What was initially a small debt on a credit card grew and grew.
Not knowing where to turn to meet bills the solution seemed to be to apply for loan after loan.
County Credit Union CLEVR Money explained how the worker, who was paying for petrol for work and reclaiming mileage expenses fell into ever greater debt.
A spokesperson for the credit union which serves Preston, Blackpool, Fylde, Wyre and Lancaster, said: “Due to increased fuel prices, their petrol had increased by around £15 per week. This, on top of other increases in food and household bills, was more than they could afford so they paid for petrol using a credit card.”
Although the worker knew they would recover some of the fuel cost in work expenses, there was often a month to six week delay in claiming and getting paid. Meanwhile the reimbursement mileage expenses had not increased to cover the higher fuel prices, leaving the worker with a shortfall in recent months.
When taken into account with an existing credit card debt, plus general debt and charges for buy now pay later purchases the worker was struggling to pay £365 per month in repayments.
Put simply that cash was not there after paying rent and houdehold bills and the worker again turned to a credit card, this time to pay for everyday items, racking up yet more high interest debt.
That’s when they began to apply for PayDay loans online. Applying for 11 loans over three months the worker realised it really did not add up and did not progress them, but by then their credit rating had been hit by so many applications.
A turning point came when they applied for a £1,000 loan via the CLEVR Money website.
The worker, who wishes to remain anonymous, said: “This loan is going to change my life for the better I will be able to concentrate on things and sleep and not worry about my working day and where I have to travel to doing my job.”
Loans manager Anthony Brookes reviewed the loan application and saw the repeated applications and rang to find out what was going on.
He said: “I saw the figures and I just picked up the phone, I could see they were panicking with 11 applications in three months. As none were progressed they seemed to realise that wasn’t the answer, but I could tell they didn’t know what to do. When we spoke they were so nervous and worried we’d turn them down. I could hear the relief in their voice when I said we could help, and we could do better than they expected.”
Anthony reviewed the outgoings and repayments. He said a debt consolidation loan of £5,500 would pay off the existing credit cards and store cards, leaving the worried worker with one single loan with a lower repayment than before.
The new loan of £5,500 is being repaid over 36 months at £175.18 per month with an interest rate of 9.5% APR meaning a total of £6,306.48 will be paid back. This compares to their existing repayments of £365 per month which went to six lenders. This totalled £5,250 of debt which was ever increasing due to significantly higher interest rates being charged.
There is a way to go, but now CLEVR Money is confident the health worker, now a Credit Union member, can see an end date to the repayments and look forward to a time when they will be debt free.
Anthony said: “The member now only has one repayment to worry about. At £175.18 per month it’s half the previous monthly outgoings because our interest rate is much lower than those other loans. It may seem like getting a £5,500 loan when you’re struggling with repayments is the wrong thing to do, but it’s about replacing bad debt with a more responsible option."
The health care worker said they would be able to sleep better now: “You can’t believe how better I feel just speaking to someone who is willing to listen and try and help. I can now see that in three years my loan will be paid in full. The problem with my credit cards I was trying to pay more than minimum payment, but still didn’t see much reduction on my balance by much, so I couldn’t see an end date.”
Anthony added: “Because we’re a credit union our aim is to help people reduce debt, not make money on them, our loans are meant to help people out of a hole, not put them deeper into one. This member now has more disposable income so can pay for the fuel and other increased costs without using a credit card. Paying back the credit union loan will help to rebuild their credit score so they’ve a chance at getting a mortgage or a car loan in the future, and we’re also putting some of their repayment away into a savings account for them for the next rainy day.”
*CLEVR Money has warned people to beware of escalating their debt with PayDay loans, Buy Now Pay Later offers and loan sharks. It warned: “Those sort of loans can very quickly turn bad as the debt spirals.”
You can apply for membership if you live or work in the postcode areas: PR1 - PR5, FY1 - FY8 and LA1 - LA2.
You can also become a member if your employer is a CLEVR Money Payroll Partner. These include Preston, Wyre, Fylde and Blackpool Councils,UCLan, Lancashire & South Cumbria NHS Foundation Trust, Blackpool Fylde and Wyre Teaching Hospital Trust and seven local housing groups including Regenda, Preston Community Gateway and Blackpool Coastal Housing.
To contact CLEVR Money call 01253 478827 or email [email protected] To apply for a loan see https://clevr.money/loans/