In the run-up to Christmas, we’re running a special Debt Tamers series, focusing on why young people feel the need to borrow money to fund the festive season, how they get a crap deal on credit and how they can avoid being on lenders’ naughty lists…
Christmas is coming, the geese are getting fat
Please put a wad in the millennial’s hat
If you haven’t got a wad, then a tenner will do
If you haven’t got a tenner…then screw you!
Wait, that’s NOT how the nursery rhyme goes? Oh well…don’t you think those SHOULD be the lyrics?
Being a bit skint is a year-round affliction for many young people, and one that they just about manage. But this can turn into a proper crisis around Christmas.
Let’s not forget the myriad reasons why Generation Y can consider itself Royally Screwed (at least in financial terms);
- lower starting wages for this generation’s graduates compared to those starting out in the 1990s
- inflation (i.e. the cost of living) is three times higher for millennials than it is for pensioners, according to analysis from Fidelity this year
- young people going self-employed far more likely to accept free or underpaid work compared to older entrepreneurs, according to recent research
- in-work poverty on the rise due to record rents, as reported by the Joseph Rowntree Foundation this week
- travel to and from work getting more expensive all the time (and rail fares rising by a further 2.3 per cent on average next year)
- need I go on?
Yet we are expected to buy into the perfect Christmas as readily as anyone. Witness the collective online fawning over the John Lewis advert, a ridiculous paean to an overbred dog, rubbish CGI and a trampoline costing £179.99. Or more seriously, the fact that a third of Brits intend to pay for Christmas with borrowed money this year (according to the Money Advice Trust).
I’d like to bet that a very high percentage of those will be young people, who are always susceptible to the siren song of consumerism (pushed ever forward – or rather backwards into November – by advertising) and may feel a particular need to show their love by planning & buying elaborate gifts this year. It’s worth remembering that a third of young people already have debts of over £3000, with a number saying they are kept awake at night by their borrowing.
I don’t blame anyone for wanting to keep the youthful magic of Christmas alive however they can. Yet with every year that passes, there seems to be a growing disconnect from everything that makes Christmas potentially joyous and serene – a time to be with loved ones, a sense of charity and/or spirituality (whatever faith you possess, or don’t) and a chance to regain a healthy, even productive perspective on all the pain and uncertainty of the modern world, providing a new sense of meaning and peace as we go into the new year.
Instead we are constantly being pulled towards all the things that can warp our values (an unhealthy preoccupation with stuff and status), thus making a healthy relationship with money – as a means for a genuinely purposeful, mindful existence – all the more allusive.
It seems like utter madness that people feel they have to borrow money simply to exist at this time of year. That young people feel unable to excuse themselves from the spending orgy. That young people are already having to pay more for privilege of having access to credit, simply BECAUSE they are young and don’t have much history of borrowing.
A recent report from SalaryFinance and Toynbee Hall highlighted the ridiculous “catch 22” situation facing young borrowers – they can’t get credit because they aren’t able to demonstrate a history of solid borrowing from reputable lenders, so they are more inclined to take out extortionate loans, getting into difficulty and damaging their situation further.
So how do we stop the rot? Firstly, let’s try and get the message out there, as a counter-thread to the relentless commercial pressures of Christmas, that young people ARE excused from spending excessive amounts at this time of year. If you need a reason to opt out, I refer you to my bullet points above (although I wouldn’t advocate bringing it up at Christmas lunch with your nan).
I don’t think “Christmas” is ever a good enough reason to get into bed with lenders but I accept that accidents do happen (and borrowing money IS sometimes justified and indeed a necessity). It’s just that we need to practice safe borrowing as much as we need to practice safe sex.
So how can we avoid STDs – aka seasonal towering debts? Read on to build up your credit resilience, even if it’s for NEXT Christmas…
1. Keep to the rules
That means not missing payments on any of your regular your bills. Any missed or late payments will be immediately reported to the credit rating agencies by banks and other lenders, water companies, energy providers, telecoms companies, mobile phone companies, county courts, letting agents and landlords. The record stays on your credit file for up to six years. But if a payment was delayed by circumstances outside your control (such as your direct debit not being set up properly or in time), talk to your credit provider and ask to get the black mark removed. It may seem like a hassle but a bit of time spent on the blower ironing out any discrepancies on your credit file is worth it. If you haven’t checked your credit history yet, remember that you can do it for free through Clear Score.
2. Show you are a good borrower
If you possibly can, pay off more than just the minimum payment on your existing loan or credit card. This helps you pay down your debt quicker and with less interest, but it also shows a prospective lender that you are managing your debt well and can be trusted with more credit. So dig out your last statement – is there more in your bank account that can be put towards that loan or credit card? I bet there is (albeit with some judicious changes to your spending…)
3. Manage your limits
Keep your bank account in credit or inside an agreed overdraft limit. It will not only save on expensive overdraft costs (boy do they cost a lot!) but also satisfy a prospective lender. As for any existing credit card, manage your credit carefully. Ideally you will only be using at most 30 per cent of your notional maximum credit limit each month. So, for example, if your card limit is £1,000, try to make sure you are carrying over no more than £300 to the next month after you’ve paid off as much as you can.
4. Build a credit history
If you are worried that you have never applied for credit, are not paying bills, and have little financial history, something as necessary as a mobile phone contract would help you start to build a record. Just make sure you pay up on time each month; 8 per cent of young people with a mobile contract have missed a payment in the last year, according to National Debtline, paying on average £21 a month. (FYI I have an extremely generous contract with Talk Mobile at £10 a month, a demonstration of the kind of savings you could make. Talk to your provider and see if they can up your limits. Also, ask when your contract is up for renewal; that’s when you might need to scour uSwitch for better deals).
5. Think about a credit-builder card
These cards do what they say on the tin. They are not designed for big spending as they will have a low credit limit. They also charge much higher rates than standard cards, typically over 30 percent. But they are intended to allow you to show that you can pay off a balance every month, and if you can, it will help your case for future credit.
6. Close old accounts
If you have had store cards, credit cards, or any other accounts that you have stopped using and don’t need any more, kill them off. NOW! Getting the scissors out and cutting them up might make you feel bad-ass, but it won’t do any more than that. You have to contact each bank or lender and tell them you want to close the account. You may get a sales pitch suggesting you re-start on a new deal, but if you have decided to close them stick with it. Resist those nice Scottish women they get on the line to persuade you to start borrowing all over again. Your future lender needs to know that you will not suddenly decide to reactivate old accounts and start using up credit limits elsewhere. Why not schedule this clear-out for this month as a little pre-Christmas treat? (Okay it’s nothing of the sort, but it will make you feel a lot better).
7. Try a soft search
The ‘soft search’ , sometimes called a ‘smart search’, is the clever way of working out whether or not you are likely to land the particular credit deal you want. It will let you know how an application might be viewed by a lender, without leaving a ‘footprint’ on your credit file for other lenders to see when you next make a ‘hard search’ or formal application.
8. Demonstrate stability
You will need to be on the electoral roll. It will help if you can show you have lived at the same address for a time, and ideally you will have a salary, an employment record, and a landline. I know, I know, I’m starting to sound like your mum, but you’ll thank you me one day.
9. Get saving
If you are not yet managing to save anything each month…naughty naughty. You know you’ve got to have some money put aside for a rainy day, right? Any lender wants to know that you are able to make ends meet and preferably put a little by for rainy days.
10. Get budgeting
If saving is still a challenge, you need to get into the habit of budgeting. Draw up a list of all your regular outgoings, but also start making a note of where the rest of the money goes, day by day and week by week. Only then can you begin to identify where you might be able to make a few savings, here and there, and start on the road to better financial health before 2017 rolls round. Sounds good, no?