PLEASE NOTE Independent advice is always available through the Benefits Agency, Citizen's Advice Bureau, Consumer Advice Centre, Money Advice Centre and Social Services.
Due to the high importance of receiving constant utilities in our homes, the treatment of utility debt is somewhat different to that of, say, a credit card debt. Cutting up your card and suing you is not meant to deprive you of water, heat, safety or security. However, the utility companies can deprive you of their resources in some situations.
WATER
The water companies usually need a County Court Judgment before disconnecting your supply (we are awaiting a new law to stop the water companies having the power to disconnect bad payers). When they apply for the Judgment, you will be given ample opportunity to make reasonable payment arrangements. If you maintain the arrangements and you keep the present water bill up to date, you need not worry. If you do not maintain the present water charge, but you are paying the arrangement, the water company will have to return to the court for another County Court Judgment. In such a situation you may be ‘pushing your luck’ with the court.
ELECTRICITY and GAS
When you receive a bill from either the electric or gas companies, check that the bills are not estimated, and that the amount of usage seems correct. If you suspect the bill is wrong in any way contact the company for an investigation into your query.
There are four methods to deal with utility debt situations (in order of preference):
Budget Plan The company will average your bills over a year and allow similar quarterly payments. If your usage goes up or down, the amount will automatically change. This method is usually by direct debit and will also provide you with a discount because of the easy collection method.
Instalments - if you do not have a bank account, this is your first choice If you find yourself in a debt situation, call them immediately and offer a payment you can afford: under the electricity and gas code of practice, they should show a fair degree of ‘understanding’.
Pre-payment Meters You must be offered a payment meter as a last resort before being disconnected (if it is safe to do so in/on your property). Meters have a higher standing charge and the supply will stop if you have no money, and are very inconvenient.
Direct Payment – by Income Support (IS) or Job Seekers Allowance (JSA) If you owe over a certain amount (call IS or JSA for figure, and there is one whatever they or the fuel companies may say to you) you can have direct deductions from your benefit. The good thing about this is that it gets paid. The bad thing: you have no control over your finances. Many people in debt need more money one-week, than they do the next etc. And, the amount of repayment will probably be higher than an Installment Arrangement.
The Social Fund Loan (a loan that can be obtained if you are on IS or JSA) cannot be used for utility debts. So, do not ask for a Social Fund Loan for your utility debt.
Finally, with utility debts, more so than any other debt, act fast and loud. Get the best arrangement you can get before committing yourself, and stick to it. If you need two years to pay-off a £400 bill: tell them so, show them your Income and Expenditure Statement that backs up your offer, and make a payment immediately.
There is an emerging market (called, sub prime lending) for those who have poor credit records but who fall short of being totally beyond credit acceptance and risk.
To explain why there is such a business, take this example:
The commission payable to a financial adviser or mortgage broker from the actual moneylender for £100,000 deal is about £250.
The commission payable to the broker or adviser who signs up a £100,000 deal using sub prime lenders is £2,000 to £2,500. Yes! 10 times more. You have probably guessed why there is such a difference – the interest rate can be up to 3.5% higher.
Mortgage
On the £100,000 deal, an extra £3,500 is payable every year. On a 25-year mortgage that is a staggering £87,500 more than the average lender. Bearing in mind that they always have security over your (sorry, their) property, the prolonged high interest rate is just short of (or just about) criminal.
Further, if you sort your finances out after a few years and would qualify for a mortgage with a more traditional lender, the ‘penalty’ for redemption (changing lenders) is again staggering.
My suggestion: save, save and save for the biggest deposit you can. Keep out of serious credit deals (like cars) maintain all current credit. Push your financial adviser or broker to get you a non-sub prime deal. Advisers and brokers are not life long friends of yours (regardless of how sweet they talk to you or how much they have really ‘tried for you’ etc.): make them bloody work for their money!
Loans
High interest loans have always been available: mostly from weekly door collection lenders. Competitive loans are only available from the major banks, building societies and finance houses. They have been using scoring cards for some time (2 points for being in a job, 0 points for unemployed etc.). With this system many of their customers have been refused loans due to not scoring enough points. A phone call to the bank manager has reversed a rejection on many occasions: not enough customers ring the manager and question why a computer has rejected one of the banks customers who, although retired and renting their home, have the means to pay the loan. Sub prime moneylenders have already integrated into the ‘home owner – no equity’ market and will soon explode in the non-home owner market.
Credit Cards
Most people with poor credit records will only have a credit card if they have been with a bank, building society etc. for some considerable period and have managed to hang onto it. Trying to get a major credit card with a poor credit record only serves to smear your name further. Each failed attempt will be registered against your credit file (if this is you, do not apply for a card until you can show a good credit account through catalogue, store card or other non-major creditor account, and if you can, wait 24 months).
There are a few sub prime credit cards at present that will take some degree of risk
the price to pay is a low credit limit (not a problem),
a yearly fee that borders on extortion (what do you expect),
and finally an interest rate that would make some of the top credit card companies look charitable (yes, it’s that high).
I have no desire to get sued, and I apologize for not naming them. Look on any of the financial sites that give you mortgage, loan and card rates. The ones with the higher interest rates could be sub prime.
But, even with all the bad points, you can operate in the real world, order on the Internet, run out of cash, hire a car … and you could also pay the outstanding balance each month to avoid the interest (ok, that’s a bit much to ask).
Who is sub prime
The current credit assessment methods are not faultless. Many good risks are rejected, as are many people who think they are worthy of credit. The self-employed and smaller company director, and those who work from home are seen as above average risk. Changing your address, or job, two or three times in two years are also above average. The ‘above and below average’ tag is a good guide when assessing yourself. If most of your friends and family own a home in the area you also live in, but you rent your home, that would be considered as below average for that area: the demographics (about where and how you live) are becoming as important as your credit record. Of course, your credit record will always be the main indicator as to your credit rating. A county court judgment for £250 four years ago will make most major lenders ‘run a mile’.
Finally, all of the readers of this article who do not have credit problems need not think that they are safe from the sub prime market. If a financial adviser or mortgage broker thinks that you are less than ‘financially street wise’ you too can end up with a sub prime lender.
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