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Ed Flack gives some sound advice on how to help your children manage their credit cards


I


n bringing up three children, my wife and I have experienced more than our fair share of school systems. From Montessori, to state primary, prep,


overseas private, state secondary, independent, university and academy. With GCSEs, A-levels and degrees in the bag we felt confi dent that all of our children had completed their education – they even had bits of paper to prove it! We assumed that they were ready for the world.


Credit cards – the facts ● Don’t use a credit card for everyday living –


it’s too easy to lose track of what you’ve spent ● Always set up a direct debit to make the minimum payment every month. Better still set up a direct debit to repay as much as you can


reasonably aff ord each month ● If you miss a payment it will cost a minimum of £12 in charges plus it will have a negative


impact on your credit rating ● The minimum payment is either 1% of the outstanding balance + interest for the month + default charges + pro-rata annual fee OR £5 (whichever is greater). This means that as your debt decreases so does your minimum payment, therefore it takes much longer to pay


off your debt ● Don’t have dormant cards – cancel them ● Always keep an eye open for a cheaper deal


● If you have a 0% deal, keep an eye on the end date and don't forget to transfer the balance before the deal expires


Within six months of being left


to their own devices, one had signed up to a current account, which wanted to charge him £19 per month. Another lost his deposit to an unscrupulous landlord and the third completed a CV which wouldn’t have looked out of place on the back of a cereal packet. At 16 and 17, young people need to be prepared to make some of the farthest- reaching decisions of their lives. By 18, they will have a bank account in place and most likely have been off ered their fi rst credit card. There is a good chance that it will be a


student card from one of the high street banks, which, they claim, are “tailored to students needs”. This means that it will have a low start credit limit and higher monthly minimum repayment attached to it than a standard card. Once a contract has been agreed, the card


delivered and the signature strip signed, the temptation will be to use it for a host of everyday payments: this should be avoided at all costs.


A direct debit needs to be set up straight


away to make a minimum payment. A failure to pay this amount means that not only unnecessary charges may be incurred, normally £12 per late payment, but extra interest will be charged as well. Most importantly though, their credit rating, which is key when they go looking for a loan or mortgage later in life, will take a hit. On the plus side, of course, there is no


There is no quicker


way for young people to build up a good credit rating than by running a credit card account tidily


quicker way for young people to build up a good credit rating than by running a credit card account tidily. Even though the minimum payment may be met, no one, least of all the banks, explains that the minimum amount will drop each month as the outstanding balance is repaid. Your son or daughter needs to have it explained that by just leaving the minimum repayment amount at the original level and not accepting the smaller one, they will repay their debt in less than half the time with half the cost! Better still, repay a fi xed amount every month which is more than the minimum payment. Shopping around for a better deal on your credit card is always a good idea. Online comparison sites make this easier than ever to do so. A word of caution though: every time a request for a new card is refused, a “black


mark” is placed against the applicant’s


credit rating. Applications should only be made therefore, if there is a good chance of acceptance. When the statement arrives each month,


it should be checked carefully and any odd payments queried with the card issuer. Make sure that any amounts taken for payment protection insurance are queried if this insurance was not specifi cally requested when the contract was signed.


Ed Flack is the owner of WizeUp Consultants, www.wizeup.me


www.fi rstelevenmagazine.co.uk


Autumn 2011 FirstEleven 55


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