Personal finance is a funny thing, we’re often guilty of banking on ‘facts’ that just aren’t true.
By now, we’ve hopefully all established that the moon isn’t made of cheese and that the tooth fairy somehow stops visiting when we leave home. But which personal finance facts are actually fiction?
We’ll take you through the top 4, and hopefully help you avoid any damage that could occur if you take them at face value…
#1 – Parking tickets can’t be enforced
Here’s the myth:
If you get a parking ticket from a private company (i.e. not the council or police) they rely on you paying it and submitting your details – as the DVLA won’t give them your information.
Not only is this wrong, it can get you into some seriously large amounts of debt when the company do get your details. Private parking companies can get your details – and while they might not pursue you for the debt you owe much beyond sending letters, that doesn’t mean they won’t pass your debt to a collection agency or apply to the high court to have the debt settled.
Essentially, by parking on their land, you’re entering an agreement – and the courts won’t look favourably on your case if your only defence is that you didn’t think it would stand up to legal scrutiny.
If you manage to evade the attention of the collection agency and do end up being taken to court – you’re entering a world of additional charges and really serious financial consequences. Collection agency fees add up, as do court charges and the cost of the bailiffs when they knock on your door.
A debt that could start out at around £70 if paid quickly, could easily end up being £1,000+ by the time bailiffs come to your property to start the process of seizing goods to settle the debt.
#2 – Debt disappears after x amount of time
The myth is:
If you can avoid a company you owe money to for 6 or more years, the debt will be erased.
So, there’s a real mix of information in that myth. Firstly, no company is going to ‘erase’ your debt – nor are they going to give up on trying to find you if you try to evade their attention.
The 6 years that’s often tied to this myth is probably tied to the fact that information stays on your credit file for that amount of time. So, if you were in arrears and settled them in 2014, by 2020 those arrears will no longer have an impact on your credit score.
However, if you got a loan today, cancelled the repayments and tried to ignore the letters, you’re going to be in for a very tough time – probably for much longer than 6 years. Credit companies will pursue you relentlessly – and they work with companies and systems that will locate you no matter how hard you try to keep a low profile. Buy insurance? Get a new phone contract? Register to pay gas or electric at a property? Ping… you’re leaving a paper trail that leads straight to your door.
If by some minor miracle you do manage to keep off their radar, they will pursue you through the courts – ignore that and you’ll end up with a county court judgement (CCJ) against your name. If you have an outstanding CCJ, the authorities can contact your employer to get an attachment of earnings – meaning you’ll be repaying the debt before the money even gets to your bank account. There are plenty of sensible ways to manage your debt. What is debt management? Debt management means negotiating more affordable monthly repayments with your creditors. You can do this yourself, or ask a professional to help you establish a sustainable debt management plan.
#3 – Payday loans help you rebuild your credit
The myth is:
Payday loans can be good for your credit rating – having one and repaying it shows lenders you’re a responsible borrower.
While repaying a debt is an indication that you’ll do it again, what people who circulate this myth forget is that getting a payday loan in the first place is more of an indication of your financial health to subsequent lenders than any repayment history.
Frankly, a payday loan is an absolute last-stop when it comes to getting money together to get through the month – there are lots of alternatives that should be explored first, including talking to the companies you owe money to and seeing if they’ll consider rearranging your debt – so you don’t need to turn to a payday loan.
The interest incurred on a payday loan makes it increasingly difficult to pay off. If you’re £200 short this month, next month you’ve got that £200 to repay, plus a big chunk of interest – meaning you’re likely to run out of money even quicker than the month previous…
#4 You have to be wealthy to save
The myth is:
You have to have a lot of disposable income before you start saving money
This is just an out and out untruth. While it might be nice to be able to save thousands of pounds each month, the reality for 95% of savers is much different.
Finance industry studies show that the most successful savers are people who get into the habit of saving by viewing the monthly amount they put away as an ‘outgoing’ – along with their mortgage, rent, utilities, debt repayments and so forth.
Many people believe that it is only what’s left over in your bank account at the end of month that can be saved – and guess what – the chance of money being left in your account when the end of the month comes around is slim to none – simply because we tend to ‘live to our means’.
If you can break the habit of living off your bank balance until payday – and instead adopt a simple budget, you’ll find there’s likely to be an amount that you can justify saving. Here’s the next truth: It doesn’t have to be much! Even just putting £10 away each month adds up to £120 by the end of the year – and there’s no one who’d turn down having an extra £120 in the case of a financial emergency.