Some people will give you advice that helps them more than it helps you. Other people just aren’t very good at helping… Here is a serious run through of people to avoid, with some rather less serious illustrations:
Loan sharks are illegal money lenders who usually charge very high rates of interest and have, er, less than scrupulous collection techniques.
Legal lenders have to be authorised by the Financial Conduct Authority. You can check here for a list of non-authorised firms the FCA is warning people not to use, but if you are sufficiently dubious to do that, then honestly you shouldn’t be thinking of borrowing from them!
Payday Loans and other bad credit loans
They have very high rates of interest as well, but they aren’t illegal :( Payday Loan companies often don’t do any checks to see if borrowers are able to repay loans and sometimes they encourage borrowers to roll the loan over at the end. So what might seem a high but just about acceptable cost for a short-term emergency all too frequently then spirals into an out of control problem.
They aren’t so much sharks as piranhas. One bite is unlikely to kill you financially but they keep coming back for more and that certainly can. If you have been badly bitten by them in the past, read Can you claim a payday loan refund?
Other type of loans that should be avoided are logbook loans, guarantor loans and “rent-to-buy” – they are all very expensive with difficult strings attached if you run into problems. If you have a poor credit rating, you may feel these are your only options to borrow, but they tend to make your situation worse.
Instead of taking out this sort of loan, you need some help to look at your whole financial situation. Start by reading Not enough to live on, in particular its emergency budgeting ideas. And then think about contacting a recommended debt help organisation.
Your friendly bank manager
He’s not your friend! His three aims are to meet his sales targets, maximise the profits and minimise the risk for his bank. Helping you through a difficult patch doesn’t feature high up on his list, even if you have been a customer of the bank for all your adult life.
If you decide to try to refinance your debts, talking to him may be a good idea but read up on all the pros and cons first. If you are really in a difficult position and are about to default on your monthly payments, be very wary of talking to your bank manager before you have opened a current account with a bank you don’t owe any money to and arranged for your income to be paid in there. Otherwise he may just decide to help himself to your next pay cheque.
A firm that phones you or advertises
The voice says “The government has introduced legislation that will let you wipe out most of your debts”. How kind of him to call! Guess what, he is hoping to sell you an IVA, because he will make a lot of money out of it. If he can’t persuade you to sign up for that, then he will have a go at getting you to agree to a DMP, which will make him some money but not so much.
Now perhaps you don’t care providing it helps you – that would be sensible. But these callers will not give you good advice and they won’t explain the advantages of other routes that won’t make them as much money. Responsible debt advice providers don’t cold-call people and they don’t advertise in newspapers or on television.
If you end up choosing an IVA, your Insolvency Practitioner is going to make money from it – fair enough, he is providing a service. But get the advice and make the initial decision with the help of a body that isn’t going to make a profit from you. The same thing applies to those calls offering to help you reclaim PPI. Do it yourself and save hundreds or thousands of pounds in fees!
Schemes offering to help you get money out of your pension
Money tied up in your pension could solve your debt crisis – but unless you are 55 you need to accept that your money is tied up and should be left there. Clever wheezes, often promoted by spam texts, are of dubious legality and should be avoided. As a spokesperson for the life insurer Phoenix, says:
“Many unscrupulous businesses offer customers the opportunity to unlock their pension, in exchange for cash, before they reach 55; often without making them aware of the fees they are charging for this service. The fees can be as high as 30%, in addition to the 55% tax charge they will incur for extracting money from their pot early. Even worse, some of these schemes are set up to commit fraud, and when customers come to draw their pensions in a few years, there may be nothing left”.
Your mate at work with a new car
Nice isn’t it? Their holiday in the spring sounded brilliant too. So why can’t you afford it if he is earning much the same as you? Who knows? He could have won the lottery, or have a trust fund, or a partner with generous parents. Or he could have mortgage arrears and be in an even greater debt mess than you are!
If he seems savvy about ISAs, comparing insurance providers and interested in pensions, then he might be good with money and a good person to chat to about debts. But most young people with a family who are good with money don’t buy new cars – that is a warning signal, not a badge of financial competence.
So where should you go?
Check out my list of Good Places to go for Debt Help. There will be one or more that can help whatever your situation, whether you live in Scotland, are self employed, have a tax problem, are suffering from depression, need to know what to do with a court form or want advice on the most suitable debt solution.