Saturday, 27 February 2016

Can we tempt you with more dosh?

Hello and Good Morning. It's Saturday and Sounds of the Sixties is just finishing, so I'll turn the radio off because it's a distraction. No point in leaving it on if I am not listening to it. 
This post has connections with the 'No Quick Fix' theme of yesterday. All will become clear if you read on. Below I have copied a letter I received from my bank, dated 6th June 2008, yes I keep all my banking correspondence filed away for future reference. If you want to read it you might have to magnify it, but the gist of it is that they are offering me a Personal Reserve fund, an amount of money that I can use if I have exhausted my balance and my overdraft. I have never had an overdraft, by the way. When there is no money left, this Reserve Fund kicks in. Well isn't that nice of them! 
The letter states that the Personal Reserve is help when I need it most, so nothing to worry about then. When I am absolutely skint there will be money in the pot to enable me to carry on spending. Such a comfort to know this. But hang on a minute, there has to be a catch, there usually is. If I go into the reserve I have to pay a fee of £22 for the first five consecutive working days, and if I am still using the reserve there will be a further fee to pay of £22 for each subsequent five working day period, regardless of the number of transactions in that period. Now for someone who sees the word 'interest' as a dirty word, that arrangement sounds horrific. 
This letter arrived at about the same time as I was reducing my working hours which reduced my pay. My bank balance was slowly shrinking, almost to the point of dropping below the bottom line. It never did though, I always pulled myself back up again. 
Of course there are a couple of other niggly charges that they can add on as well. Returned transaction fee £8 per transaction, and Guaranteed transaction fee, £8 per transaction. So if you take your eye off the ball and slip up it will cost more, which is what happens normally if you overspend or make a mistake with transaction dates.

Did I sign up for this fantastic offer? What do you think? Nope, I wrote and declined it. If you have been reading my blog long enough you will know that I don't spend more than what I have coming in. Below is a little snippet from the top of my monthly statement. Emergency Borrowing NIL. You can see that they have thrown a tempting morsel my way of a personal loan of £20,300. They don't give up do they.

Right, what you see here is how much credit I can have with my one credit card. I could have a nice treat with that, but, and here's the catch, the same rules apply to the reserve fund and the overdraft, IT ISN'T MY MONEY. A lot of people would look at that and think, let's spend it, I deserve a holiday. Not a good idea, because it has to be paid back with that dirty word, interest.

Every time I use my credit card, I have the funds in my bank account to pay it off. I use it for convenience, and for the consumer protection it gives me on larger purchases that might go wrong, and it gives me points. I put part of my car payment on this to help rack up the points. All of my small purchases I pay for with cash. It's very rare I use a card in the discount stores.
 
Now I need to make the connection with what I have written here, to 'No Quick Fix'  There are thousands of people with lots of small debts spread around lots of companies. Lots of bits of paper coming through the post, asking for payment. Lots of bits of paper getting lost, shoved in a drawer, and ignored. It's called burying the head in the sand, I'll sort it one day. Keeping track can make it very difficult to balance money coming in with money coming out.

Wouldn't it be much easier to have one payment going out to cover all the bills? Debt consolidation sounds like a good idea, get a loan and repay all the debts with it, then there is only the loan to pay off every month. Simple. Sounds like a good quick fix to me, or does it?

A loan does not get rid of the debts, it just moves them to a different place. Get the loan, pay off the cards, and bingo. The cards are cleared, the catalogues are cleared, the payday loans are cleared, the overdraft is cleared, giving you a fresh new start. But it isn't. What happens if an unexpected expense occurs, something breaks and has to be replaced, or the holiday of a lifetime opportunity is too good to turn down, or a wedding is planned, or even a night out on the town with your mates is on for next week? That's OK, you still have the cards to pay for it. And so the downward spiral starts again.

Moving debts onto a consolidation loan is a quick fix which is not going to work, if you haven't learnt any lessons. If your attitude to spending has not changed, you will find yourself back at square one, with even more debt. It is all over Money Saving Expert Forum that it is not a good idea to move debt around, with the one exception of moving some of it to a 0% interest card, and even then, that 0% is only going to last for a year or so. If you have not paid off that card before the time runs out you will find yourself with even more of that dirty word, interest, to pay.

Forget quick fixes for sorting out debt, the remedy needs to be long term. There is a Statement of Affairs calculator on MSE where you list all your incomings and outgoings. Fill that out to get a better picture of where you're at.

It's not rocket science, changing your mindset about how you spend over the long term is the key. You don't lose weight by a frenzied stopping eating over a couple of months because it will pile back on again, and you don't get out of debt by juggling it around and shifting it to different places, it's still there.

Grey skies today, I won't be going far.

Thank you for popping in. I hope you have a good weekend. Catch up soon.
Toodle pip

20 comments:

  1. That is a brilliant piece of advice and a brilliant piece of writing, Ilona. As you say, managing your money isn't rocket science. You list all that you must spend in the month, deduct it from what you have coming in by way of income/pension, and then what is left you have to spend. If you then divide that money between the days until you next payment goes into your account, you are left with a daily budget. If you don't spend for two or three days, then that budget will go up, if you overspend on a day, it will go down. This might be a simplistic way of handling money, but really it's just simple logistics. And if only the language reverted to what it used to be before we had 'credit' cards. Credit is actually DEBT.
    Margaret P

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  2. Thank you dear Ilona. Sigh...my OH (married 31 years this past January) uses his cc chronically. Mine are PAID OFF end of each month. He has two cc's; the majority of his addiction is on one. I literally forced him (huge rift in marriage for a time) to shred the ATM card after catching him use it after he promised 'I'm not using the cc!' Ugh. That was about six years ago. He's not charging the gargantuan amounts he once did, but the addiction lives. ... He retires soon (few years) and the reality of his folly is the only thing making him pause now. The pause is not the same as NOT USING, but thank God...something. From Queens, NY

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  3. My bank was horrified because I took the overdraft protection off of my debit card. I only use it, when I come to the UK to see my family, and need to get my money out....
    The girl said" but what if you want money and there is none" in after horrified tone? I replied then I guess I won't spend any.....I REFUSE to play their game. They wanted to charge me $25 A DAY for an overdraft!

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  4. Why do people assume that debt is always incurred by people choosing to buy fripperies and treats? People sometimes have to use their credit cards to make payments to get transport to work or buy groceries. They don't have a back up fund saved up because there is never any excess to put away. They already live on less money than the most frugal of people choosing to live that way, simply because there is no other way of living as there is no other money to meet their needs.

    It is very unfair that poverty is often seen as being people's own fault. It really isn't! You need to have enough money coming in for those very basic needs before you can manage it effectively to cover them.

    Living on little money, within a persons means is easy if there is enough. It may mean that you have to go without some treats. Trying to live when your salary doesn't pay your basic costs (which are already as low as they possibly can be) is a different game altogether. Using a credit card to have a weekend break (because you deserve it) makes no sense. Buying your food in the last week before pay day does and is an act of desperation. There are lots of people who have to do this. Have to or else they don't eat. There is a lack of differentiating between need and want and blaming people who work hard for their inadequacies.

    Poor people understand budgets more than anyone and work miracles every day and bring up families on a shoe string. People saving for a rainy day and who own several properties on the proceeds (for example) are really not best placed to preach to these people (which some do). It is patronising and worse.

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    1. I understand and respect what you are saying. People cannot live on minimum wage or part-time jobs because there is just not enough money to cover the basics.

      To me the answer is education so that a person can get a better paying job. Education does not have to mean university. It can be learning a skill like plumbing, electrician or, in Ilona's case, driving a lorry (a truck to those of us in the U.S.)

      Even education is often easier said than done because someone working part-time or full-time with variable hours (one day 7-3, the next day 3-11 p.m.) would find it difficult to schedule classes to learn a skill. (Retailers are notorious for scheduling variable hours.) I think there should me more apprenticeships where you learn on the job.

      I was lucky that my parents were able to give me an education so that I could work in a fairly well-paid job. I think it is more difficult for young people today and I really feel for them.

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  5. Wise words. I only have what is called a 'light' account - I can't meet the minimum amount of money coming in each month for my building society so my account does not allow me a monthly overdraft (and other perks). I've never been caught out. Natalie

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  6. A very good post Ilona, I hope the people that need to read this read and digest it.

    Many, many years ago married to my first husband we fell into the trap of consolidation loans to pay off lots of smaller credit card debts,and guess what things came up and we 'had' to spend on the credit cards again, and then his drinking got out of control and I used the credit cards to buy food, then before we knew it we were back to square one but with a loan to pay off as well. It doesn't work, it NEVER works. It's only the day you decide to STOP spending and sit down and work things out that things can begin to get back on track.

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  7. Barclays are terrible. When we were having to sort out my husband's finances when he was taken ill, we worked out that the emergency borrowing that was available on his current account was more expensive in the long term than the average pay day loan!

    Thankfully we no longer bank with Barclays! xxx

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    1. Twenty five years ago I lived in Surrey, came from Scotland, only stayed 6 months .Barclays were a nightmare, said I owed them £100. Paid it then forgot about it, they said accumulated £300 interest before I paid, drove me and my mum n dad crazy. Paid £800 interest over 6 months on £100, we couldn't get rid of it!.learnt a huge lesson.
      Avoidbarclays like the plague!.
      Every month another bill!.

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  8. Very interesting post and comments. I think, as adults it's up to us to not get sucked into this merchandiser's dream of 'spend, spend, spend' (didn't Viv-someone who won the pools in the 60s and banked in today's money about £1million have that quote, 'I'm going to 'spend, spend, spend', which is exactly what she did do and blew the lot then ended up poorer than before). My point is, we all have a budget - even the Queen - and some folk can't help being at the bottom of the ladder, no fault of their own, but it's up to us to take responsibility and, importantly, teach the next generation to deal with money wisely. A few years ago, sensibly, my family and friends got together and agreed instead of maxing-out the credit card at Xmas we would give presents of £5-£10 and under, it was fun to use our imagination and very surprising what you can get for that amount. Also we stopped sending cards, partly due to the cost of postage, and some of us give directly to charity instead, cutting out the cost to the card manufacturers. It was quite a relief in January when the credit card bill came in! Amanda

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    1. I agree Amanda about the cost of posting Christmas cards. I stopped sending them after working out that for the cost of a couple of cards I could go and have a coffee and socialise with friends - a much better experience.

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    2. I was offered a credit card the other day when I was in the bank and politely declined. As I've said before nobody holds a gun to your head forcing you to buy stuff, some learn the hard way. The only winners are the banks and the bailiffs. I am currently anti bank at the moment as my bank tells me that the cheque I paid in last Tuesday won't show as cleared funds until Wednesday! Honestly in this day and age where they can transfer millions at the press of a button! Archaic to say the least!

      Linda xx

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  9. A very good post Ilona. I think many people fail to read the small print and get drawn into borrowing money or buying things on credit because the repayments seem low. What they don't think about is the repayment period and the interest rate. I always prefer to pay cash for something and if I haven't got the cash then I go without. I also save for things rather than thinking I must have it now. Kristel

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  10. I think most of us have had to learn the hard way that debt is bad news! Once you've been there and struggled, it makes you think twice before repeating it.

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  11. I have never had a credit card in my life and nor does my husband. If we didn't have enough cash or had an emergency we would use our debit card which is money we have in the bank, always making sure there is some there for an emergency. We save for what we want to buy. I have never wanted a credit card because you have the hassle of paying it before the interest goes on. I feel it's more simple without one. Not saying anyone shouldn't have one just that for me it easier to know where I am up to without one.

    Wise words on debt.

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  12. Some people just don,t understand budgeting at all!. A woman at work is always skint a few days before pay day, not a penny to her name, borrows off other staff . She has scrounged bus fare from me at end of month, never pays it back!.
    She had a council house could have bought it for £30000 sold it for £130000, but no she said was horrible so went to private housing association paying £560 a month forever. Was clean sparkly but basically a bed sit I give up!.
    Won,t ever give her bus fare again, spends hundreds every month on designer clothes. Brags about posh clothes Erm but asks for bus fare and food at end of month!. Crazy

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  13. This really should be a newspaper article Ilona, have you thought of sending it in to some?

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  14. Well said Ilona!

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