We’ve all probably heard enough about the subject of debt over the past few weeks, given that the new government is making drastic cuts across the board in order to tackle the national debt. The sentiments are echoed in many households across the country too, as the credit crunch continues to bite and increasing numbers of people in the UK are finding it a struggle to deal with their debt problems.
In the current climate, are problems now inevitable once you start to accrue debt, or can you manage your debt sensibly and safely to ensure that things don’t get out of hand?
Research has shown that one of the biggest contributory factors among those people who accrue too much debt is that they often had not fully understood the implications of the agreements when they signed them. This lack of understanding has led many companies to try to educate people still further about the issue of credit and debt and how they can avoid some of the common problems encountered starting to struggle with the burden of debt.
One of the many misconceptions people have is that they can easily underestimate the impact that a typical credit card APR can have on the amount of money that they have to repay. An APR (annual percentage rate) of 24 per cent on a credit card balance of £5,000 means that you are paying £100 a month in interest repayments; this adds up to a not inconsiderable £1,200 a year in interest repayments alone!
Another common error that people make when they first get a credit card is to assume that they have to spend all of the credit they have been allocated! Instead of using the credit card, perhaps as a last source of cash for something that has to be bought, many people pay for items, which are often unnecessary, and throw the cost on the card to be repaid at their leisure.
While this is generally fine to do if you repay the full amount owing on the card each month, to continually do this over a period of months and years without making a full repayment on the card each month is a sure fire way to max out the credit card in a short space of time and leave yourself with the prospect of not being able to pay the monthly bill, or making late payments. This can seriously influence the APR you are charged on the debt as well as your credit score.
A lot of people often ask “what is credit score/credit scoring” or “what is my personal credit score?” A credit score is simply a statistical ranking given to you based upon how well, or badly, you have managed your credit agreements in the past. It is based upon several different aspects of your credit history; how well you have managed any credit accounts you have had in the past, how often you have missed or made late payments, whether you have any county court judgements against your name and whether you have continually applied for credit over a relatively short period of time.
The better your credit score is, the more likely you will be accepted for credit, though each credit company can have its own criteria for judging any application for a credit facility. Improving credit score sounds relatively simple in that you must ensure that you are on the electoral roll and make sure that you keep up to date with all your credit payments and close any credit accounts that you are no longer using. However, actually achieving this over a sustained period of time and often in contrasting economic situations can prove occasionally difficult.
The notion of credit scoring may sound somewhat cloak and dagger to some, but you will be pleased to know you are legally free to view your credit history, and then inform the companies of any inaccuracies, by asking for a report on your credit history. Several companies offer this service and it is a great starting place for anyone who wishes to investigate their credit score in more detail.
Another issue surrounding credit cards that is a worry for many is the number of credit card frauds that are being reported. Indeed, you would be forgiven for thinking that even ordering a pair of slippers online could land you with a credit card bill running into thousands of pounds, due to some evil Internet hacker stealing your identity and going on a spending spree!
The truth is that there are many safeguards in place to stop the fraudulent use of credit cards. Any site that asks for payment over the Internet should be a secure, and this is easily identifiable by two sources. The first being that a closed padlock should be displayed when you log into the site, while the second is that the web address should begin with the prefix 'https', which indicates that this is completely secure.
Other measures can also be easily followed to solve the issue of fraud. Never giving your details out to anybody else, refusing to open any emails or email attachments that you are not 100 per cent sure of, regularly checking your PC for adware, spyware, viruses and only using reputable sites to buy from are all good measures to follow.
Occasionally, fraudsters will try to catch out even the most vigilant of computer users by using a phishing email to try and discover bank details. These emails are often disguised to look like they are official and will sometimes ask you to send sensitive information to the company for a seemingly important reason.
It is worth noting that all reputable companies will never ask you for personal information via email, so should you receive one, you should never respond with the information until you have verified that it is genuine. In doing so, you not only stop the fraudster in their tracks but alert the company to the scam and this then saves other people from falling foul of the phishing email!
Debt is a problem for many, but only if they let it get out of hand. If you are sensible in your approach to debt, and that starts by fully understanding all aspects of the agreement you are signing as well as having a vigilant approach to keeping your personal details secure, then even in these tough financial times, managing debt sensibly need not be a massive problem!