don’t, you could find yourself on a slippery slope.

 

I’ll be following up this story. “Watch this space”, as the saying goes.

 

 

 

WANT TO KNOW MORE?

 

Here’s a piece on the website of Shelter, who produced the original report:

 

http://england.shelter.org.uk/news/january_2011/2m_pay_for_home_on_cards

 

And here’s an item about the story on the BBC website:

 

http://www.bbc.co.uk/news/business-12120937

 

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My book “Back to the Black: how to become debt-free and stay that way” is now available to sample or buy, as a multi-format e-book, at: http://www.smashwords.com/books/view/22886