Healthcare worker struggling with the cost of living
The member works in healthcare and uses their car while at work. Due to increased fuel prices, their petrol had increased by around £15 per week. This, on top of other increases in food and household bills, was more than they could afford so they paid for petrol using a credit card.
Although the member would recover some of the fuel cost in work expenses, there is often a month to six week delay in that payment, and the expenses have not increased to cover the higher prices, leaving them with a shortfall over recent months.
Existing debt on the credit card, plus other general debt on store cards and buy-now-pay-later purchases, saw the member making £365 per month in repayments. This was far in excess of their disposable income after rent and household bills had been covered, and meant they were using the credit card more and more for everyday things, racking up yet more high interest debt for the following month.
The member was worrying all the time about their ability to pay and was spending their evening applying for PayDay loans online. They applied for 11 loans over three months but didn’t progress any as each was with a high cost lender and would have just been swapping one problem for another.
Eventually they applied for a £1,000 credit union loan via the CLEVR Money website.
A member of our loans team reviewed the application and saw the damage done to the member’s credit rating by the repeated applications, and realised something was seriously wrong. He immediately called them to find out what was going on and got the full story.
“I saw the figures and I just picked up the phone, I could see they were panicking with 11 applications in three months. As none were progressed they seemed to realise that wasn’t the answer, but I could tell they didn’t know what to do. When we spoke they were so nervous and worried we’d turn them down. I could hear the relief in their voice when I said we could help, and we could do better than they expected.”
The loans officer reviewed the outgoings and repayments and outlined the option for a debt consolidation loan of £5,500 which would pay off the existing credit cards and store cards, and leave the member with just one single loan with a lower repayment than before.
The new loan of £5,500 would be repaid over 36 months at £175.18 per month with an interest rate of 9.5% APR meaning a total of £6,306.48 would be paid back. This compares to the existing repayments of £365.00 per month to six lenders totaling £5,250.00 of debt which was only ever increasing due to the significantly higher interest rates. Now the member can see an end date to the repayments, when they will be debt free.
“By paying off all the other debt with a consolidation loan, the member now only has one repayment to worry about. At £175.18 per month it’s half the previous monthly outgoings because our interest rate is much lower than those other loans,” said the loans officer.
“It may seem like getting a £5,500 loan when you’re struggling with repayments is the wrong thing to do, but it’s about replacing bad debt with a more responsible option. Because we’re a credit union our aim is to help people reduce debt, not make money on them, our loans are meant to help people out of a hole, not put them deeper into one.
“This member now has more disposable income so can pay for the fuel and other increased costs without using a credit card. Paying back the credit union loan will help to rebuild their credit score so they’ve a chance at getting a mortgage or a car loan in the future, and we’re also putting some of their repayment away into a savings account for them for the next rainy day.”
The member said: “You can’t believe how better I feel just speaking to someone who is willing to listen and try and help. This loan is going to change my life for the better I will be able to concentrate on things and sleep and not worry about my working day and where I have to travel to doing my job. I can now see that in three years my loan will be paid in full. The problem with my credit cards I was trying to pay more than minimum payment but still didn’t see much reduction on my balance by much so I couldn’t see an end date.”