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As the Christmas shopping season gets underway Hackney Council is asking people to think again before borrowing money.

Residents are being encouraged to be 'debt smart’ this Christmas to avoid debt spiralling out of control, such as comparing deals before committing to borrow, reading the small print and asking any lender to explain the total cost of paying back the money borrowed, including any hidden charges.

Those looking to secure loans this Christmas should also be aware of loan sharking, which is an illegal activity that often makes victims lives a misery. Borrowers are trapped into spiralling debt by loan sharks who often resort to the most extreme methods such as violence, threats or intimidation to pressure them into paying loans back. With a lack of paperwork, victims are kept in the dark about how much is owed and will charge exorbitant interest rates – in some cases in excess of 130,000 per cent APR .

Residents can speak to London Community Credit Union as they offer savings and loans. They often agree to smaller loans than most high-street banks and are a much cheaper alternative to pay day loans.

A credit union can also help with even the basics of financial planning and will also help people who are unable to open an account with the main highstreets banks.

Be debt smart:

• Illegal money lenders have been known to charge up 3,000 per cent interest. A £400 loan taken out to buy Christmas presents could cost up to £1,000 a month.

• £400 of Christmas presents and food bought on a ‘bad credit’ credit card charging 49.9% interest would cost £763.

• A high street store offering 69.9% interest on a £400 fridge bought for Christmas would cost £726.

• The credit union charges a typical 12.7% interest. Borrowing £400 for Christmas shopping would cost a total of £438.