Beating The Squeeze!

Financial Planning During A Recession

,

• Publisher: Straightforward Publishing Digital
• Year: 2013
• ISBN:
  9781847163578
• Topic: Psychology
• Subtopic: Autism Spectrum Disorders
• Index: Psychology

This book is ideal for all of those who need advice and guidance in the current economic climate concerning savings and investments and asset protection generally. The book also covers the avoidance of extortionate loans, so called `payday' loans and also the use of credit unions as an alternative. This book is clear and concise and very much intended for the layman. It points out steps that can be taken to protect savings and capital values and is sensitively written by an expert in the field.

1

MANAGE CREDIT CARDS

---

Credit cards are the way, in a financial squeeze, to access significant amounts of cash at low cost. They have to be one of the best ways to beat a squeeze- but you have to manage them. Your objective: to borrow your entire credit limit, which could be several thousand pounds, for about three years, and pay 1% a year.

Sounds good? Here is how you get there.

You will face a problem with credit cards if you have a patchy credit record, i.e. if you pay late or spend more than your credit card limit. If you have had issues with card companies in the past, then your first step is to re-establish a sound credit history. To do this, you should take out a new card and, for at least a year, manage it by the book: you stay within your credit limit and you always pay the card bill on time.

If you have questions about your credit record, go to an agency such as Equifax. For just £2 they will send you a copy of your credit history- which is the first thing a credit card company will look at when you apply to them. You may see a mistake: if you do, you have the legal right to get it corrected.

USE DIRECT DEBIT

You will also face money costs: one of the leading cards will charge you £12 for any default charge (which means paying late) going over your credit limit or having a payment bounce back (say when you set up a direct debit to pay monthly bills there was not enough money in the account). Card companies will take payment in several ways but the best is a direct debit through your bank. This is virtually 100% safe, the bill will be paid on time, and if it does go wrong then it becomes the bank’s fault-not yours.

The card company will not be at all upset if you borrow from them- when you do not pay the full amount of your outstanding monthly bill or maybe just pay the minimum, say £5 or 2% of the total bill. You are the one who should be upset, because you will be paying a stiff rate of interest, anywhere between 15% and 25% on what you borrow (remember: if you pay 25%, that will compound so that what you owe will treble in five years)

YOU MAY NEED RE-FINANCE

Borrowing occasionally is one thing, but you simply cannot afford to borrow from a credit card on a regular basis. You need to step back and re-finance your card borrowing- which means you go for a bank loan or overdraft or raise money from your house through equity release.

Some card companies will offer you credit card cheques, where the cheque amount is debited to your card. Credit card cheques are best avoided: they may carry a fee and whatever you spend is likely to be charged interest from the date of the transaction.

KNOW THE DATE

So you have your credit card and you are a savvy card user. This means that you know the date of your monthly statement (some card companies allow you to fix your own date when you apply) and you make any large purchase just after that date rather than just before- this buys you an extra month’s credit. You also know to use a debit card, not a credit card, to draw cash. Using a credit card, you will probably pay a fee and be charged interest from the date you took the money.

You also know to use your credit card when you make any big deal-a new TV or package holiday. Most people are familiar with Consumer Credit legislation, which makes the credit card company responsible, with the seller, for any faults or misrepresentation on a deal worth between £100 and £30,000. Remember that this cover applies abroad, but also remember that charge cards- where you pay the bill in full each month- are not covered, nor is anything you buy with a debit card or credit card cheque.

There has to be a credit element. In that case, if what you ordered is faulty, or not delivered, or the supplier goes broke, you can look to the credit card company for compensation.

CHOOSE CASHBACK

A number of people manage to pay all of their credit card bills in full every month. If you are one of them, you have a further choice. You can choose a cashback card, which does what it says on the tin.

When this was written, Amex and Capital One were the two leaders: you may get an introductory offer (say 5% back on whatever you spend for three months up to £100) and after that are handed back between 0.5% and 1.25% depending on the total you spend- the card company generally takes it off your bill once a year.(Be aware: some of the better deals are aimed at new customers, so if you already hold the card, you may not get new cashback terms)

The banks are also moving into cashback: you pay for an account, maybe get some interest plus a return of cash on certain types of transactions. You will be expected to settle those transactions by direct debit (so the bank can log how you spend) and pay your monthly salary into the account.

OR SHOP VOUCHERS

Cash has an obvious appeal, but some companies offer air miles or points which you can spend at specified retailers. Shop groups such as Tesco and Waitrose have their own cards; they send you vouchers every few months which you can use in-store.

Many card users will be able to collect a couple of hundred pounds over a year in this way-but there is one caution. The value of the cashback will be lost if you do not pay the full amount of your bill each month. The margin on cashback is small, making it useful rather than a major financial play.

BUYING AT 0%

Credit cards offer two major financial plays, which together will give you your three-year money at low cost. These are 0% purchases and balance transfers. As you are a safe and sound card user, these are open to you to access. 0% purchases mean just what they say; for up to 18 months, you can buy whatever you want without having to pay for the credit. There are just two, minor, constraints; you have to stay within your credit limit and each month you will have to make the minimum repayments, say £5 or 2% of what you owe. Just think what you are getting; if your credit limit is £3,000, then you have an interest-free loan of that amount. The only difference between the various companies’ 0% cards is how long the interest-free period lasts

NEW CUSTOMERS TARGETED

Nor is it that difficult to find 0% purchase cards-details appear on the net and in newspapers. But you have to remember that these cards are targeted at new customers, so you may be accepted for 0% purchases if you already hold that particular card or have held it some time over the past year. It should not be too hard to find a 0% purchase deal for which you are eligible- but avoid the beginner’s mistake of applying for a number of cards at the same time. If you make multiple applications, they will all appear on your credit history and that will not look good- card companies may wonder if you are planning a scam or a spending binge, or whether you expect many of your card applications to be rejected. Do a little homework first and apply for the most appealing card.

WHEN TIME RUNS OUT- ARRANGE A BALANCE TRANSFER

So you enjoy your interest-free loan for say 18 months. You have made a great series of purchases, running into several thousand pounds, which have cost you zero interest and where you have only had to pay back the small minimum amount each month. But as the end of the 18 months gets near, you accept that the card company will want to be paid back. What do you do?

What you do is arrange a balance transfer to another 12-18 months, so doubling the life of your loan. In principle, this could not be simpler- you transfer the balance, i.e. your debt, from your present card to a new one. You should be able to get a deal for 0% interest over the life of the loan, but there will be a fee: typically around 3% of the debt which you transfer. This is the only cost to you of the entire three years operation. In that way, you will have borrowed several thousand pounds (your entire credit limit) for three years at a cost of 1% a year. A way to beat the squeeze!

MAYBE ANOTHER TRANSFER?

Unless the world changes, you may be able to arrange another balance transfer when your first one expires-provided that you can carry the necessary portfolio of cards. But if you can make that work, you would be paying 3% for a sizeable 18-month loan. Just compare that interest rate with what a bank or a short-term lender would charge you-or what the credit card company would charge you for cash.

But suppose that you want to use a credit card while the balance transfer operates? Probably the best answer is to use another card. This used to be a finance minefield, with the card companies using your cash to pay off the low-cost debt and leave you with the higher-rate. The rules have now been changed, so that debt must be paid off with higher-rate first, but a new card would be simpler-assuming, again, that you can carry the portfolio of cards that you will need.

CARDS FROM STORES

Credit cards have become so popular that many retailers and internet sellers have created their own, which are likely to be offered to you without your needing to ask. Store cards typically offer useful cash inducements-you get price reduction if you sign up for the card on the spot. These price reductions are often worth having, but beware: store cards charge even higher interest rates than the national cards. The answer has to be- take the price reduction, but make certain that you pay off the monthly bill in full.

You will find credit cards, especially Visa, Master-card and American Express used in most countries throughout the world-so when you go abroad, you take you own card to use in ATMs, shops and restaurants and to pay your hotel bill. Pause- this may be the best cost-saving idea!

PAY TO CONVERT

If you just take your card, you are likely to pay significantly more than you need in commissions and deductions. For the detailed answer, look at the chapter on how to plan your holiday spend, but keep in mind the one key issue: most cards will charge you a commission when they convert your holiday spend from dollars, euros or whatever back to sterling to make up your monthly bill. There are just a few cards which do not make this charge, and these are the cards which you should take on holiday.

Another type of card to take on holiday is the loaded card (see the holiday chapter for detail) but that is also widely used elsewhere. Reverse the key idea which led to the creation of the credit card: with a loaded card, you put money onto the card, then draw it down through ATMs, shops and restaurants. No bank is involved, as you just get out what you put in. That makes it easer to apply for a loaded card than for a card which gives you credit-though remember that no credit means no consumer protection.

WAYS TO MOVE MONEY

You can budget with a loaded card and there is no way that you can spend more than you put in. There is also a security benefit: if a villain gets hold of your card, the maximum amount you could lose is what you have loaded. As there is no bank involved, he cannot backtrack to your bank account, as he might be able to do with a regular credit card. You can load someone else’s card, which makes it an easy way to transfer money to someone-say to a son or daughter at university. You might be able to persuade your employer to pay you by loading your card. If loaded cards appeal to you, you need to check out the cost. There will probably be a charge when you set up the card and when you finally close it down. You will not receive any interest on the money which you have loaded. There may be other costs when you load from a bank or use the card in an ATM. There is a wide choice now among loaded cards, and you need to check just what you will be liable for.

BEWARE OF CROOKS

Credit cards are useful pieces of plastic, which can get lost or stolen and attract crooks. If you lose a card, action is simple: you contact the card company at once and write a note to yourself that you have done so. You may be liable, but only up to the first £50 if someone else uses your card. If you hold a number of cards, you could use one of the companies which will take a list of your cards and tell the card companies if they go missing.

Much more dangerous is when your card is stolen- without ever leaving your wallet. Remember that the crook just needs to know your card number, the card expiry date and your billing address. He could get the data from a waiter in a restaurant who copies your details or from the man behind the bar if you leave your card to run a tab. Even more likely, he will find what he wants from a bill or letter which you yourself have discarded. Your problem here is not so much financial loss as a very great deal of hassle for a period of time –and your card will be out of action until all the issues have been sorted.

Here are 10 simple ideas to help keep you out of trouble:

1. Do not let your card out of your sight.

2. When the card company asks for a password, make one up-your mother’s maiden name is in the public domain.

3. When you go, say, to a garage which you do not know, think about paying cash instead of using a card.

4. When you buy over the net (only ever on a secure site) use just one card-preferably one with a low credit limit just in case there is a problem.

5. When you get your monthly statement, read it-if there is anything you do not recognise, phone the card company.

6. When you travel, keep a separate list of card numbers and phone contacts. And tell the card company when you plan to use the card away from home.

7. Never lend your credit card or give someone your Pin (Personal Identification Number)

8. Think about changing your Pin, and any passwords, say once a year.

9...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Introduction
• 1. Manage Credit Cards
• 2. Which flavour Mortgage?
• 3. Think Re-mortgage
• 4. Working out the Holiday Money
• 5. Love your Bank?
• 6. Pay less Tax
• 7. Income or Capital
• 8. Money from your House- Rent a Room
• 9. Equity from your House
• 10. Saving Tax- Free
• 11. You need a Cushion
• 12. Pay Tax-just Flip it
• 13. You will need a Pension
• 14. Taxing you later
• Glossary
• Useful addresses
• Index