Many people who are paying off debts may turn to alternative ways to ease their finances. Increasingly though, people who are struggling with their finances are often in a vulnerable position and unscrupulous companies may try to take advantage of this. Please read about the following financial products that may land you in more trouble than you started in, and the ways to avoid these scams but still make sure you’re paying off debts.
Sale-and-rent-back schemes
This is an unregulated industry at present, and as such consumer groups worry that many of the 50,000 or so people who have sold their homes to these companies may have been ripped off. The schemes work by the company buying your house from you and agreeing to rent it back to you after the sale.
However the sale price is often way below the true market value, and many who have paid thousands in rent and fees are evicted shortly after. Other companies fail to keep up with their own mortgage repayments and the house is repossessed.
The Financial Services Authority (the financial watchdog), recently reported that it has plans to regulate the sale-and-rent-back industry by 2010, although if you are having problems maintaining your mortgage before then it’s best to contact your lender directly or seek impartial debt help from a reputable debt help organisation.
It may also be worthwhile seeking information on the Government’s mortgage rescue scheme. If they are facing repossession, this allows households in England to sell a share in the home to a housing association which reduces their monthly mortgage payments, or by selling the property to the association outright and remaining as tenants on subsidised rents.
Contact the housing department at your local authority for further information.
Challenging unenforceable credit agreements
Many companies have been advertising that they can win compensation and write-off debts by challenging lenders over the legality of their credit agreements and if they can be legally enforced. This sounds almost too good to be true and in virtually most cases it is. These companies offer a seemingly easy way out and usually charge around £500 per agreement to check, but there is no guarantee that they will be able to make a challenge.
The companies claim that loan and credit agreements are deemed void if certain figures, like interest rates or total amount repayable are not shown, or if the agreement wasn’t signed – but most credit agreements are legal and enforceable.
Doorstep loans, Pay day Loans and other expensive credit
As mainstream lenders have tightened their criteria for lending money, many people who are desperate for cash may be tempted to use doorstep loans and other expensive credit options. Often people who are struggling with balances will have poor credit histories and may be desperate for extra cash, but “quick and easy” short-term credit can be ridiculously expensive. Payday loan and doorstep loan companies are often considered a quick-fix for those people short of money at the end of the month, as they usually allow customers to borrow up to £750 over a short period. However, the interest rate can amount to more than 2,000 per cent.
Many payday loan companies have increased their advertising and “special deals” in the current climate, to target those who are struggling paying off debts or who need cash quickly.
These type of companies will only accelerate the downward spiral and usually will not make paying off debts easier – only more expensive!!
Fake charities
The Office of Fair Trading (OFT) removed websites from 11 debt companies who posed as charities or government organisations. The websites used deceptive practices by copying certain parts of official websites, but many were trading without a consumer credit licence. Genuine charities and debt help organisations, do not charge a fee for their debt advice.
Along with some charities the OFT also recommend some debt help providers who belong to trade body DEMSA – including Chiltern Debt Management.
What are the alternatives when paying off debts?
If you realise that you are spending more money each month than you can comfortably afford, or that your debts just aren’t decreasing, it may be worth contacting a professional debt help organisation.
They can help you assess your finances and work out a suitable way to take control of your finances whilst still paying off debts.
They may be able to help by offering some budgeting advice and guidance on prioritising your current commitments, or you may need one of the many specialist debt solutions to help relieve finances. This may include an informal debt management plan or an IVA which enable you to repay debts at a more manageable rate. For people living in Scotland a Trust Deed may be a more appropriate solution.
Call the number at the top of this page and one of our advisers will offer free debt advice and help you to find the best way to become debt free. For more information about paying off debts, click here to find out about all of our debt help solutions.