A DISABLED mum-of-four ended up in £12,000 worth of debt in just two years due to rip-off credit card rates.
Alison Cairns, 58, from Fife in Scotland, was one of the of the four million people being charged sky-high rates because of a poor credit history, according to a new report by StepChange.
1 Alison ended up taking out five credit cards with rip-off ratesCredit: Alison Cairns
The debt charity is calling on the Financial Conduct Authority (FCA) to do more to stop “credit building” credit cards pushing vulnerable borrowers into high-cost debt.
It found that only one in 10 people actually use these types of cards in this way, which are aimed at those with a poor credit score, and in reality most people rely on it to pay for everyday living cost.
All five of Alison’s cards were credit-builders so the interest rates stretched to an extortionate 49.9 per cent on each of them.
High street lenders charge an average of 19.9 per cent APR for a credit card but “risky” low income or unemployed customers are often denied this rate.
How to cut the cost of your debtBeing in large amounts of debts can be really worrying. Here are some tips from Citizens Advice on how you can take action.
Check your bank balance on a regular basis – knowing your spending patterns is the first step to managing your money
Work out your budget – by writing down your income and taking away your essential bills such as food and transport.If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costs
Pay off more than the minimum – If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker
Pay your most expensive credit card sooner – If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate)
Prioritise your debts – If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them.
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don’t pay.
Get advice – If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further.
Groups like Citizens Advice and Money Advice Trust can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans
“I was shocked I was accepted to be honest,” Alison told The Sun. “I’d had hardly any credit before so I really didn’t think I’d be able to get a credit card.
“And my only income was my Personal Independence Payment (PIP) and Carer’s Allowance, which came to around £400 a month.
“It was fine at first as I’d make payments and pay them off within a few months.
“But then the leaflets started to come through the door, advertising other credit cards I’d be able to get.
“I didn’t really need them but I thought, what if I might need the cash in an emergency in the future?”
Six months later, Alison, who can’t work due to severe arthritis, had five cards on top of the two store cards she already had.
At first, the cards each had a £500 credit limit but as the months went on, the lenders automatically extended it multiple times until it reached £2,000 a go.
“I know it’s stupid but because the money was there, I just kept using it to help me with everyday spending,” said Alison.
“I also used it to pay for things that I’d not been expecting, like £700 for fixing my car.”
Before she knew it, Alison’s entire £400 income was being used to pay off the spiralling credit card debts.
Balance transfer cards: what you need to knowSHIFTING your balance can be a great way to cut the cost of your debt. But you must use them properly so you don’t just add to it.Always clear your debt – Credit card firms don’t offer these deals out of the goodness of their hearts. They rely on you not clearing your balance by the time the 0 per cent deal comes to an end so it can start charging you interest.
Always make your payments – If you don’t keep up with your monthly payments, you could lose the 0 per cent offer and start being charged interest. Always try and pay-off more than the minimum payment too to clear your debt quicker and don’t spend on the card either.
Check your deal – Like with all credit cards, you might not be offered the headline deal if you don’t have the best credit history. Use MoneySavingExpert’s eligibility calculator to see what deals you are likely to be accepted for.
She’d maxed out all five to their £2,000 limits, as well as £1,150 she had on the store cards.
Eighteen months after taking out her first credit card, she was unable to even meet the minimum repayments.
And with every passing day that she couldn’t pay off the card, she was incurring huge amounts of interest adding to her debts.
She said: “I hadn’t told my husband because I was so embarrassed and kept thinking that I’d got myself into this mess so I needed to get myself out.
“It made me anxious and I had to go on medication for my depression – something I hadn’t had to do for years.
“I could barely leave the house. I’d just sit there thinking how the hell am I going to fix this?”
Alison let the lenders know she was struggling and asked to reduce the minimum payments to £50 a month, but only one lender replied offering her a six week payment “holiday”.
Martin Lewis’ warns to shift debt now before top zero percent credit cards are pulled
It was then that she contacted StepChange who helped her file for a minimal asset process (MAP) bankruptcy, which is only available in Scotland, to wipe away her debts as she’d never have been able to pay them off in a reasonable time.
Now debt free, she’s promised herself that she’ll “never go near a credit card again.”
“If I can’t afford something I won’t be buying it until I can save up for it,” she added.
To stop others plunging into debt due to credit building credit cards, StepChange is calling for the Financial Conduct Authority (FCA) to put a stop to automatic credit limit increases and to consider suspending interest charges for consumers who are in persistent debt.
It also wants the compulsory minimum payment to be increases to at least three per cent to put people off using them for everyday spending.
StepChange CEO Phil Andrew said: “If people are stretched, financially vulnerable, and sometimes desperate, then of course they’re going to turn to whatever short-term means are available to help them cope.
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“Yet far from being a lifeline, sub-prime cards currently are often a very expensive debt trap in the long term – sometimes far exceeding the costs of payday loans.”
Last year, The Sun revealed how card firms are stinging customers looking to improve poor credit scores with sky-high interest rates of up to 70 per cent.
But they can be good if you are looking only to build your credit score. Here’s our guide the best cards that will help you get back on track.
The Sun has contacted the FCA for comment.
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