Top 10 worst financial products ever By Jane Baker

 

If there was a 'most wanted' list for Britain's criminal financial products these ten would surely make an appearance right at the very top...

 

Insurances

1. Poor payment protection insurance (PPI)

PPI is one of the best-known rip-off products. In fact, it's so bad, the industry watchdog, the Financial Services Authority has been forced to step in to ensure polocies are sold fairly from now on. PPI - which covers the repayments on loans, credit cards and mortgages when you're unable to pay them yourself – has long been over-priced, over-sold and incredibly difficult to claim on successfully. In short, you don't need it.

 

2. Evil extended warranties

When it comes to poor value for money, extended warranties really take the biscuit. If you're buying electrical goods for your family this Christmas be very wary of sales assistants who offer you an extended warranty. It could cost you more than half what you pay for the item itself. Remember anything you buy may already be covered by a free manufacturer's guarantee, your statutory rights if the goods are faulty, Section 75 of the Consumer Credit Act or your home insurance policy.

However, if you're thinking of paying for an extended warranty, doing some research yourself and shopping around could mean you'll find a far cheaper deal than the one offered to you in the shop. Plus, you might find that it's cheaper to cover more than one appliance at the same time. Warranty Direct, for example, will cover three items for around £10 a month. What's more, you can save an extra 10% if you use the online code RAOX108

 

3. Inferior ID theft insurance

Identity theft is a big concern for all of us, but policies which protect against it are quite frankly a waste of money. Plans cost around £60 to £80 a year and cover the cost of restoring your identity but, unbelievably, they don't actually cover you for financial loss. If you think you might be at risk, it's much better value to pay for a protective registration from CIFAS, which costs £12 + VAT a year.

Protective registration means a warning will be flagged up on your credit file so that banks or building societies will take extra precautions when credit is applied for in your name.

 

4. Ghastly GAP insurance

GAP or Guaranteed Asset Protection insurance is a hideously expensive add-on which you might be offered when you buy a car on finance. It provides protection if your vehicle is stolen, damaged by fire or written off, and covers the difference – or the GAP – between the payout you receive from your insurer and the settlement figure on your car finance agreement. Premiums are far higher than they need to be and policies are often aggressively sold.

 

5. Miserable mobile phone insurance

You'll see a common theme with bad insurance policies: they're all massively overpriced. It's no different with mobile phone insurance. If you pay for a standard insurance policy for a few years, you'll probably find you have already covered the replacement cost of your handset several times over. If you're really worried about theft or damage to your phone, check it's covered by your home insurance policy instead.

 

Savings and investments

6. Scandalous structured products

The trouble with structured products is they're notoriously difficult to understand. These plans are supposed to allow you to benefit from the upside of the stock market, but protect your capital from the downside risk.

But the guarantee isn't always worth the paper it's written on. You only need to think back to the Lehman's collapse to see how quickly things can go very wrong. Lehman's had underwritten a number of capital secure investments sold in the UK. But when the investment bank went to the wall, thousands of investors' savings disappeared with it. As a general rule if you don't understand how a product works, don't go near it.

 

7. Worrying with-profits

Never has a financial product fallen so spectacularly from grace than with-profits. Policies once flew off the shelves into the hands of risk-averse investors who were looking for all the thrills of the stock market, but none of the spills. But it was all too good to be true. The returns were paid in the form of bonuses set by actuaries that had nothing to do with how well the underlying assets performed.

Some of the growth was held back during the good years, so bonuses could keep being paid during the bad. But bonus levels were repeatedly set too high leaving little in reserve when the stock market crashed over 2000 to 2003. Today, many investors are still stuck not only without profits, but with badly underperforming plans.

 

8. Pathetic premiums bonds

You may disagree, but I'm not a fan of savings products where there's a high chance you'll earn absolutely nothing. It's true your money will be safe in premiums bonds since National Savings & Investments is backed by HM Treasury, but I think that's where the benefits end. Sure you might win the £1 million jackpot if you're exceptionally lucky, but you can't ignore the chances of winning zip.

 

Credit

9. Scary store cards

Store cards are fine if you use them properly. That means paying your balance off in full each and every month. If you don't, expect to be hit with an enormous APR which is a whole lot more expensive than most credit cards. If Christmas has to be on credit this year, think about using a 0% on purchases credit card instead. And make sure you repay your shopping bill before the interest-free period ends.

 

10. Shocking secured loans

Secured loans are for borrowers who need large amounts of credit – usually £25,000 plus. Borrowing is then secured against an asset – usually your home. That means, if you fall behind with your repayments, your home is at risk. As if that wasn't bad enough, secured loans are often more expensive than ordinary personal loans, while remortgaging may be a more effective way of resolving financial problems.

 

The top 10 warning signs of debt

By Rachel Robson

You may not think you have a debt problem – but then again, you may be in denial! Here is how to tell... 

These days, most of us have some form of debt to deal with – whether it is a loan, a credit card, or an overdraft. But the big question is, at what point does that debt become a serious problem? 

If you are just about managing financially, you might not think you have a debt problem. But if your finances are a bit of a mess and if you, even occasionally, struggle to keep up with your debt payments, this could indicate that your debt is a bigger issue than you realise. 

Facing up to these problems can be really hard. And it can seem far easier to simply ignore the problem, shove your bills in a cupboard somewhere, and hope it will all go away. Unfortunately, it does not work like that, and the longer you ignore your debt problem, the worse it will get. So here are the top 10 warning signs that your debts could be spiralling out of control. 

1) You only pay the minimum monthly repayment on your credit cards

Minimum monthly repayments are typically set at ridiculously low levels. This means that if you only manage to pay this amount, it is going to take you a long time to pay off your credit card debt in full. Not only that, but you will end up paying far more in interest before you clear your balance.

2) You do not know how much you owe and you do not want to find out

If you have lost track of how much you owe and have no idea how you ended up in debt, you are probably overspending. Losing track of what you are spending where is not a good idea, especially if you are spending large amounts. It indicates you have no control over your finances.

3) You're borrowing more to pay off your debts

Borrowing more and getting further into debt to meet your other debt payments is a dangerous path to follow – particularly if you're using payday loans, logbook loans or credit card cheques. Equally, if you're taking money out on your credit card just to cover monthly payments on other debts, you could find yourself in serious trouble in the future.

4) You are spending more than you earn

If you have no idea what your budget is and you are spending more than you earn each month, or you are not sure whether your salary is covering your expenses, you could be in serious trouble.

5) You use your credit card to pay for everyday spending

If you regularly use your credit card to pay for necessities such as food or petrol and cannot afford to clear the balance each month, your debts will continue to build up and put more strain on your finances.

6) You are regularly late paying bills

If you regularly fail to make your bill payments on time, your cheques bounce, or you overspend on your credit card or overdraft, you will incur extra fees and charges from your bank. This will drive you further into debt and could also damage your credit rating.

7) You have no savings

If you are unable to put even a little money aside into a savings account each month because your debts are too high, that is not a good sign. Having said that, it is usually wise to pay off your debts before starting to save - so it is the right strategy, but do not be blase about it: it is a sign that you are struggling.

8) You find it hard to talk about your situation

If you find it difficult to be honest with your friends and family about your debt problems, or you are lying to them about your spending habits, you could be in denial about your debt.

9) You have been rejected for credit

This could be because you have too many credit cards – even if you no longer use them – or because you have missed payments in the past. All of this can damage your credit rating.

10) You are constantly worried about your finances 

Recent research from talkaboutdebt.co.uk has revealed that 61% of people in serious debt are not sleeping due to debt stress, and 29% have taken up to six months off work. If your money problems are affecting your working life, leisure time, and how you sleep, it is time to seek help. 

Help yourself
 

If any of the situations outlined above apply to you, you are probably feeling concerned. Debt can have a serious impact on your life, but the important thing to remember is that you do not have to deal with it on your own. Simply talking about your financial problems with your friends and family can feel like a huge weight has been lifted off your shoulders. Iit is a big step in helping you to face up to your debt problem.
 

If you want to get back in control of your finances, the first thing to do is to adopt this goal: Destroy your debt.
 

Financial products
 

The following financial products may also help you to fight back against your debt: If you have credit card debt that is earning a hefty rate of interest, transfer that debt to a 0% balance transfer deal right away. This will give you some breathing space and give you a chance to tackle your debts head on. The current market-leader is the Virgin Money Card which offers a fantastic 16 month interest-free period. And as well as paying off a credit card or store card debt, you can also use this card to transfer money directly into your bank account to pay off an expensive overdraft or settle a debt with cold hard cash.

Just be aware you will have to pay a transfer fee of 4% for this money transfer, and just 2.98% for the card balance transfer. You also need to remember to try to clear the balance within this 16 month period. If you not, make sure you are ready to transfer the remaining debt to another 0% card – just remember you will be charged another transfer fee in the region of 3%.
 

Alternatively, you could switch your current account to a bank which offers an interest-free overdraft, and use that to pay off debts or transfer an overdraft. The Alliance & Leicester Premier Direct Account, for example, offers a 0% overdraft for an impressive 12 months!

It is also a good idea to get a 0% new purchases credit card for any further spending you need to do. The Tesco Clubcard Credit Card, for example, will give you 12 months interest-free on your spending. What is great about this is that you will be able to focus on your more expensive debts without worrying about racking up any interest on any purchases you make, for a year. 

So if you cannot move all your debts onto interest-free deals, try snowballing – it is a very effective way of tackling your debts. Find out more here. Finally, if you desperately need more money, you could consider taking out a personal loan such as the Alliance & Leicester Personal Loan or the Sainsbury Finance Shopper with Nectar Card Loan – both of which offer a low rate of 8% APR. 

Seek advice 

If you are still feeling completely at a loss as to how you are going to tackle your debts, contact a free independent debt advisory service such as Citizens Advice, National Debtline, the Consumer Credit Counselling Service, Payplan and Advice UK. 

These charities will be able to provide guidance on a range of options to help you sort out your debt problems, and you will not have to pay anything for this advice. But whatever you do, do not bury your head in the sand and think your debt problem will go away by itself. Because it wont. 

There are people out there who can help you and the sooner you start to face your debts, the easier it will be to get yourself out of debt. So do not give up hope!