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The Credit Cruncher was conceived to help you to keep up to date with credit crunch and recession developments, it provides some helpful credit crunch advice and it addresses personal debt. The Credit Cruncher also seeks to explain how the credit crunch started and shed some light on the worldwide recession. Recently, we have begun to look at how BREXIT will affect the UK economy. Please feel free to leave comments where relevant.

29 Jul 2009

Credit Cards for the Credit Crunch

I have spoken on many occasions about how I have crawled out of the pit of debt by using 0% credit cards and am now very very close to paying the entire original debt off (although I have recently started to build up a balance on my 'normal' credit card which I will now have to work hard to pay off!!).
I am reminded however about my first application for a 0% card... I saw adverts for the wonderful 'Capital One' card which was advertised on the TV and I decided that this was the card for me. I duly applied and was turned down as I had a poor credit rating which turned out to be due to a number of still active credit accounts I had more or less forgotten about. I got a report from Experian or one of those agencies which listed accounts which, although I had not used them for years, were still having an effect on my creditworthiness.
Imagine you have four accounts each with a £10,000 limit that you no longer use - a potential lender can see that you have potential access to £40,000, therefore if he extends your credit even further, you could end up with debts that are beyond your means... So I took the step of formally closing any accounts that I wasn't using. Generally banks do not reconsider once they have decided not to open an account for you, so I went cap in hand (and with a better credit risk) to the nice people at Virgin Credit Card and they took all my debt and placed it in a 0% account, Hoorah for Richard Branson!
However, that is not the end of the story, Oh no... Capital One were still to play their hand. I had applied to them originally, so they knew exactly how much debt I had - they also assumed that I might not be able to get a 0% deal (if my apparent credit risk remained) so what did they do?? They plagued me for months with offers to lend me money (not at 0% I hasten to add). So not only do they NOT give me the account I wanted, they sought to exploit the knowledge they had about my financial position by trying to get me to take out a loan. There's something suspect in my opinion about a bank that thinks you are not worthy of their credit card, and then proceeds to persisently try and get you to take out a loan, and so I have vowed NEVER to enter into any agreements with Capital One under any circumstances. I do not know that any other banks would have behaved any better, but I know unethical practice when I see it and I firmly believe in voting with my feet so to speak... I also resent the implication that I would be so devoid of alternative plans that I would gladly grasp at whatever crumbs Capital One would throw my way. I have news for Capital One - I have had three o% cards in succession over the last few years and am within £100 of seing a zero balance - and have never even had to consider them as a credit provider in all that time.
For anyone who has a debt like this that is on the verge of becoming unmanageble, my advice is to take the same route and explore the possibility at least initially of getting the debt transferred to a 0% card and paying off what you can during the 0% offer (definitely DO NOT SPEND anything on this card...). When the offer expires, don't let the principle attract interest - move it on to another 0% deal straight away. The psychological boost one gets from seeing every penny of your payments coming off the debt rather than being sequestered away to pay off interest, is tremendous and just the ticket to make you want to pay off as much as you can as soon as you can..

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