Lee Phillips, Wales Manager for the Money and Pensions Service shines a light on how to be in control when you borrow money, options to consider before using credit or taking out a bank loan, and where to find help and guidance, no matter your situation.
There is a lot in the media about cost-of-living increases, but we know it can still be hard to talk about money. This week is Talk Money Week, where we encourage people to open up about their finances: the more we talk about money, the less of a taboo it will become. That’s why I’m really pleased to be able to work with Stop Loan Sharks Wales to talk about money. Specifically, borrowing money.
Almost all of us will need to borrow at some point in our lifetime. MaPS’ Adult Financial Wellbeing Survey 2021 tells us that 20% of adults in Wales often use a credit card, overdraft or borrow money to buy food or pay bills because they have run short of money.
For people who rent that rises to 26% of people, and 38% of people from minority ethnic communities borrow for the everyday. It also shows that age is heavily linked to borrowing behaviours, with younger people far more likely to borrow compared to older groups.
We know that 53% of adults in Wales with bills or credit commitments struggle to keep up, are falling, or have fallen, behind. For single parents that increases to 89%, and 59% of people with a long-term illness or disability struggle to keep up with bills.
Borrowing money is not necessarily a bad thing and using the right type of credit in a controlled way can help you deal with unexpected expenditure. However, there are things you need to think about to make sure you’re making the right decision.
Consider who you borrow money from
It’s never a good idea to borrow from a loan shark: they’re illegal lenders. You pay far more in interest than you would through any legal borrowing, you might be harassed or threatened if you get behind with your repayments, and you might be pressured into borrowing more money to repay one loan with another and end up in a spiral of debt that you can never repay. I have worked with Stop Loan Sharks Wales since 2008 and there have been many things I have learned from them. There are three things that stay with me though:
The first is that when we talk about borrowing from ‘family or friends,’ that is exactly how a loan shark positions themselves.
The second thing is that there is no such thing as a typical loan shark. They can be male, female, old, young, from your community, at the school gates, in the pub. They are the helpful and friendly folk who offer you a loan with no paperwork and usually in cash.
The third thing I always remember is that if you, or someone you know may be a victim of a loan shark, then contact the Stop Loan Sharks Wales team. They will check it out, support victims and they may be able to build a case to arrest the loan shark – and of course, illegal loans may not need to be paid back.
Before applying for credit or a bank loan, check what benefits you’re entitled to
Before borrowing money, you should check whether there are any benefits which you may be entitled to which may increase your weekly income. Many people are unaware they may be entitled to benefits that could offer them the support they need. If you are unsure about what benefits you can claim, Advicelink Cymru can help you check and claim what’s yours.
You may want to consider whether you are eligible for the Welsh Government’s Discretionary Assistance Fund (DAF). The DAF provides grants to people in Wales who have experienced an emergency, a crisis or a disaster; or need help to live independently in the community. If you are eligible for the fund, there is no set amount that you will receive. It will depend on your needs and will not need to be paid back.
Ask yourself some questions.
If you need to borrow money, there are a few quick but important questions you need to ask yourself before you go ahead.
- Do you really need to spend this money now?
- Is the thing you’re buying or want to pay for on credit really essential?
- Could you live without it?
- Would it be possible to put off the purchase?
- If you can wait until you can afford it, it will end up costing you a lot less.
Understand your options
If after all of that, you do need to borrow money it’s important to understand how much the different options cost and how they work. There are many ways of borrowing money, and they have different features. Knowing which is best for your specific situation can be difficult.
The MoneyHelper website, which provides free and impartial government-backed money guidance, features easy to understand guidance on all aspects of credit including how different products work. You can also find out about alternative ways to borrow such as credit unions or through employer schemes.
There’s also guidance on buy now pay later, pawnbrokers, home credit, store and catalogue cards, credit cards and overdrafts, as well as information about when you should be careful with credit products.
The cost of borrowing may be different depending on the amount you’re borrowing and for how long. Can you afford to pay it back? Work out how much you can afford to repay each week or month and set yourself a budget that includes realistic repayments.
Know where to turn for help
If you’re borrowing money to cover essentials, such as rent, food or household bills, it may be a sign you need help getting back on track. You don’t need to struggle alone. Speaking to a trained and experienced debt adviser about your situation can help you see what the best option for you might be. You can use MoneyHelper’s debt advice locator tool to find the right support for your needs.
MoneyHelper is here to make your money and pension choices clearer. Here to cut through the complexity, explain what you need to do and how you can do it. It puts you in control with impartial guidance that’s backed by government and to recommend further, trusted support if you need it.
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