Many credit card companies are targeting existing customers with blank “cheques” for their accounts that could be potentially financially harmful, according to consumer group Which? and moneysupermarket.com.
Increasing numbers of these credit card cheques are being sent to existing customers as lenders try to exploit the lack of available credit in the marketplace, as they try and tempt customers to use them for credit card balance transfers, overdraft balances, or for new purchases.
These controversial incentives are most often sent as unsolicited mail and carry usage fees up to 3%. They often charge excessive interest rates, in excess of 20%, and leave users without valuable “Section 75″ consumer protection on purchases.
Lenders have been criticised for mailing the unsolicited cheques, as they can be easily spent without the original cardholder’s knowledge, giving a boost to ID fraud if intercepted.
Research last year by price comparison site Uswitch.com also suggested that many credit card cheques were being used as delayed payments to cover gas and electricity bills, as owners believed them to be “normal” cheques – unaware of the costs and charges they incur, pushing many into unnecessary debt.
This could have potentially devastating effects on personal finances, as each cheque usually carries a fee of up to 3% along with ongoing interest which can be upwards of 20%.
Debt advice organisations and professional debt management companies recommend households who are struggling with their finances to avoid using these cheques. Debt help organisations suggest seeking impartial debt advice to help deal with finances and for information on all available debt help solutions.
Debt help solutions include IVAs (Individual Voluntary Arrangements) and debt management plans (DMPs), which gather all debts together into a single affordable payment. Debt management is an informal debt help solution which helps to deal with unsecured balances (credit cards, overdrafts, store cards etc).
On a debt management plan balances are negotiated so they are more affordable. This is often achieved by spreading payments out over a longer period of time, which makes them more manageable. Creditors will often freeze interest and charges on a debt management plan, although this can’t be guaranteed.
An IVA is a formal debt help solution which requires a qualified Insolvency Practitioner to administer, following a debt advice consultation. Unlike debt management, an IVA is for a fixed period of time (usually 5 years) after which time all unsecured balances are written off and the client is debt free.
Reputable professional debt advice companies include Chiltern debt management, The Debt People and Hamilton Locke – who are highly regarded within the debt help sector.
