Debt: ten money mistakes we hear every day

by StepChange Debt Charity on 20 April 2012  |  7 comments
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Every debt story is different, but there are common mistakes at the heart of almost all of them.

Our helpline handles over 900 calls per day and our advisors will tell you that every call is different - no two debt situations are ever the same. However, there are things that we often hear again and again.

We’ve all made money mistakes in our lives, whether it’s a bad investment, a direct debit we forget to cancel or paying for a service that we could have got cheaper or even free of charge. It’s part of learning about how to handle your finances.

From our experience the following list of money mistakes are commonly being made by many people across the UK.

Having a joint loan or being a guarantor

We’ve blogged before about taking out joint loans or acting as a guarantor on someone else’s loan. This can lead to trouble if the other party cannot pay. The rule is never to take out a joint loan or guarantee someone else’s loan if you are not in a position to be able to repay the full amount on your own.

Adding card holders

A common mistake is to assume that an additional card holder is responsible for their own spending. They’re not, so be aware that any additional card holder is spending money in your name.

Making the minimum payment

Maxed out a credit card? No problem, you can afford the minimum payments.

However, only making the minimum payments on an interest-bearing credit card can often mean that the balance takes decades to clear. Worse still, if you’re making the minimum payments on one card the temptation is to go and take out another card to spend on.

Paying for advice

You get what you pay for, as the old saying goes. But do you really?

People often pay hefty fees for legal advice, debt advice or consultations on all manner of subjects. It’s always worth checking if you can get this advice for free from a charity or specialist organisation. Paying for advice doesn’t necessarily mean the advice is correct or “more professional”.

Robbing Peter to pay Paul

This phrase is one of the most common we hear from our clients and is symptomatic of a debt spiral. Once you start taking out credit to pay credit, or taking out credit to cover basic bills you need to realise that you should seek debt help. The longer you wait the worst the situation will get.

Getting a consolidation loan

We don’t usually recommend consolidating debts as it can often make your debts bigger and it just serves to kick the can further down the line. Worse, we meet clients who have consolidated and then found that they need to take out new credit to afford to cover basic costs, because of the size of the consolidation loan repayment

If you’re going to consolidate your debt make sure you can afford the repayments. As with all credit products the danger is in overestimating your ability to repay.

Forgetting to cancel

We often take out particular credit products to gain an advantage, such as a discount offered in store. These discounts are offered for a particular time period and you can often find yourself with a penalty if you don’t repay or cancel in time.

We’ve already blogged about retail tricks that are debt traps. If you do take up an offer, make sure you understand the terms and conditions and that you protect yourself against any fees and charges.

Not researching

People can jump into all things financial on a whim, recommendation or a canny piece of advertising. Things like pensions, ISAs, stocks, shares and investment should be researched thoroughly before you take the plunge. Use lovemoney.com to help you.

If you don’t do your homework you’ve only got yourself to blame. And remember the golden rule: if it looks too good to be true it usually is.

Messing with the taxman

If you’re self-employed the first thing you should put away is your tax money. Some high profile people have fallen foul of this. HMRC is a tough taskmaster and if you owe it money you might find it a difficult organisation to deal with. It's often the first creditor to petition for a debtor’s bankruptcy.

At the same time, even those on PAYE need to keep an eye on their tax code to make sure a mistake hasn’t been made. Speak to an expert in the field or risk making expensive errors. You can find out more about checking your tax code in How to make sure you’re on the right tax code.

Failing to prepare

Saving for the unexpected should be a priority. It is said that ideally you should have six months’ worth of salary saved up in case of an emergency. But how many of us can say we have that much saved as a contingency and for nothing else? It’s difficult when times are hard but even putting away £10 a month can add up over the years.

No matter what your situation is, try to avoid these ten money mistakes to help build a more stable financial future. And if you do find yourself in financial difficulties, CCCS Debt Remedy is at hand to help you.

Have you learnt from your money mistakes?