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Belfast Live
National
belfastlive.co.uk

From Credit Cards to Buy Now, pay later- the best ways to lend money and the ones to avoid

Households in Northern Ireland continue to feel the impact of rising costs, following an unexpected increase in inflation rates. New figures show the UK inflation rate rose to 10.4 per cent in February meaning pressure from the cost-of-living crisis is likely to continue.

Supermarket inflation also hit another record high this month, and with basic foods such as eggs, milk and cheese rising at the fastest pace. Household incomes will be hit hard and many people will be turning to credit to get through these hard times, says Sinead Campbell, Head of Money, Debt and Quality at Advice NI.

She explains: “Debt can often make people feel like they have limited options or time to seek out a solution. For this reason, people resort to what they think is the easiest option, increasing their credit card limit, taking on store cards, use buy now pay later, pay-day loans or even illegal loans.

Read more: Consumer expert Alice Beer shares her top money saving tips for savvy shoppers

“It’s critical to understand which lending options to try to avoid as these can quickly spiral out of control and get you into debt quickly.”

Below, Sinead compiles her tips on how to navigate lending options and which to avoid.

Navigating Credit Card Debt

Credit card debt is the number one debt Advice NI deal with. They can be useful to build a credit rating and can provide some consumer protection. However, we are seeing an increase in many using credit cards to supplement income and/or pay for essentials, then struggle to meet the minimum repayments. Typically credit cards have relatively high interest rates, often in excess of 22.8% APR, and if not paid in full each month the interest and charges can quickly spiral out of control, getting you further into debt.

Unfortunately, when households are struggling, access to credit can be tempting. But it’s better to create a budget that will show you what you are spending and where you could cut back. It can also useful to create saving goals for items you want to purchase, rather than using credit. Credit cards are useful but only where you can afford to repay over the minimum amount, limit their usage or repay in full.

Store Cards and Buy Now, Pay Later

Store cards are another expensive credit option. The average level of store card debt we deal is over £1,140 per agreement. Store cards and the rise in popular Buy Now, Pay Later options, such as Klarna, PayPal and Clearpay, has meant many are living above their means by buying more expensive items than they potentially would have, if they were paying for them upfront.

These finance options can lead to serious debt and negatively affect your credit rating. Three missed payments can lead to a default notice, and this remains on your credit file for six years, which can result in difficulty accessing future credit.

Avoid Payday Loans

Payday lending is high-cost, short-term loans, usually for a small amount. They are paid directly into your bank and you either repay them in full when you receive your next income payment or pay it off over a short period of time, usually three months.

Repayments will include interest and charges that are very high, some in excess of 1,500%. Therefore, it’s easy for debt to get out of control if not paid back quickly. Always evaluate your options before obtaining a payday loan or any credit and if you are struggling or are in debt, speak to a Debt Adviser who can provide confidential and bespoke advice on your options.

Don’t Get Bitten by Loan Sharks

Loan sharks operate outside of the law, and there are many risks associated with borrowing from one, such as you or your family being harassed if you fall behind on repayments.

Always remember that licensed money lenders are regulated by the Financial Conduct Authority (FCA) and must adhere to its codes of practice. Before borrowing, you can check the FCA register to see if the firm or person is legitimate - https://register.fca.org.uk/s/ .

It’s important to remember if you have had to supplement your income with credit as the cost of living crisis continues, and are now struggling to repay your debts that help is available and the earlier you seek advice the more options you may have.

Advice NI has 65 members with more than 300 advisers across Northern Ireland, all providing free, impartial and confidential advice. To access Advice NI’s money and debt advice service, and free your future, call 0800 915 4604, email advice@adviceni.net or visit adviceni.net/money-debt .

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