The festive period is likely to be a struggle for many families this year, with high prices and increasing pressures on our household finances.
Elle Forrester, a 25-year-old social work student, and her partner, Sean, a self-employed roofer, are one such family. The couple had a baby last year, so they have had to pay for all the necessary baby paraphernalia, on top of nursery fees for the times that Elle is studying at university.
Elle also relies on her car, which costs her £250 a month to insure, to get to her university lectures.
Although she is a mindful shopper, only buying what she needs and in bulk to save money, the rising cost of living has squeezed Elle’s family budget to a worrying level.
Faced with the cost of Christmas on top of the couple’s already stretched finances, Elle has turned to a credit union for support.
An affordable alternative
Credit unions are not-for-profit organisations that are owned and operated by their members. There are credit unions across the UK, providing services such as savings accounts and loans to their members.
Elle joined Enterprise Credit Union, which is open to those living or working in the Merseyside area, for the first time this year when she wanted to throw a small first birthday party for her son but didn’t have the savings to dip into. Preferring to steer clear of high-cost credit providers, Elle had always known about credit unions but hadn’t seen the need to join one until then.
A few months ago, Elle took out a loan from the credit union to pay for her son’s party and is now making payments of £60 a month. Around half of this is going towards repaying her loan and the rest is put into a savings account.
While it can make sense to focus on paying off debt before saving, putting money into a savings account at the same time as making loan repayments is a common feature of many credit union loans. This is to try to encourage members to get into the habit of saving.
Although some may pay interest on their savings accounts, credit unions will typically pay out an annual dividend instead. The amount you receive is determined by the profit a credit union makes.
With Christmas looming, Elle recently borrowed a further £740 from the credit union. She was worried that Christmas would be a struggle this year, especially as her universal credit payments have been reduced since starting university because of her student loan.
The credit union loan will cover a gap in her student loan repayments, pay for some new clothes, and help pay for her son’s Christmas present.
You need to be a member to borrow from a credit union, but many credit unions allow you to become a member and apply for a loan on the same day.
Loans from credit unions can be more affordable than elsewhere as there is a cap on the amount of interest they can charge. This is set at 3% a month or 42.6% APR (annual percentage rate) for credit unions in Great Britain. In Northern Ireland, the cap is 1% a month or 12.68% APR. They can be particularly useful for those who may struggle to get accepted for credit elsewhere, or who may face high interest rates.
Elle used to have two credit cards but, as her credit score wasn’t great, the interest rates were high.
“I was paying off around £100 a month, but it wasn’t touching the balance due to the interest. So when I got my student loan, I paid them off and closed them as I was struggling [to afford the payments].”
“I’m going to keep saving throughout the next year”
Joining a credit union has offered Elle some extra support this festive season, but it is also helping her to get on top of her finances.
Elle is using the credit union to build up her savings, which she could then dip into if she’s faced with an emergency expense in the future.
“I’ve hardly got any savings but I’m building them up slowly with the credit union by running a monthly direct debit into the account,” Elle explains.
“I’m going to keep saving throughout the next year as it gives me a buffer, as well as the peace of mind that if there’s an unexpected expense, I should be able to get an affordable loan to cover it.”
Credit unions can also help members with budgeting and money management.
Elle praises the service offered by the credit union, saying: “The credit union staff are amazing. They are only focused on what’s right for me because they’re not there to make money out of you as credit unions are not-for-profit..”
You may be able to get a head start on the next festive period by joining a credit union now and starting to save, whether that’s in a special Christmas savings account or not.
To join a credit union, you need to have a common bond with its members, such as living or working in the same area, or working in the same profession. You can find a credit union near you, or one that supports employees of certain businesses, at Find Your Credit Union.
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