Credit Cards

Don’t use a credit card unless you are sure that you can pay the balance off in full every month. Because of the extremely high interest rates, once special offers or 0% transfer deals end, credit cards are not a viable way of managing debt – they are designed to get you into more debt.

They can be quite convenient (though no more convenient really than a debit card), so if you want to use one, make sure you set up a direct debit to pay the card off in full every month – otherwise if you ever forget to send cheques or make transfers in time you face ridiculous late payment charges on top of the outrageous interest payments.

Credit cards are not only expensive in terms of the interest rates they charge, they are also expensive for shopkeepers. Small shops have to pay as much as 3% per transaction – you end up paying that indirectly in the price of the goods. That’s why Lidl only accepts debit cards and refuses to accept payment  by credit card. That’s also why some small retailers won’t accept credit card payments for goods and services below a certain amount. Don’t blame the retailers – blame the credit card companies.

Some credit cards let you accumulate points towards free goods and services, which may be worth doing (providing you pay off the full balance every month) – not my cup of tea personally.

The biggest advantage of using a credit card is that for goods and services over £100 (and under £30,000) your payment may be protected and you may get a refund off the credit card company if the supplier goes bankrupt or in some other way fails to deliver (under section 75 of the consumer protection act). See:

http://www.financial-ombudsman.org.uk/publications/ombudsman-news/31/creditcards-31.htm

You still need to be sure that you can pay off the amount in full at the end of the month for this to be a good deal. If you do need to claim for a refund against your credit card company, you may also need to be extremely persistent and avoid having the wool pulled over your eyes according to this article in the Observer:

http://www.guardian.co.uk/money/2009/mar/29/credit-cards-consumer-affairs

Banks have recently started making a lot more use of a legal mechanism called “charging orders” to re-possess people’s houses, even for unsecured debts like credit cards, so you now need to be even more careful that you are able to pay off your credit and store card bills.

http://www.thisismoney.co.uk/dealing-with-debt/article.html?in_article_id=456909∈_page_id=62 

Debit Cards and Cash

Debit cards are as convenient as credit cards but have the advantage that you see the effect of your spending immediately when you check your bank balance. It’s probably even easier to track your spending using cash, as long as the banks haven’t removed all the non-fee-charging bank machines from your area (see this article).

Using Credit and Debit Cards Whilst Abroad

Some banks have radically increased the amount of commission they charge for using credit and debit cards abroad. This article from the Times details some of the free alternatives:

http://www.timesonline.co.uk/tol/money/consumer_affairs/article6163420.ece#cid=OTC-RSS&attr;=2876189

(Update 2012: above article now sadly hidden behind the Times’ pointless paywall. Which reminds me that one of the best ways of saving money is to make sure that you’re not forking out anything to the Murdochs – the alternatives to Sky are called Freeview and Freesat for a reason.)

Insurance

Whatever you do, make sure you use a price comparison site or and independent broker before buying or renewing insurance. If you doubt whether it’s worthwhile, perhaps this little story might convince you.

We just received a home insurance renewal letter from Barclays proposing to charge us £356.99 for the next year.

I entered all our details into the moneysupermarket site and found that the cheapest we could get the same insurance would be £188, though that particular quote was from a dodgy looking company. For slightly more re-assuring looking names CoverDirect were quoting £218 and Bank of Scotland were quoting £238. The really surprising thing though was that Barclays themselves were quoting £260. So I rang up their call centre and asked why the £100 difference, to which I got a very unconvincing assurance that it wasn’t just a common or garden rip off, and that I should try the Barclays website to see if I could get a better quote than through moneysupermarket. So I did that only to be very surprised that the Barclays quote was now £240, an offer which I took them up on. My wife expressed some surprise that we were going to go with a company which was so obviously willing to rip us off – but as the lady in the call centre pointed out “all the insurance companies do the same”.

(Update: this year – 2017 – Barclays sent us a renewal demand for £288, a mere 20% increase on what they were already charging us. Their online quote this time was £220, but we switched to Bank of Scotland who quoted £180 through moneysupermarket.com)

Consumer Rights

After some extremely shoddy customer service at a large chain store that shall remain nameless, let’s just say it’s a large outdoors wear retailer that has recently gone into receivership (quelle surprise, ed.), I came across this site with a wealth of information on consumer rights legislation:

http://www.consumerrightsexpert.co.uk

I must admit I hadn’t realised that a retailer is not, per se, obliged to sell you an item at the price shown on the ticket:

http://www.consumerrightsexpert.co.uk/common-consumer-misconceptions.html 

I can’t imagine refusing to sell things at the price you’ve put on the ticket would particularly endear you to customers though, and why the receivers think consumers would suddenly pay twice the price for goods they were reasonably reluctant to buy a couple of weeks ago at the reduced price is a little perplexing – but the ways of receivers (apart from their fees) have always been a bit of a mystery to me.

Mortgages

It’s shocking, to say the least, that the banks, having been bailed out by the government to the tune of hundreds of billions of pounds, are still turfing people out of their houses for the sake of a few thousand pounds. That’s probably at least as much the fault of all UK governments since 1979 for irresponsible de-regulation of credit and encouragement of an enormous property speculation bubble. (A gigantic national ponzi scheme.) Why the government considers it more important to bail out the bankers, who presumably still have a bob or two, rather than the householders who don’t is anyone’s guess – although probably not that difficult a guess…

We used to use an independent financial advisor (recommended to us by a friend) to re-mortgage every couple of years to make sure that we were always paying the lowest possible rate. He hunted out the cheapest deals for us, filled in the forms and didn’t charge us anything as he got a commission from the mortgage companies. The last time we remortgaged we didn’t need to use him as the best deal on offer was from our existing mortgage provider, although we did have to pay them a fee to continue with the special rate we were on.

Re-payment mortgages are unfortunately a rip off. The banks structure them so that you don’t pay off very much of the loan at all in the first few years. If you compare the total cost of what you would pay over the full term of a repayment mortgage to the cost of what you would pay for an interest only mortgage plus the cost of paying off the loan (assuming you make regular overpayments to pay off what you owe) you will find that the former is very significantly more. So, in terms of cost, it’s best to have a flexible interest only mortgage which allows you to pay off the loan without any penalties (by making overpayments every month or by transferring chunks of money into the account at regular intervals.)

(There’s an additional catch, in that the best rate interest only mortgages tend to lock you out of making overpayments or re-mortgaging for a fixed period of time – it’s almost as if the banks wanted you to mismanage your money!)

You do need to be very disciplined to make sure that you are setting aside enough money to pay off the original loan regularly with an interest only mortgage (there will probably be a whole generation of people finding out what happens if you don’t in 15-20 years time) so a repayment mortgage may still be the best bet for many people.

The best way of locating a mortgage deal, apart from getting a personally recommended independent financial advisor to do it for you, is to use the various online financial comparison sites:

http://www.unbiased.co.uk/

If you do use an independent financial advisor you need to be very clear on whether they will charge you for their services and, if so, how much. You need to clarify this with them in advance. Banks are growing increasingly reluctant to pay commissions to independent financial advisors for mortgages, which means they may seek to charge the people they advise instead.

London & Country, an independent mortgage broker, has a number of calculators on its site which help to work out whether it’s worth switching your mortgage, including this one which works out whether you should switch even if you have a redemption charge on your mortgage:

http://www.lcplc.co.uk/calculators/early-repayment-charges

If you have problems paying your mortgage

Have a look at this page from Shelter: http://england.shelter.org.uk/get_advice/advice_topics/repossession/mortgage_arrears

Personal Financial Budgeting

Shelter also has some very good advice on working out a personal budget: http://england.shelter.org.uk/get_advice/advice_topics/paying_for_a_home/working_out_a_budget

This article on Yahoo Finance also has some good tips on personal financial budgeting: http://uk.finance.yahoo.com/news/how-to-budget-like-youre-broke.html

including a link to this National Debtline personal budget sheet: http://www.nationaldebtline.co.uk/england_wales/budget_sheet.php?country=england_wales

If you haven’t got a mortgage…

You may find this site interesting: http://www.housepricecrash.co.uk/

Apart from some interesting political discussions on its forums, it provides some very useful information on buying versus renting property, including a link to this handy calculator: http://www.allagents.co.uk/calculator/mortgage-rent/

If you have problems with your bank…

If you have problems with your bank regarding unfair charges or similar issues, have a look at the Consumer Action Group website, which has lots of advice on what to do. They have been very successful in helping people to make reclaims: http://www.consumeractiongroup.co.uk/

“Which” also has lots of good advice on the same subject: http://www.which.co.uk/campaigns/banking-crisis/index.jsp

Even though the banks recently won a High Court case against having to pay back unreasonable charges, if you can prove financial hardship, you may still be able to make a reclaim: read more.

Alternatives to Banks

Credit Unions, owned and controlled by their members, are starting to offer a viable alternative to banks and are springing up all across the country. See this page from the Association of British Credit Unions describing the services they provide: http://www.abcul.org/credit-unions. You can search for a Credit Union near you here: http://www.findyourcreditunion.co.uk/. For payroll click here, or for more advice on Better Banking click here.

Warranties and Payment Protection

Never ever take out extended warranties or payment protection from banks or retailers. It’s one of the biggest rip-offs known to man (or banks and insurance companies to be more accurate.) If a supplier has sold you defective goods they can actually be liable for up to six years. Read this:

Payment protection policies are typically so full of small print that you’d be just as well off buying a lottery ticket.

Savings

The best way of saving money in recent years has been cash mini ISAs. At the moment these allow you to save up to £3,600 per year tax free, so if nothing else, you don’t end up paying the government 20-40% of the interest. (Not that you’ll get much in the way of interest for a while now of course.)

Interest rates vary a lot so it’s worth shopping around on the financial comparison sites, although special rates to entice savers in don’t always remain special for long, and now you might want to factor in the chance of the organisation going bankrupt. Even if the government guarantees £50,000 in savings, getting your money back may be a bit of a trial.

The best form of saving, if you can, is to pay off chunks of your mortgage (if you have one) as the rates you pay for your mortgage are always going to be considerably higher than the interest you get on your savings. If you can, you should try and maintain a “rainy day” fund as well though.

Loans

Don’t, unless you have absolutely no other choice. If you have no alternative but to borrow money, you could try Zopa which describes itself like this: “Zopa is a marketplace where people lend and borrow money to and from each other, sidestepping the banks. It’s a smarter, fairer and altogether more human way of managing your money, where both borrowers and lenders get better rates.” http://uk.zopa.com

If you have serious debt problems

Get in touch as soon as possible with your local Citizens Advice Bureau: