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  • The trouble with contracts.

    by:
    Chris Northey

    I have a confession to make: I have never read my credit card agreements. I have had them for over 20 years but I have never read any of them. I have honestly tried a few times but they put me to sleep. Most contracts are long and tedious, and written in a language that is difficult to comprehend. As a result it is easy to see why so few people actually understand what they are signing when they are applying for credit.

    Many people may not know the following about their credit agreements:

    • Making the minimum payment on a debt only covers the interest charges, and makes it impossible to pay off the actual balance owing.

    • When you take out a cash advance you start paying interest on it from the moment the cash is withdrawn, not from the date of the bill.

    • When buying anything on an installment plan (buy now, pay later), after the “no interest” grace period is  over, all the interest that is not paid is then added to the account balance. The new interest rate could be up to 29%.

    • Balance protection insurance only covers the minimum payment when a person is sick or loses their job. It  will not pay off the outstanding balance, and interest is still charged.

    • Bank accounts in overdraft usually charge an interest rate of around 21%.

    • Using a cell phone in another country has extremely high roaming charges.

    • If you cancel your cell phone plan before the end of the contract, you will have to pay for the entire  amount owing on the contract.

    I did not know any of these things before I started working as a credit counsellor.

    I know it is the person's responsibility to read their contracts before signing them, but most people do not. The contracts are long and written in complicated “legalese”. It is easy to not see important clauses. Sales reps and bankers are more interested in selling the product than explaining potential extra costs.

    Legislation needs to be implemented to ensure these difficulties do not continue. Until protection is implemented, these situations will continue to occur.

    Contracts need to be worded more simply and be shorter for the average layman. Two paragraphs would be sufficient.

    In the meantime I will try to read my contracts again. This should help when I have insomnia.

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