Borrowing wisely

It’s always a good idea to only spend within your means but most people experience a time when they may need to borrow money.

If you find yourself in this situation it’s important that you take a step back and assess if you truly need what you’re borrowing money for. You should also try and borrow as little as possible to ease the situation you’re in. For instance, borrowing a small amount to repair your current car is generally wiser than taking out a long term finance deal to fund a brand new set of wheels, however tempting it might be.

There are lots of different types of borrowing and some are much cheaper and safer than others, so it’s really important to take your time and do your research to get a good deal. The most important things to ask yourself are:

  • Is this borrowing essential?
  • What is the interest rate I am paying? Is it the lowest available rate available to me?
  • What is the total amount I will repay? Is the item still worth it including these additional costs?
  • Can I afford the repayments and still pay other essential bills?
  • Can I wait to make the purchase until I’ve had a chance to save up enough cash?

While we may all need to borrow money from time to time for a one-off purchase e.g. to replace a broken washing machine. If you find yourself getting into debt regularly as your income is less that your regular spending, you need to look at managing your money more effectively and getting support to get you on the right track.

Credit unions

A lot of people are unaware of credit unions which can be a great option if you need to borrow money. Credit unions are a self-help co-operative whose members pool their savings to provide each other with credit at a low interest rate. To be part of a credit union you have to share a common bond with other members, such as:

  • Living or working in the same area
  • Working for the same employer
  • Belonging to the same church, trade union or other association

If you’re struggling to repay your loan, you can contact your Credit Union - they should be able to help you deal with your repayments.

For example they might offer to:

  • Reduce or pause your payments for a limited time
  • Stop adding interest to the loan for a limited time
  • Help you work out a plan to pay what you owe

If you’re not sure how to repay your loan

The Credit Union should give you time to consider your options.

They should pause your account if you’re waiting for your circumstances to get better. For example, you might be waiting for your first payment of wages or benefits.

If the Credit Union pauses your account, it’s a good idea to use this time to get debt advice.

Loan sharks and doorstep lenders

It is illegal to lend money without a license. Loan sharks are companies or individuals who lend money illegally, often charging very high interest rates. They often use threats, intimidation and even violence to collect their debts, leaving their victims living in fear.

The loan shark is breaking the law - you have done nothing wrong and will not be in trouble with the authorities. Debt to a loan shark cannot be legally enforced, meaning if you report it, you may not have to pay it back.

If you think you may have borrowed money from a loan shark or know about one, you can report them anonymously to the Illegal Money Lending Team.

Be aware of short-term credit online

Particularly in the run up to Christmas pay in three options and short-term interest free period loans from payment providers (eg. Paypal, Klarna, Clearpay etc) and online catalogues (Freemans, Very, Next etc.) can seem like a quick, cheap way to get credit on smaller items and help your cashflow.

The fact that these types of credit arrangements are so easy to complete, can mean you run up multiple small debts at the same time which can mount up and be tricky to keep track of. If you don’t pay within the initial interest free period you’re also likely to start paying high interest rates.

Like with larger amounts think before you click and decide if the item you are purchasing is really essential. If you do still want to go ahead with a purchase a good rule of thumb is to make sure that you wait until you pay off one purchase before you take out another.

If your debt becomes unmanageable

If you find you are unable to meet your repayments or have bills that are in arrears it is important to prioritise what you pay off first and get advice. It is tempting to bury your head in the sand and try and ignore the true situation, but every day that passes you owe more money, so the sooner you get advice the better.

© Wigan Council