Trust Deeds and Credit Union Membership
Credit unions have historically been helped low-income families (and others) to save and borrow money. Many credit union members may not otherwise have had access to mainstream credit or banking facilities. They have recently been granted new freedom and powers to help encourage their future development. Credit unions will now be able to offer more services to a wider range of people. In this trust deed forum article we look at the how being a member of a credit union can have advantages if you are struggling with debts and are considering a debt solution such as a Scottish trust deed.
A credit union is a not-for-profit financial cooperative owned and managed by its’ members. They offer convenient savings and low interest loans to their members. A credit union works by encouraging members to save small amounts of money regularly and then using the pool of money saved to lend to members at a competitive interest rate. Members of our trust deed forum have often written about their positive experiences of using credit unions before, during, and after the need for a protected trust deed arose.
Before their new powers were granted, the members of the credit union needed to be linked by a “common bond”, usually living in the same area or working for the same employer. Any profit they made was paid in dividends to members of the credit union.
The recent reforms will allow the credit union to extend their services to a wider range of people and to allow them to pay interest on savings for the first time. This will is likely to increase credit union membership and enable a credit union to offer fair and reasonable financial products to more people (the average interest rate is currently about 12% per annum for a loan). The Association of British Credit Unions have said, “Credit unions will be able to provide a more effective alternative to high street banks on the one hand and high cost lenders for example pay day loans and loan sharks on the other.”
Regular savings are encouraged at credit unions. This can help when an individual needs to buy an unexpected item (such as a washing machine for example) as they will have all or some of the money available to them rather than using expensive credit such as a payday loan. Such savings may be especially helpful when budgeting for occasional types of expenditure covered by trust deed expenditure allowances. Examples might include car repairs, road tax or emergency allowances during a trust deed. For those that aren’t in debt, using a credit union may enable you to save up the funds required to deal with emergencies without incurring the type of high-cost credit that can later lead to the need for debt solutions such as a trust deed.
If you are currently in a protected trust deed, you may therefore consider joining a credit union to save amounts of money every month out of your budget which you are likely to need for specific things in the future.
It isn’t advisable to borrow further money during a trust deed (and credit unions may well be unwilling lend it anyway) but an established savings record at a credit union may make credit available to you quickly after you have been discharged from the trust deed.
How about if you are struggling with debt and owe money to a credit union? Many people would much rather avoid including such debts in a protected trust deed, but unfortunately they must be included along with all of the others (the same is also the case with sequestration). Credit union debt may also be entered into a Debt Arrangement Scheme.
Trust-Deed.co.uk therefore encourages visitors to consider credit unions as a way to avoid debt in the first place, as a potential savings tool during a Scottish trust deed or other debt solutions, and also as a way to restore access to cost effective credit once a trust deed has been discharged.
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