Banks and benefits

I recently applied for a new credit card. Not because I want more credit, but because I have a credit card at the moment which is carrying more than a thousand pounds of debt and charging me 34% APR for it and I want to move to a cheaper card. I’ve had that level of debt for years now no matter how hard I try to pay it off and I’m certain a large part of that is paying a third of the balance a year in interest charges.

Applying for credit while living on benefits isn’t straightforward. First off, you have to specify your occupation. I’d love to reply “working full time managing my illness” but that isn’t an option. As someone who cannot work I resent having to select “unemployed” from the list. Some people have suggested that the correct option is “retired” but if so then the banks have not said this anywhere that I can see. I’d really like the banks to clarify what someone who cannot work should chose, or add an option to specify that.

The larger problem is working out what income to put and how it is arranged. Do all benefits count as income? Are some excluded because they are less likely to continue? Is DLA excluded because it covers costs that other people don’t have? Some benefits are paid jointly to a couple, how do you divide that up?

In my case, I receive Employment Support Allowance and Disability Living Allowance. My wife receives Carer’s Allowance. We jointly receive Housing Benefit and Council Tax Benefit. It’s quite hard to know which of those count as income in the view of the bank.

I would like to see the banks add an option to the list of occupations for people who cannot work due to sickness and disability, and I would like them to clearly state what benefits count as income and how to divide them up.

Author: Latentexistence

The world is broken and I can't fix it because I am broken. I can, however, rant about it all and this is where I do that when I can get my thoughts together. Most of the time you'll find my words on Twitter rather than here though. I sometimes write for Where's The Benefit too.

3 thoughts on “Banks and benefits”

  1. hi mate why dont you write as occupation ‘on the sick?’ Then list all the benefits you get with amounts. They will be so shocked at the amount you get that you will probably get a platinum card with 2 years interest free!! Guaranteed income with a car to boot? Cant be bad. Its no wonder Sky their highest rate of new subscribers are those on benefit. You couldnt dream any other country than the UK having such a system!

  2. The problem of dealing with existing credit when circumstances change (a change of health, employment or relationships have always been the biggest cause of financial difficulties for individuals) is one that highlights the dangers of credit – despite the fact we have an economy at the moment that is entirely dependent of folk spending on credit. The vast majority of a minimum repayment on a £1000 debt on a 34% interest rate is simply paying interest. This debt is likely to take 30 years to repay if you just keep repaying the minimum amount. Unless your circumstances change, there is very little you can do about it, so the banks are on a winner. However, if you were able to transfer it to a market leading rate – for example a 6.9% life of balance transfer, and set up a monthly fixed repayment of £35 (the same kind of ball-park the current minimum repayment would be on £1000) the the whole debt would actually be cleared in just a little over THREE years! The only kind of person who would likely to be accepted for such a card is also the kind that could clear this debt anyway from their current account, or just simply not need the credit in the first place.

    The problem is, when it comes to trying to shift debt to a better deal, is that the process actually requires applying for more credit – something you admit you’re not after. Any consolidation loan or alternative credit card requires being accepted for more credit – even though the new credit may just be to repay the old credit. The only new credit you’re likely to be accepted for is that which is of the same interest rate and higher.

    You may be able to get a lower interest rate from your local credit union, although I think Worcester Black Pear credit union have struggled in the past due to the high number of defaulting loans. You’d need to be a saver first, and save modestly (£3/week or£1/week unwaged I think) but after a while, this may provide access to a lower cost loan to repay a lump off the card They may be worth a chat to at least. (Credit Unions are generally staffed by volunteers so be nice to them).

    If all else fails, try to stick to a monthly amount rather than the minimum repayment – even if it is the same, initially, as the minimum repayment. £1000 at 34% on a credit card with a [1% + interest] minimum would currently cost about £38.35 a month, but if you pay £38.35 each month as a fixed payment it will only take 3 years and 7 months to repay rather than closer to 30 years – because the minimum repayment falls slightly each month, which just extends the debt and increases the interest.

    Working the maths out is easy, of course. The tricky bit is needing to use money to buy stuff in between, like food.

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