Credit deals deepen debt

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DODGY truck shop credit deals, along with a harsh winter and rising power bills are some of the reasons 350 Gisborne families have debts totalling $2.1 million.

This week is Money Week and Gisborne Budget Advisory Service manager Lynda Markie has warned people to stay away from “customer credit” offers from door-to-door salespeople and mobile “truck shops’’.

Her warning comes after providing advice to hundreds of families, some unable to buy food or heat their homes.

“Over the past year, GBAS has seen 350 whanau (families). Debt levels vary considerably, with the average debt per head just short of $6000. Many have debts owing to high-interest lenders and are struggling to pay their weekly payments.

“This winter we have seen an increase of clients who have no power due to bad credit.”

Mrs Markie says one client came to her after being left without money to buy food because she had been convinced to buy hundreds of dollars worth of goods in exchange for a lesser amount of credit.

“I have a case on my desk at the moment that reflects some of the misunderstandings that people have about credit, and we see this often.

“A door-knocker or truck shop offers their customer ‘credit’, meaning they are offering a credit limit, and if the customer purchases using that credit, they have a debt that needs to be repaid.

Many don't understand credit“Very often people hear the word credit and treat it like it’s cash, thinking that they are spending money that they have been given. They are often surprised to find they now have another bill to pay.

“The other way a seller will use the word ‘credit’ is by offering it as a discount but the customer has to make a purchase in order to take advantage of the credit. It’s bait.

“Three months ago a person ordered goods to the value of $630 so she could receive a credit of $250. The $376 balance to pay, even at $10 a week, was not affordable for her and the seller has received no payment.

“Defaulting direct debits at the bank have caused unnecessary fees that have impacted on grocery money. At the seller’s end, the debt has increased to $590 due to the company’s internal default fees being applied.

“This debt is now sent to a collection agency and will reflect negatively on her credit rating.”

Mrs Markie said the woman was left feeling she had been tricked.

“She doesn’t understand what is going on behind the scenes. She just knows that there is never enough money in her bank account to buy food.”

As a partner of the Nga Tangata Microfinance Trust, established by Child Poverty Action, NZ Christian Social Services and the Federation of Family Budget Advisory Services, they were able to apply for no-interest loans for those clients who met the loaning criteria.

“As well as no-interest loans, we can offer clients debt relief loans to refinance high-interest problem debt so they can pay it off at an affordable rate.”