Struggling households warned against ‘quick fix’ promises from loan sharks – here are the alternatives
STRUGGLING borrowers have been warned to steer clear of illegal loan sharks offering "quick cash fixes" that are likely to make their problems worse.
Many people across the UK have suffered income shocks due to the financial impact of the coronavirus crisis, having been furloughed, seen their pay cut or lost their job.
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But the Local Government Association (LGA) says it is concerned people may wait until they are in severe financial difficulties and debt before they seek help, or could turn to loan sharks instead.
It warns that money lenders operating outside the law may charge sky-high interest rates, rely on extortion, rarely issue paperwork and are likely to plunge people into deeper debt for longer.
In the most extreme cases, loan sharks have been prosecuted for blackmail, violence and kidnap offences, according to the LGA.
Simon Blackburn, chairman of the LGA's safer and stronger communities board, said: "These illegal loans typically come with astronomical interest rates, soon spiral into uncontrollable debt that can never be repaid, and are typically enforced through intimidation and violence.
How to cut the cost of your debt
IF you're in large amounts of debt it can be really worrying. Here are some tips from Citizens Advice on how you can take action.
Check your bank balance on a regular basis - knowing your spending patterns is the first step to managing your money
Work out your budget - by writing down your income and taking away your essential bills such as food and transport
If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costs
Pay off more than the minimum - If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker
Pay your most expensive credit card sooner - If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate)
Prioritise your debts - If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don't pay
Get advice - If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further
Groups like Citizens Advice and Money Advice Trust can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans
"There are much better, safer and cheaper ways people can manage their money."
For those who are struggling, we outline some of the alternatives you could consider.
If you already have debts - ask your lender for help
Many firms are offering payment freezes during the coronavirus crisis to help those with sudden holes in their budgets because of coronavirus.
Of course you still need to make these repayments eventually, and it can mean higher costs in future due to interest racking up, but if you need to ease the pressure on your finances right now it could be a good place to start.
Mortgage providers, for example, are offering up to six-month repayment holidays, while car finance and payday loan providers are offering up to three-month repayment freezes.
Banks have also been encouraged to give up to £500 interest-free overdrafts to existing borrowers and to ensure customers aren't stung by hefty overdraft interest rates.
IVA firms, meanwhile, are also offering three month payment holidays or a 25 per cent cut in repayments due to coronavirus.
And some lenders may go above and by waiving charges and interest on debts too.
Just bear in mind that while taking out any of this coronavirus help won't impact your credit score, it may harm your ability to take out credit in future because lenders take into account other factors besides your score.
Look at alternatives to high cost credit loans
Firstly, use online calculators, such as these ones from , to make sure you're not missing out on any benefits or grants.
If there's nothing free you're entitled to, the next step is to look for the cheapest source of credit.
If your credit score is good enough, also consider a 0 per cent credit card which you can use for purchases or to transfer more expensive debts onto.
Get free debt advice
Mostly importantly, don't bury your head in the sand. There are free organisations you can turn to, such as:
- - 0808 808 4000
- - 0800 138 1111
- - 0808 800 9060
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If you're seriously struggling with multiple debts they may suggest a debt management plan, an IVA, a debt relief order, or bankruptcy. But don't commit to any of these without independent advice beforehand.
See our 11 steps for getting out of debt, including the best balance transfer 0 per cent credit cards, for more help.