Latest research shows that 750,000 of us are using notoriously expensive credit card cheques to survive as money gets tight.
The cheques are equivalent to taking cash out of an ATM. They carry a hefty fee and punishing interest rate (likely to be more than 20%) from the moment they are used.
Information from Uswitch shows that 423,000 of us have used one of these cheques to pay money into our current account. A further 300,000 have used the cheques to pay our utility bills.
- Credit card cheques keep appearing
In the last year, over 280 million credit card cheques have been issued with almost 2.5 million of us receiving them once a month. What is especially irritating is that 97% of the cheques have been unsolicited.
3.2 million of these cheques have been used by us to spend a mind-bending total of £3.6 billion.
This means that the credit card providers have lined their pockets to the tune of £571 million in handling fees and interest and its easy to see why.
- Beware the interest and high fees
On credit card cheques, the average handling fee is 2.5%. This equates to £28.49 on the average cheque for £1,141.
Over 12 months this means that the interest and charges amount to £178.56 for every cheque you use!
And as if that wasn’t enough, the APR that is applied to credit card cheques is 26.71%; this is 9.48% higher than the average purchase APR of 17.23%.
However, at a time when large numbers of us are struggling with the early stages of a recession and rising food and energy prices, 16% of us who use credit card cheques have admitted they have used them to pay utility bills.
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More worrying, is that as unsecured loan rejection rates reach 1.55 million over the last six months, almost 130,000 of us are also using credit card cheques to consolidate our growing debts.
- Current account cash injection?
The findings also indicate that almost 25% of us who use credit card cheques are doing so in a desperate attempt to transfer cash into our current account.
In the last year alone, the average amount that credit card cheques have been written for has increased in value to £1,141 indicating that the value of cash we are are trying to get our hands on is increasing.
However, there appears to be a distinct lack of understanding about the cost of using credit card cheques.
This is because 86% of us who use these cheques are don’t know what the correct fees are, 1 in 10 of us believe there is no fee whilst 23% of us admit we just do not know.
13% of us wrongly believe there is a standard interest free period, along with a standard purchase APR and 39% incorrectly believe there is a handling charge and a standard purchase APR along with the standard interest free period.
Louise Bond, Personal Finance Manager at uSwitch.com, said:
“It is both alarming and concerning that so many consumers believe these cheques are ‘friendly freebies’. There are huge fees and interest rates associated with using them, which consumers need to be more aware of; particularly if they are using them to pay household bills or consolidate any debts. One of the biggest concerns however is that year on year the number of unsolicited cheques being sent out has stayed consistent; 13.7 million have been issued in the last year to people who did not ask for them.
“I think what we are seeing are more and more credit card customers using credit card cheques as a quick fix solution to not having ready available cash, but they should only ever be used as a last resort. The concern is that more people could turn to them in the run up to Christmas, and over the next year, as the recession begins to set in and consumers find themselves more cash strapped. However these quick fix solutions could turn into serious financial hangovers as they are one of the most expensive ways for people to get their hands on cash.”
- Remember you have Section 75 protection!
It is important to remember that know that Section 75 of the Consumer Credit Act 1974 protects you in using a credit card for purchases between £100 and £30,000 both in the here in the UK and overseas.
Credit card cheques do not offer you this protection!
This is especially concerning for the 8% of you who have used them to pay for a holiday and 10% of you who have used them to pay for items such as a TV or sofa.
uSwitch.com has called for the banning of unsolicited credit card cheque mailings to people by providers, as well as greater education on the fees and charges that are involved.
Are you using credit card cheques to keep your head above water right now?
What would you do if you couldn’t use them?