PROPERTY NEWS & ADVICE
Personal Debt Crisis - How to Manage Your Finances
Without wanting to sound too hysterical Britain
is in danger of being suffocated in the ever tightening grip
of an escalating personal debt crisis. It’s certainly
true that, with the vast array of tempting borrowing opportunities
available from credit cards to loans to store cards, more
and more of us find ourselves struggling to keep our finances
It’s a precarious state of affairs borne
out by the current figures for personal debt in the UK: In
June 2007 the total figure for UK personal debt stood at £1,355bn
and appears to be spiralling – the growth rate has increased
to 10.1% for the previous 12 months. The average household
debt excluding mortgages now stands at £8,856; this
increases to an alarming £20,600 if the figure is based
on households that have some form of unsecured loan. If mortgages
are included the average figure is £56,000. Perhaps
the situation is most starkly illustrated by the following
statistic: The UK’s personal debt is apparently increasing
by £1million every 4 minutes!
On a more positive note there are plenty of
straightforward common sense measures borrowers can take to
help ensure that their debts are kept firmly in check.
Don’t spend money you haven’t
It might sound obvious but if you stick to
this one simple rule then there’s really no reason why
debt should become a serious problem.
Be disciplined with debt repayments
The quickest way of accumulating debt is by
paying it off too slowly. This is particularly the case with
credit cards – ideally you should aim to pay off your
cards in full every month, remember that the quicker you deal
with debts the less likely they are to spiral out of control.
Keep in mind that minimum payments, the smallest monthly amount
you can pay without being charged, might seem convenient but
won’t get you any closer to eliminating your debt because
the minimum payment will decrease in line with your balance.
If you can’t afford to pay off your debt in full set
your monthly payment at a fixed monthly amount rather than
fall in line with the minimum payment system – remember
it’s designed by banks to keep you permanently in debt.
Transfer your balance
can go a long way towards eliminating your credit card debt
by transferring your balance to a 0% card. There are loads
out there, just look for the longest 0% balance transfer period.
Currently the market leading 0% cards are probably offered
by Natwest credit cards and RBS credit cards who both offer
0% for 13 months although you can keep up to date with these
things by consulting a comparison site like fool.co.uk’s
credit cards centre. The key to making this strategy work
is by not making any purchases on your new card, if a card
offers genuinely good balance transfer rates then the chances
are it won’t offer a similarly attractive purchase rate.
Never, ever, take out a store card
These are generally sold by tempting shoppers
with short term store discounts, don’t fall for it!
Whatever the discount the store offers you on the day, remember,
it won’t be as a gesture of goodwill. Nearly all store
cards carry a vastly inflated rate of interest and they rely
on you paying off the balance in full straight away.
Make sure you can afford your loan
you’re taking out a loan be careful not to overstretch
your finances. Look carefully at your monthly income and outgoings
and asses realistically what you can afford to pay each month.
As long as you budget carefully and don’t borrow more
than you can comfortably afford to pay back then there no
reason not to consider an unsecured loan. In fact with rates
historically low at the moment now could be a good time to
borrow. Currently there are a few lenders offering loans at
6.5% or cheaper, two of the best on the market at the moment
are the A&L personal loan at 6.5% and the Moneyback Bank
loan at 6.3%. You would be well advised however to first check
a loans calculator (most lenders have one on their website
– there’s one on the A&L Loans site for instance)
this should give you a good idea of what you’d be paying
Do you really need it?
As Christmas approaches, it´s easy to
spend a little extra on clothes, food and drink and presents.
However, if you make a list of what you need and stick to
it, you’re likely to save yourself more money this way
than if you went out impulse shopping.
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