Credit Cards |
|
Your Money > Credit Cards Articles > Beware this recession...
|
By Sarah Modlock
It's high noon on the high street. While I haven't personally been spending like Sarah Palin to help the economy, the shops seem as busy as ever. At the same time – and making full use of the creeping "recession" frame-of-mind – there are no shortage of dangerous products cropping up that will burn a hole in your pocket long before Santa comes calling. Despite the crowds, retail sales are growing at their slowest annual rate in two-and-a-half years. High Street sales fell by 0.4% in September, which was better than the 0.9% expected, but represents millions of pounds, and it's making retailers nervous. Avoid rip-off recession products If you are looking around for the best way to spend, do beware the new breed of 'recession products' designed for the confused or desperate. Store cards are bad enough, but one of the worst cards I have seen has just been launched by Provident Personal Credit in conjunction with Argos stores. The Easy Shop Card sounds like a friendly way to spend at the high street favourite. But it's actually a shameless attempt to exploit borrowers who cannot get credit elsewhere. 'Easy Shop' is a gift card available from Provident Personal Credit and interestingly, it's not available from Argos stores even though it can only be used there. It is pre-loaded with credit of between £100 and £500 from the finance company and it can be used by anyone, not just the person that purchased the card. The best part is that Provident Personal Credit charges 222.7% APR. Yes, you read that right. So taking out an Easy Shop Card with Argos for £500 can expect to pay back £675 in just six months, £175 in interest. For example, Buying a Wii console from Argos costs £179.99. Using an easy Easy Shop Card or a gift voucher from Provident Personal Credit at 222.7% APR over six months would push the price of this purchase up to around £248.46. "Despite being attached to well known and trusted high street brands, people shouldn't be fooled into thinking these deals are anything other than a sub-prime loans with inflated APRs," says Louise Bond of uSwitch.com, which brought this nasty plastic to my attention. "It seems they really are just cashing in on desperate consumers who need relatively small amounts of money quickly. These vulnerable customers may not care how much they have to pay back as they are just focused on getting through the Christmas period. Despite the recession, life does have to go on but we strongly advise people not to be lured into this type of deal. It may seem like a quick fix but in will cost you dear in the long run." Argos was keen to point out that it's the finance company which sets the interest. But they don't have a great track record in credit deals they offer - the typical APR on their own store card is a whopping 27.9% - one of the highest on the high street. If you don't fancy Argos , then Provident Personal Credit can offload a credit voucher for one of the many other high street stores it deals with. Whoever it was in these stores that signed up to the partnerships with Provident Personal Credit should hang their heads in shame. Other traps to avoid Other classic traps to avoid are cash withdrawals on credit cards, which attract much higher interest as well as fees and charges. Worse still are credit card cheques where the huge interest starts accumulating from the moment they are used and the additional costs drive people further into debt. They should be banned. As lenders clamp down further on the amounts they are prepared to offer, there are fears that many seeking small sums to tide them over or cope throughout the festive season may be driven by desperation to deal with loan sharks. These lenders are completely unregulated and usually charge interest rates of seveal hundred per cent, sometimes even more than 1000% on the money they offer. The solution for some could be to approach a local credit union. Credit card spending is falling - is that a good thing? Latest figures in fact show that we are flashing the plastic less frequently. The value of transactions carried out on credit cards is expected to ease by 1.1% during 2008 to £120 billion, while debit card spending will jump by 14% to hit £438 billion, according to market analyst Datamonitor. The group said the change was being driven by people spending less on big ticket items, for which credit cards are typically used, as well as a reluctance to run up debt. The real question is, should we be spending anyway? One minute we are being told we're not saving enough, then the Chancellor announces he plans to spend his way out of recession. Will it work? Should we do the same? Darling faces a barrage of criticism from finance experts who say he is taking a huge gamble by adopting the the policies of John Maynard Keynes, an eminent British economist who died in 1946. Put very simply, Keynes pioneered the concept which has since been followed by millions of shopaholics: spend money you don't have to make life better. OK, so this was designed to be balanced out when the money was paid back when things were good, unlike many shoppers. In the case of the economy, the idea is that the spending would avoid us drifting into a deeper slump and bounce us back to better health. If it fails we can expect something worse than a recession - a depression. It's nothing very new for this government, which has habitually spent to balance the economy and stifle unemployment figures. But as billions have haemorrhaged from the Treasury already, it's hard to see what more can be spent without the government borrowing more. And that means interest payments, which in turn mean that the taxpayer will have to cough up somewhere along the line. If the government is crafty, it could string the whole thing out until the next election and then dump the debt on the next lot. And where does this leave the much-hyped tax cuts we are hearing so much about? Very unlikely, says I. In fact if Darling spends then tax increases are more likely. 0% interest? Slashing interest rates would cheer everyone up and help stave off a depression according to some economists. Gradually cutting rates, perhaps to zero, would be unprecedented in the UK : nothing like it has happened since the Bank of England was founded in 1694. It was done in Japan in 1990s though, to combat the recession there. It's true that this would improve confidence and give everyone a little more to spend; on average, one point off the base rate equals around £60 a month off the cost of a £100,000 mortgage. But the Bank will need to keep a close eye on inflation which may rise if rates drop. It also makes me wonder.... what if the government borrows and spent millions more and interest rates fall to 0%, but none of it works? Surely they will be left with zero options. Trouble brewing One stream of income could come from an unlikely source: beer. MPs are calling for taxes on draft beer in pubs to be cut to help boost the pub trade and recoup some of the lost tax revenue (reportedly up to £138million so far). Despite being a nation renowned for propping up bars, the pub trade has suffered more than most this year and this is largely due to price cuts by supermarkets, where beer is now cheaper than mineral water. The concern is that debt levels and high fuel bills will make the problem worse over the winter months. As a result, pubs are closing down at a rate of nearly 40 a week, with a knock-on effect for many small communities and villages, not least because so many pubs buy local food, employ local staff and raise money for local sports teams and charities. No wonder MPs have finally realised that we are losing national treasure in more ways than one. How long before there is a campaign urging us to 'Drink for Britain'? Useful links: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||