Catalogue debt rip off doubles the cost of Christmas

catalogue debts for Christmas

Catalogue debts could double the cost of Christmas. A study has found that mainstream brands are charging APRs of up to 60% - which is almost triple the average interest on a credit cards, and could double the cost of Christmas.

The study, by comparison firm calculated that there's around £10 billion of catalogue debt in this country, and that 10% of people owe money to catalogues.

It also calculated that these debts could double the cost of Christmas. If, for example, you were to spend the average Christmas budget of £727 at the Brilliant Gift Shop - with an APR of 58.7% - and take three years and two months to repay it - it would cost £1,508.

It's a shocking APR, but The brilliant Gift Shop isn't alone in charging it. Simply Be, Fashion World, and JD Williams charge 58.7% too. ranked as the next highest representative APR at 39.9% (a rate it shares with La Redoute and Littlewoods).

Next in line were those catalogues charging 34.9%: Kaleidoscope, Grattan, Freemans and Gifts 365.

Only Next charged something akin to a typical credit card: 22.9%.

Hidden cost

To make matters worse, the study found that it wasn't always easy to find the cost of borrowing on the catalogue websites. Hannah Maundrell, Editor in Chief comments; "Overall, transparency around the cost of catalogue credit is as clear as mud with some providers. You really have to dig deep on their websites to find out exactly what the charges are. The high cost associated with this type of credit really seems to have fallen under the regulatory radar, particularly in light of the fact it's at the root of so many debt problems for financially vulnerable customers."

Unsurprisingly much of this debt has tipped over from being sensible borrowing, to problem debt. Over a third of people who contact leading debt charities do so to discuss catalogue debt, which makes it the fourth most common type of debt problem - after credit cards overdrafts and loans.

With the average problem catalogue debt reaching £2,046 in the first half of this year this is a significant issue. The amount of catalogue debt per person has increased by 6% in the last year alone and could grow further in the run up to Christmas.

Hannah Maundrell continues: "In an ideal world we'd all have the spare cash to cover our Christmas shopping without needing to borrow. For many that's not an option and some people will end up paying an extortionate amount in interest because they need to spread the cost. If you've already got a catalogue account set up for Christmas shopping and are planning to buy now and pay later don't assume you'll get an interest free deal. Check the interest rate you will be charged and if it's sky high try to find another way to pay. "

This doesn't mean that catalogues are to be avoided at all costs. You generally have a grace period until your first statement when you're not charged interest. In the case of you have three months and for Littlewoods you have 20 weeks. If you can guarantee you will be able to pay the total in full and before any interest is charged, there's nothing stopping you using a catalogue.

However, only you will know whether you'll be able to stick with this, or whether you'll end up overspending and paying a small fortune in interest.

Most common causes of debt
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Most common causes of debt

There are some very common reasons for building up problem debts. Here we reveal seven of the most common, and what you can do if you face them.

Unemployment or illness that means one or more of the household’s earners are unable to work will bring a profound change in family finances, and according to the Money Advice Service is the most common reason for getting into problem debt.

If your circumstances change, therefore, you need to immediately address your family finances, and put everything on a minimum spend lockdown. You should also look into the benefits and tax credits that are available sooner rather than later, to try to close the gap.

If you are on the kind of contract that means varying hours, it can be incredibly difficult to work out what you can afford to spend - making it the second most common reason for getting into debt - according to the Debt Support Trust.

Rather than swinging through the extremes from week to week, the best approach is to establish a budget that will work in the leanest of months, so you don't find yourself getting used to the months when you work more hours.

According to Citizens Advice, trying to service too much debt is the third most common reason for getting into difficulties. The TUC found that those with problem debts spend 40% of their income on debt repayments.

If you are in this position, you officially need some help with your debt problems. If you continue to rob Peter to pay Paul, you will end up owing more and more, so you need to take stock and talk to a debt charity about all your options.

The double-whammy of the legal bills combined with the incredible cost of establishing two separate households is enough to make divorce or separation the fourth most common reason for going into debt - according to the Debt Support Trust.

There's no easy solution, but if you are going through this, it can be helpful to talk through your financial situation with someone you trust or a debt charity, who can help you balance a stretched budget.

Problem debts aren’t necessarily caused by a sudden shock to the system. According to the Money Advice Service, 20% of their clients are simply trying to live on an unsustainably low income.

If you are in this category, it’s important to seek help on the benefits and tax credits you may be able to receive. It’s not always easy to navigate the system, but charities like StepChange have experts on the benefits system who can talk you through what’s available.

The combination of rising costs and stagnating wages over the last few years has meant increasingly people saw their monthly wage cover less and less of their monthly outgoings. This position has started to ease more recently, but has left many people far worse off than before the financial crisis. The Money Advice Trust said a combination of this and unexpected costs was responsible for almost one in ten problem debts.

If you consistently spend more than you are expecting, it's well worth keeping a spending diary. That way you can establish the real cost of living, and start to identify where you can cut costs.

The Money Advice Service says it commonly deals with individuals who have struggled to get to grips with budgeting and debts, and have got into debt because they don’t have the skills and knowledge to manage their money effectively.

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