StepChange #debtmyths

[MSE Wendy]

Welcome to the new DebtMyths thread by StepChange Debt Charity (formerly Consumer Credit Counselling Service). We'll leave them to explain the idea but do let us know what you think...


Hi everyone,

Sometimes it can be very hard to get the truth about debt. At StepChange Debt Charity (formerly CCCS) we hear so many stories that clients have overheard down the pub, on the bus, or found on the web that are, to be frank, rubbish!

So we’ve been asked by MoneySavingExpert.com to help guide you through some of the myths that surround money and being in debt.

Each weekday afternoon we’ll tweet a common debt myth on the MoneyAware Twitter channel (which by magic will also appear on the MSE Debt Problems page) and then debunk it on this forum thread. You’re very welcome to add your own thoughts, myths you’ve heard, or ask us questions.

If you’d like to retweet us we’re using the hashtag #debtmyths on Twitter.

[StepChange_James]

The myth:

An IVA is a magic solution to sort out my debts #debtmyths

The reality:

A lot of people try to research debt solutions before contacting us, something we actively encourage. However, as anyone who’s ever googled a medical condition will know the web can sometimes give you iffy information.

Just like you can convince yourself that your stubbed toe could lead to needing your leg amputating, searching online debt solutions can convince you that IVAs are a great idea.

Don’t get us wrong, IVAs can be an appropriate solution, but only under the right circumstances. The problem is that there are companies out there that are willing to promise you all sorts to get you to agree to one. You’ll be told an IVA is ideal for you by someone who barely knows your finances and hasn’t looked into your situation.

As with all debt charities (see http://www.moneysavingexpert.com/loans/debt-help-plan for a full list of recommended organisations) we go through your current situation as a whole, checking your income and expenditure in detail, and recommend the debt solution that’s best for your individual circumstances.

Have you ever been “sold” an IVA by someone who didn’t understand your finances?

[StepChange_James]

The myth:

I only need to pay the minimum payments on my card to clear it #debtmyths

The reality:

If you’ve got £3000 balance on a credit card and pay off the minimum payment every month you’ll still be paying it back 28 years later. Most mortgages don’t last that long!

Many people think that repaying the initial minimum payment - £71.50 (assuming a 17.9% APR on a £3,000 debt) will clear the credit card debt in about 4-5 years (41 months of £71.50 equals about £3,000, then add on a few months for interest that you think you’ll accrue).

However, because of compound interest on credit cards the amount you pay back falls each month, while the interest rate continues to add on costs.

You need to be aware of this when borrowing on a credit card and ask yourself, before spending on it, can I afford the repayments, and can I repay a higher amount than the minimum each month (preferably all)?

Have you ever got stuck in the minimum payment trap?

[StepChange_James]

The myth:

Overspending is the main cause of debt problems #debtmyths

The reality:

It’s easy to think that people who get into financial difficulty have got there because they’ve been daft with their money, frittering their cash on handbags and plasma screen TVs.

However the reality’s very different; the main causes of debt are job losses or pay cuts. We've an infographic that shows the difference between the perception and the reality: http://www.stepchange.org/infographi...x#.ULY1t4dg95o.

Do you think people with debt problems are unfairly judged to be bad with money?

[rising from the ashes]

Hi James

There's some good tips on here .... just wondering if it could be made a sticky?

Unfortunately, it quickly falls down the board / off the first page and therefore probably isn't reaching as many people as it could.

[MSE Wendy]

We can't make this a sticky unfortunately rising from the ashes, we've a few already on DFW and we try to limit the no.

We're lucky enough to be getting a new post every day though so the thread will keeping getting bumped up the list

[rising from the ashes]

Yup, there are a few!

As the boards are really busy (which is great!) it unfortunately it does drop down really quickly - I know I didn't see it at all yesterday (and I'm around a lot just now as off work!).

Could another post with a link be added to one or more of the current sticky threads? (Maybe Fermi's really useful "Newbie's Guide" one?)

[fermi]

I've temporarily added a post for now.

Really need to have a bit of a reorganisation on the stickies, but as Wendy says, to keep the board usable and accessible on a busy board like this the number is strictly limited.

[MSE Wendy]

Thanks fermi

[Lensman]

A suggestion for a tip.

Doorstep collectors.

Most people - especially those spiralling in to debt and not dealing with it yet - live in fear of the "doorstep visit". Commonly they will have spoken on the phone to some careless DCA representative that will have suggested that a doorstep "visitor" has rights - sometimes the same as those of a bailiff.

So my suggestion is an official outline of what rights a "Doorstep Collector" has and doesn't have. And whether paying them money will help your case.

[StepChange_James]

Good suggestion Lensman.

I have a sneaking suspicion there might be a debtmyth about doorstep debt collectors next week (wink, wink).

[StepChange_Mat]

The myth:

New government legislation can write off your debt” #debtmyths

The reality:

We all see adverts from dodgy debt management companies that promise to write off 80%, 85%, 90% or even all your debt in one fell swoop. If it sounds too good to be true then it probably is.

These adverts are usually referring to formal (or statutory) debt solutions; in England and Wales this means individual voluntary arrangements or bankruptcy and debt relief orders. Often the promise of this “new legislation” is a company dangling a carrot to try and tempt you into a discussion so they can try to make money off you.

Have you ever been tempted by a promising debt repayment offer to only find it wasn’t what it seemed?

[StepChange_James]

The myth:

“Self-employed people rarely struggle with their finances” #debtmyths

The reality:

We recently commissioned research from Bristol University looking into employment and debt. Their findings showed that the finances of self-employed people are actually more vulnerable than people in employment. While working for yourself may seem like a dream come true, it can become a nightmare if you can’t bring in enough money and end up using credit to survive.

Have you ever had a business that has led to a personal debt problem?

[MummyRivett]

Great thread thank you for this.

[ChopinonaBudget]

Thanks for the one about self employment. My income is terrifyingly variable, I get no sick pay, no holiday pay, and if I need to take an afternoon of to attend a medical appointment it can cost me my entire day's income (my contact hours being from 4pm till 6.30pm), making it oddly cheaper to often go private for medical stuff than use the NHS.
I love my job, and I bring in enough (just), but it's frightening how fragile my income actually is compared to a PAYE job with a contract and benefits.

[stuff_the_mattress]

Another myth about debt that the CCCS / Step Change could do with busting is that taking out a DMP means that the bank have to stop interest and charges.

They do not.

Banks don't treat customers on DMPs any differently from those dealing with it themselves and therefore will only freeze / lower interest and charges in certain situations - having a DMP makes no odds as to what the bank will do.

[StepChange_James]

Originally Posted by stuff_the_mattress

Another myth about debt that the CCCS / Step Change could do with busting is that taking out a DMP means that the bank have to stop interest and charges.

They do not.

Banks don't treat customers on DMPs any differently from those dealing with it themselves and therefore will only freeze / lower interest and charges in certain situations - having a DMP makes no odds as to what the bank will do.

Hi Stuffthemattress,

Thanks for posting, that’s a good suggestion. We always make it clear to our DMP clients that their creditors don’t have to stop interest and charges on a DMP. We regularly speak to people who’ve taken advice from elsewhere and have been given the impression that a DMP guarantees their interest will be frozen, which can lead to them being very disappointed if it doesn’t happen.

I’d say that we find the majority of the time creditors are willing to stop or reduce interest. The biggest factor tends to be if they can see that there is a genuine debt problem and the payment being offered is reasonable. This doesn’t guarantee a payment will be accepted but it certainly improves the chances.

Kind regards

James

[FredWhispers]

Interesting stuff.

One question, how much did the rebranding of CCCS cost? Do you think this was good use of this money?

[MSE Wendy]

Can we keep this thread on the topic of debt myths please folks.

[StepChange_Mat]

The myth:

A doorstep debt collector can come in and take my stuff #debtmyths

The reality:

The idea of some beefy guy in a bomber jacket coming into your home and taking all your possessions is something that causes many of our clients sleepless nights. However the reality is very different. A doorstep debt collector is not a bailiff and they don’t have the power to enter your property.

The truth is that doorstep debt collectors have very little actual power. They can knock on your door and ask for a payment but they don’t have the power to come into your property, and can’t take your things away.

It’s fairly rare that creditors send doorstep debt collectors because it’s expensive to send someone from one house to the next and they often don’t collect very much money. If a doorstep collector does pay you a visit it’s better to not pay them anything and tell them you’re getting debt advice.

If you have debts that have gone to bailiffs then the rules are different. We’ve got a blogpost about dealing with bailiffs.