Ways to Avoid Debt Traps

Monday 16 March 2009

Many people now are facing either severe arrears or house repossession and are forced to look for debt help. About 3000 people are redundant every month and one house is repossessed every 10 minutes, which leads to the spread of disreputable businesses that live off of naïve and desperate borrowers. Leading debt charities, the Consumer Credit Counselling Service, National Debtline or Citizens Advice, suggest that borrowers in arrears check with them before dealing with this or that company in order to avoid being ripped off. Here we list the most widespread schemes that disreputable companies use to trap borrowers. Sale-and-rent-back schemes This scheme implies that the borrower sells his house to a company, after what he will be allowed to live there as a rent-paying tenant. More than 50.000 households used this scheme and a substantial part of them were ripped off. Some companies fail to pay the mortgage and the house is repossessed by the bank anyway, which leads to situations, in which borrowers lose their homes and money. The Financial Services Authority finally announced last month that it will regulate sale-and-rent-back companies by 2010. Borrowers are strongly recommended to avoid this scheme until it will be actually regulated and to look for other ways to make payment arrangements, such as the governmental mortgage rescue scheme. Unenforceable credit agreements Some companies claim that they can write off debts and win compensation by challenging lenders. The problem is there is no guarantee the challenge will be successful, but the borrower will be charged approximately £500 for services anyway. In most cases credit agreements are legal and enforceable. Moreover, debt charities can check your credit arrangement free of charge. Fake charities These are companies that create web-sites using similar domain names to charities such as National Debtline. They offer expensive services are charge for advice. Legal charities do not charge people for help and negotiations with lenders. Expensive credit Many people consider quick credit as a way out when they desperately need money at the end of the month to settle down their monthly payment. However, quick credit providers usually charge £25 for every £100 borrowed, and the interest rate sometimes reaches 2000%. In general, such companies advertise their services as "special deals" and sometimes even offer reduced rates to customers to recommend the company to friends and relatives. In fact, quick credits accelerate a downward spiral that borrowers are trapped in. Intimidating debt collectors Many borrowers have reported being chased by lenders and their debt collectors, who use bad practices to wrest the money from the borrower. Sometimes they call the borrower or his/her relatives all day long or even empty the bank accounts without permission. Such practices make borrowers pay off low priority debts, such as store cards and credit, instead of focusing on major debts such as mortgage and utilities. Borrowers should remember that such type of harassment is a criminal offence under the Administration of Justice Act 1970. If you or anyone you know is chased by creditors or their agents, contact Consumer Direct for advice on 08454 040506.