Why It Pays To Reduce Debt In Lockdown*

Lockdown is a strange place; not only can you be fined and potentially arrested for drinking with friends, but you can’t see family and loved ones unless you follow strict protocols- welcome to a new kind of normalladies and gentlemen!

One thing that seems as if it never changes is debt. If anything, it’s easier to fret about your finances because of the world’s unpredictable nature. However, the key is not to put it to the back of your mind. There’s never been a better time to wipe the slate clean if you have arrears and overdue balances.

Here’s why.

You Might Be Okay Financially

Not everyone has been hit hard by the health crisis. Some people are better off as the pandemic has encouraged them to save and not splurge on as many non-essentials. For instance, UK consumers repaid a staggering £7.4 billion of debt this year due to the fact they stayed away from the high street. If your disposable income is currently higher, the best way to spend it is to save for a rainy day. You can start by reducing your balances, as the less you have to pay, the more money you’ll have in your pocket!

There Are Lots Of Offers

It’s not only the tourism and hospitality sectors that have suffered. Lending companies are turning over smaller profits since people are spending and borrowing less. Therefore, there are opportunities to switch your debt platform. Payday loans might not have the best reputation, yet there are lots of benefits right now, such as lowering borrowing limits. On the other hand, credit cards with 0% interest for fixed periods provide more breathing space because there’s less pressure to pay. It always depends on who you owe and the circumstances. Still, it never hurts to shop around!

Your Exposure Is Bigger

Thankfully, tax, rent, and mortgage contributions have been suspended while the country gets to grips with the virus. Yet, you should get too comfortable regarding tax, rent, and mortgage holidays as the debt isn’t wiped. It’s only put off until another date, which means you’ll have to repay it at some point. People who forget or don’t plan for the restart could find themselves in a position where they owe a considerable sum, more than if they paid in the first place. Before you accept a payment holiday, you should figure out whether it’s suitable.

You’re Eligible For Government Packages

The terms and conditions around packages for employed and self-employed workers are quite liberal. You only have to prove that you’ve been affected to be eligible, which millions of people have recently, and the government will do the rest. With the money, you could use a chunk to lower your debts so that you have one less thing to worry about. Won’t your debt level rise? No. The schemes are grants that you don’t have to pay back. The only thing you must consider is that they are taxable and need declaring on your return.

If you can afford it, reducing your debts could offer stability in an increasingly uncertain world!

Managing Your Debt: The Good and Bad*

Image by Nattanan Kanchanaprat from Pixabay

Debt is the kind of word that induces unease and worry, but that doesn’t have to be the case all the time, nor a reason to avoid thinking about it. Debt can be good as well as bad, and it is how you manage your debt that is important; the key is knowing how.

There are 3 questions you need to ask before you even consider taking on any debt:

What’s the Difference Between Good and Bad Debt?

Good debt can be summed up as necessary, good value and easily within your financial limits. This kind of debt gets you what you need but can’t afford right now without pushing you beyond your capabilities. The best example is a student loan, but you might also consider a mortgage or car financing if you need a vehicle to get to work. Take a look at https://www.bordercityautos.co.uk/finance.php for more information. 

Bad debt is pretty much the opposite in that it is debt you don’t need and can’t afford. Taking out a payday loan to finance a holiday is a perfect example of getting into unnecessary debt that will quickly spiral out of control. Bad debt may also impact your credit rating, especially if you fail to make repayments on time. Getting out of debt with bad credit is tough which is why you should always make sure that you can afford your debt before you accept it.

Can You Afford Your Debt?

While it can be tempting to push right up against your financial limits, you must resist. You must be able to make every repayment on time and if you can’t do this comfortably, you may struggle in the future. 

Drawing up a budget that includes all your expenses will help you to work out how much spare cash you have each month. It might seem contradictory, but you need to have spare funds in order to be able to afford a debt – this is how you will repay it. However, you might also consider that if you are taking on a debt to avoid another monthly cost, you may have a little more flexibility. 

Can You Avoid Debt?

Naturally, the best option for most things is to try and avoid debt. If you can save up for something and wait, you absolutely should. The best ways to save are to reduce your current costs, automate your savings and find ways to earn a little extra on the side. 

If you can’t save up in time, it might be worth investigating other forms of funding. For example, crowdfunding has become an ever more popular way for people to access funds, particularly for charitable causes or business startups. 

If you absolutely need to take on debt, you should always thing carefully about the best form of debt and make sure that it is an affordable option for you. Looking into 0% credit cards is one option but you may also be able to remortgage if you are a homeowner. If you are in any doubt, you should speak to an independent financial advisor to see which options are available to you.

Posted in finance


Getting Out Of Debt With Bad Credit*

Image by Steve Buissinne from Pixabay

For many people, when money problems hit they solve it with more credit. Opening up a new credit card or taking out another loan can often seem like a good idea to keep you afloat. Payday loans might be appealing as they offer short term solutions for keeping the wolf from the door, but sadly taking out debt after debt will leave you with a stack of monthly payments that you won’t be able to afford to make. You will end up struggling for money even more in the long run.

Getting out of debt with bad credit can seem scary. You may feel as though you are stuck in the position that you are with unwieldily large payments on your current debt, many of which only cover the interest and don’t reduce the overall sum that you owe. It can be very disheartening not to be able to see a way out of your problem, and knowing that your debt is not going actually to reduce can make you feel trapped.

Getting The Help You Need

There are ways out of the situation that does not involve insolvency. Having the right help and support is essential, so in the first instance, speak with citizens advice or a debt relief charity to see what information you can get from them. 

Consolidating Your Debt

One of the problems with having multiple debts to different lenders is that you will have several payments going out each month, each with their own interest added. Often, this means that a fair chunk of your debt repayments ends up being interest repayments and some of your balances will never actually reduce. You will be locked into paying a similar amount each month for a very long time unless you make a change. 

Consolidation loans may still be available to you, even if your credit rating is not great. There may be the option to secure the loan against your house or car. This will offer lenders the reassurances that they would be able to reclaim their debt in the event of a default. However, if you manage the situation correctly, you will not end up missing payments, and you will clear the debt. 

A consolidation loan takes all of your debts and adds them together. So instead of dealing with several companies, you will just owe money to one. You will find that your overall payments become lower and there will be an end date when all of your debt is cleared. 

Maintaining A Healthy Relationship With Debt

Once you take out this type of loan, you should close all of your credit cards and ensure you do not add to your debt anymore. You may be tempted to take out another loan or to keep your credit cards. However, this may leave you open to creeping back into unmanageable debt. 

Once you are making your regular payments, you could look at other ways of improving your financial health, such as canceling any unused subscriptions or switching insurance or energy suppliers. 

When Money Is Tight*

It’s not always rainbows and sunshine in life. When times are tough because you don’t have a steady income, a low income, you’re in-between jobs, you can’t work due to studying requirements etc it can be quite tricky to make ends meet. And with everything seemingly becoming more expensive,it seems increasingly more difficult to balance the tightrope. This could be something you relate to, and it’s nothing to be ashamed of. You are experiencing the same as a growing group in society, who struggle to make ends meet and get into a positive cash flow pattern.

Not having enough to spend and living paycheck to paycheck is now the reality for almost 7 in 10 UK workers some research has found. In this newfound reality it’s important that people shift their expectations and do not live beyond what they can afford.

Finance When Needed

There are, however, some expenses that you can’t really afford to be without. Mobility is one of those; buying a car can be crucial to make sure you can take part in regular social interactions, getting your kids to and from school, and to make journeys to get to your job. If you can’t afford the outlay for a car, companies such as Angus MacKinnon will offer you finance options. The key is, even with finance, not to get carried away and stick with something that will get you from A to B safely whilst remaining as affordable as possible so you don’t get behind on repayments.

Go Pre-Loved

For all the other things you might want to consider checking out the many charity shops for second hand items such as clothing and books. It’s fantastic how second hand pieces are kept in good condition, and if you combine smartly, you can still look thoroughly on-trend. Second hand clothes shopping should be nothing to be snobbish about, it’s actually a great way to do your bit against “fast fashion.” This is the practice of many high street fashion retailers to renew their stock 8 to 12 times a year in an effort to increase sales. A side effect of this “fast fashion” is that retailers end up with extreme amounts of excess stock that usually gets dumped and represents a major polluter in the world. Giving a pre-loved item another lease on life will ensure you are doing your part!

Food Prepping

Another thing to save money on is food. The first thing that will need to go is eating out. Even takeaways should be off the menu. You will want to make sure to cook in batches and have a decently sized freezer. Buy what’s on a good offer and get yourself a meal plan to last you for weeks. The best way of saving money on food is to plan and prepare. 

Photo by Ella Olsson on Unsplash

Side Hustle

It’s good to save and be frugal, but you might also want to boost your income in the hours you have spare. An excellent way to get some extra spending money is to offer your services freelance online. It really could be anything; maybe you’re a computer whizz kid, or are a great writer, perhaps you can design logos, or you can video edit. You could even look in to teaching English as a foreign language via Skype. There are so many options out there, go get your side hustle going!

How To Cope With Bad Credit*

Bad credit can cause you a lot of problems, from being turned down for a mortgage to struggling to get a phone contract. There are lots of ways you can rebuild your credit score and deal with bad credit, and alternative methods of borrowing if your credit score is too low for traditional loans.

Open A New Credit Account

It might seem like the last thing you need, but with poor credit you need a credit account to start rebuilding your score. Avoiding credit cards can make it harder to rebuild your credit score, whereas using one card sensibly can establish a good payment history and get you on the path to better credit.

A low credit score will of course make it hard to get approved for a new card, but there are options. Remember, each application affects your score, so don’t apply for too many cards in one go. Avoid subprime credit cards with high interest rates and high fees as you could easily end up in more debt. Avoid prepaid credit cards too as they don’t report to credit bureaus, so won’t help your credit score.

You could rebuild your credit history with a credit builder card. These cards are designed for those with poor credit, with low credit limits and high interest rates. If you get one of these cards pay off the balance every month to prove you’re creditworthy. Make sure you pay it off though, as the high interest rates could lend you in even more debt.

Bad Credit Loans

If you need to borrow money but have bad credit it can be hard to get a loan. However, there are loan options designed to help those with poor credit. Just be aware they will usually have much higher interest rates.

You may be able to get a secured loan. This means your loan is secured against a high value property like your car or your home, which the lender can use to repay the loan if you miss payments. These loans are high risk as the lender can repossess your property if you don’t pay.

If you have a friend or family member with good credit who is willing to help, you could try for a guarantor loan, like a guarantor loan from *Buddy Loans*. This means that if you miss a payment, your guarantor will be expected to pay what you owe. 

A peer to peer loan may also be an option. Instead of borrowing through a bank or building society apply to an individual lender on a peer to peer lending site. You may be able to borrow more, with a lower interest rate.

Build Better Credit Habits

Be realistic and honest with yourself about how you got into bad credit in the first place. What bad habits caused the problem? Stop putting things on your credit card that you can’t afford. Pay off more than the minimum payment amount and never skip a repayment. Pay credit card bills on time, and if you can, in full. 

Pay On Time

Payment history is a very important part of rebuilding credit. Even if it’s not credit, missed payments can end up on your credit report. Whether it’s a library fine or the electric bill, pay on time. Many businesses use collection agencies to chase late payments. If this happens, the late payment ends up on your credit record and can damage it even further. 

Paying bills on time, like the phone bill or your internet shows your lenders that you are capable of paying on time and managing your finances. If you can’t pay on time for whatever reason, contact your lender. They want your money, so it’s in their best interests to work with you to make sure you can afford to pay them. They may be able to help you or be willing to rearrange payment dates to make sure you can pay. This can still go on your credit score, but it looks far better than a CCJ or a default. 

Get On The Electoral Register

Putting your name on the electoral register is one of the easiest and fastest ways to improve your credit rating. If you’re not already on it, register to vote now, either online or by post. If you’re worried about the council selling on your data, opt out of the open electoral register, which can be used for marketing. 

Credit reference agencies may use the full register, which can be a factor in your score. Being on the register can also speed up applications, as a lender can also use to check your ID and address to confirm you are who you say you are. 

If you’re not eligible to vote in the UK and so can’t be on the electoral roll, you should send Equifax, TransUnion and Experian proof of UK residency. This could be utility bills or a UK driving licence or something like this. The agency can then add a note to verify your right to live in the UK. If you’re a foreign national but allowed to vote in local elections, you can be registered on the electoral roll as normal.

Check Your File

Check your credit file annually or before making any large application. If there are mistakes, even minor ones like a wrong address, they can have an impact on your score. Check your whole file, and report any errors to get them corrected. 

Is your credit score linked to someone else’s? If you’ve had a joint account with a spouse, family member or house, your credit ratings are linked. If the other person has a poor credit score, this can damage yours. You’ll be financially linked if you have a joint mortgage, joint loan or joint bank account. In some cases, utility bills with both your names on can also link your finances. This should only happen if the company is sure you’re a couple, for example, your bills come addressed to Mr and Mrs. If you split up, or move out, notify the credit references to unlink your finances. Remember, you won’t be able to do this is you still have an open joint account or an outstanding debt you’re both liable for. 

Keep an eye out for anything that looks fraudulent. If you can see anything you don’t think was you, for example, credit card applications you didn’t make contact the credit reference agency immediately. 

If you’re in the UK, try and check your credit report with the three agencies; Experian, Equifax and TransUnion. Thanks to GDPR laws, you can now access your credit report for free

Try To Avoid Moving A Lot

Having the same address for a long time makes you look more stable, and seeing lots of addresses changes over a short period can make a lender uncomfortable. If possible, try to limit how often you move home. 

Don’t Use All Your Credit

Don’t always automatically borrow the maximum amount. If for example, you have a limit of £2000 on your credit card, don’t max it out. If you’re using only £1000 of your limit, you’re using only half of your credit utilisation, which looks much better to potential lenders. Try and keep your credit utilisation at 25% or less. 

Beware Of Credit Repair

Some firms advertise that they can repair your credit rating. Most of these companies will just obtain your credit file and advise on improvements. You can get your report yourself, and shouldn’t pay a company to do this. You also don’t need to pay for advice. There are many free debt advice services to help you get back on track. 

Check Old Accounts

Check for old accounts that show on your credit report. An old mobile phone contract with an old address, for example, could still be listed as active on your credit file. Having an old address on an active account can impact ID checks, as you’ll show as having multiple addresses. If you can see old addresses, update them as soon as you can. 

Check Your Files After A Rejection

If you’ve been rejected for a credit application, check your file before you apply anywhere else. If you immediately apply elsewhere, you can get into a rejection spiral, where the multiple searches on your account cause the rejections. 

If you get rejected, check the files immediately. You may be able to spot the problem yourself, and correct it before you apply again somewhere else. Using elgigibty guides can help you avoid rejections too, as you can be more sure of getting approved before making an application. 

Being smart about how you use your credit, and being responsible about borrowing can help you to rebuild even the worst credit score. Be patient, as it can take time, but stick at it to clear any negatives on your credit file. Stay on top of your credit report so you’re aware of any problems, and work hard not to repeat your past credit mistakes. 

Posted in finance