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Covering an extensive range of topics from making a personal budget, debt management,debt help and so much more, we provide our readers with the essential financial advice. Just remember to follow our blog so you will know how to properly deal with your money woes.
Most people act as if they couldn’t care less about their finances, overspending and getting into serious debt problems. It seems they fail to realize that their actions have serious consequences. Just remember that money doesn’t grow on trees, and it certainly won’t last forever.
Proper financial management is one of the cornerstones of living a comfortable life. This is a basic rule that everyone should know, yet it is also one that many of us neglect.
That is what this blog is for. Money Sustainability aims to give sound financial advice to the people who need it the most.
Having an immense amount of debt is no laughing matter. It can cause havoc not only in your overall financial situation but also in your personal life as well. That is why you must do your best to resolve it as quickly as you can.
Coming to Terms with the Problem
When we say problem, we are not simple pertaining to the debt itself. Unfortunately, it is just a symptom of a much larger problem. Obviously, people do not take on massive amounts of debt for no reason. Think long and hard on how you got to this point in the first place.
Recognizing the root of your debt problems is the first step to solving it. For instance, some people take on debts to deal with their gambling problems. Others took on massive credit card debt because they became addicted to spending money they do not really have.
Identifying the negative behavior is the first step. Of course, by no means does this entail that the process will be easy. In fact, we guarantee that it will probably be an uphill climb and it is one that has to be done with full resolve and determination.
Few people get to talk to industry professionals about loans and borrowing – so we’ve compiled a list of lesser known facts from people on the inside.
If you want to know how to get approved for a loan, the truth about where to find the lowest interest rates or strange things that can impact your credit rating, read on:
“You can haggle”
People are normally quite accustomed to a discussion about the ‘best price’ when they’re shopping for a car or a house – but few people know you can have similar discussion with loan providers. Ultimately, they’re a company selling you a product, so feel free to ask for the best possible price they can provide.
What that normally means to a loan company is the interest rate they offer. If you think you can get a better rate elsewhere then ask if they can match it. They might need to see proof that you can get that rate and the same conditions – but assuming you can, there’s nothing to be lost be asking – some will even beat that rate to win your business.
“Credit providers make mistakes”
If your credit rating is lower than you think it should be, it might be the fault of a company you have previously had credit with – and not your own.
Neither humans nor computer programs are accurate 100% of the time, so if there’s been an oversight and your final payment isn’t processed, or someone’s forgotten to tick a box that confirms your account is closed then you’re possibly suffering for no reason.
Your credit score affects whether or not lenders will offer their products and, if they do, at what rate you would be accepted. You’re entitled to see your credit report – and the big credit referencing agencies will provide it for you for just a couple of pounds. Check it carefully, mistakes can cost you money.
If you spot something you think is incorrect, question it with the company that provided the product. At the very least, it’ll be put as ‘under review’ until it’s checked properly, meaning it won’t affect any decisions during that time.
“Bending the truth can get you in big trouble”
There are lots of areas that people don’t think will be checked when they submit the information required to obtain a personal loan – but be very careful, not being 100% truthful can get you into a lot of a hot water.
It might be tempting to stretch the truth slightly when it comes to what your income is or what you’re going to use the loan funds for. The truth is, lying about any of these things can constitute fraud. The lender will often have the ability to recall a loan if it comes to light that any misinformation has been used in securing the loans – and in some cases criminal charges can be brought.
It’s not common, but not totally unheard of that people face charges. Be very careful to ensure you’re 100% accurate with your information.
“A personal loan looks better on your record than payday loans”
When lenders look at your credit history they can see what types of financial products you have previously used. A lot of lenders take a very dim view of payday loans.
Before looking any further, a payday loan can be an indication that an individual isn’t able to adequately budget through the month. Payday loans are traditionally used to get through short lean periods and repaid immediately upon your next pay cheque clearing. This can be a warning sign for a lender.
If a lender sees subsequent payday loans, this is a huge warning sign. If a person is stuck in a cycle of borrowing with large interest rates, this can be very difficult to break free from. Seeking debt advice if you’re in this situation can be vital to breaking free before further financial crisis occurs.
On the other hand, personal loans indicate an individual is able to handle their finances to allow for repayment at a steady and frequent rate. Seeing the application for and successful repayment of personal loans on a credit rating can actually be better than seeing no credit at all.
If you’re old enough to care about the contents of this article you’re old enough to remember the unnatural disaster that occurred in 2008-2009 commonly known as The Great Recession. That global financial meltdown, driven by an insatiable demand for easy credit, was only prevented from dragging the entire world economy into a black hole from which there would be no return by the unprecedented intervention of the world’s leading central banks. They printed trillions of dollars of new money and injected it into the system to cover bad debt, bail out huge banks and fund government takeovers of other financial institutions. In essence the West borrowed its way out of a debt crisis.
The Sweet Sound of Alarm Bells Peeling O’er the Land
Fast forward less than a decade to 2017 most of us are still not financially independent and you don’t have to strain to hear financial watchdogs once again sounding the credit alarm. Although the nature of the risk may be slightly different this time around (personal debt as opposed to credit default swaps) the tune is the same: we’re borrowing our way toward financial Armageddon.
Take for example household debt in the UK. In March British consumers added £1.6 billion to the good ship Personal Debt, a 10.2% jump over last year’s already bloated numbers. In November 2016 that year on year increase was 10.9%, the highest since 2005 when the housing bubble was in full swing. If this were a new phenomenon it might not seem such a big deal. But coming at a time when the global economy still hasn’t fully recovered from the Great Recession it has more than a few experts trembling in their wingtips. Here’s why.
The Dangers of Easy Money
In the days leading up to the 2008 meltdown people all over the Western world were gorging on easy money: “No job? No savings? No collateral? No problem! Here’s a million dollars for that dream house of yours. Just be sure you flip it quick – and for a handsome profit – or our next meeting will be at the soup kitchen! Ha ha ha ha.” Of course it didn’t take much to blow over the whole house of cards and expose the fantasy island both lenders and borrowers were living on.
Again, while the problem today is slightly different in nature the dynamics are essentially the same. Consumers, seduced by historically low interest rates, are taking on more debt than they can reasonably be expected to pay back. All it will take to capsize the good ship Personal Debt today is a slight downturn in the economy or a sudden spike in interest rates. If one or both of those things happen millions of households will likely find themselves unable to even make minimum monthly payments and the dominos will begin to fall.
And there are already indications that pressures are mounting on the first few dominos. Staff at the National Debtline for instance report the 1st quarter of 2017 was the worst they’ve experienced since the dark days of 2009. While others are scrambling to find any sign of good news in what is an increasingly bleak debt picture.
The Changing Nature of Debt
Another difference between the nature of today’s credit bubble and that of 2008 is that this one is driven at least in part by consumers borrowing to cover essentials. And that by itself is more than a little frightening because it suggests that, not only have we not recovered from 2008, but we’ve now decided that borrowing is the only way to make up for the shortfall in that recovery. And if that’s true it can’t lead anywhere good.
As proof of this recently released figures indicate that both consumer credit and student loan debt are higher today than they were in the run-up to the 2008 meltdown and that 26% of household spending today is deficit spending. Compare that figure to the British government which relies on borrowing to cover about 15% of current expenditures; a figure many consider outrageous. In fact unsecured debt is now £11,800 per household; the highest it has ever been.
(Bad) Credit Where it’s Due
It has to be said that, while many in the banking sector today are raising red flags over the issue of consumer debt, it’s more than a little disingenuous of them to do so. After all, it’s not consumers who are printing credit cards at a furious pace and offering 0% interest on loans and the like. Only the banks can do that. People are just taking them up on their offer because they don’t see any other way to make ends meet.
On the bright side at least one bank (the Bank of England) has tacitly acknowledged their role in creating the problem by ordering a review of their non-business lending practices. However, while this is a necessary step in the right direction it will have to become the industry norm, and fast, if we’re to head off the new meltdown many see heading our way.
The Way Forward
Obviously one can’t build a sustainable economy on unlimited borrowing. As everyone should have learned in 2008 the debt chickens eventually come home to roost and they all want to be fed. Getting hold of the situation and instituting necessary changes won’t be easy but the alternatives are bleak and bleaker. So what are those necessary changes? Well, at minimum they look like this:
- Wages need to rise.
- Financial institutions have to reign in their lending practices.
- Governments need to hold financial institutions accountable for reckless behaviour.
In spite of the increase in personal debt in March there are a few barely perceptible indications that consumers may be starting to exercise a bit more restraint. However, as of this writing these blips on the horizon have yet to coalesce into a discernible trend. The overall situation remains extremely worrisome and unless things can be turned around fairly soon most every economist worth their salt knows where they’re headed.
Sometimes there’s simply no substitute for standing back and looking at the big picture. For instance: if we shone a light on a particular UK household and said the family in question had £13,000 in unsecured debt there might be a few raised eyebrows out there and perhaps a comment or two about the loss of personal responsibility. And for good reason. Any family carrying £13,000 in personal, unsecured debt must certainly have lost its way. Yes? After all, who would think such an enormous debt load was acceptable?
Here’s where that big picture comes in. Because, when you step back what you see is not an isolated family of ne’er-do-wells intent on crashing and burning but an entire nation that has been gorging at the credit card feed trough for years. And that £13,000? That’s the average personal, unsecured debt load every household in the UK is currently carrying. A debt load like that is more than a simple nuisance or a can that can be kicked down the road to be dealt with another day. It’s an existential threat to the financial well-being of the average UK family, and here’s why.
Unsecured Debt and Your Credit Score
If you are like most people you aspire to things like owning a nice home and driving about in a new car. Few of us have the means to purchase these things with cash and so we depend on bank loans to provide us the leverage to elevate our standard of living. However, when you carry excessive unsecured debt it has a negative impact on your credit score and can often require you seeking help, resulting in the need many people requiring a solution to help them manager their debts such as an IVA (individual voluntary arrangement) , Trust Deed should you live in Scotland or some other form of debt management solution; and when it comes to securing loans for the finer things in life the amount you’ll be able to borrow and the terms by which you borrow it will be dictated almost exclusively by that credit score.
7 Ways to Improve Your Credit Score
Credit scoring goes on constantly behind the scenes whether we want it to or not. For better or worse it’s the way the economy works. As mentioned, a negative credit score impacts your ability to get a mortgage or buy that car you’ve had your eye on for a few years now. But a poor credit score can affect your life in more prosaic ways as well by making car insurance more expensive, making it difficult to switch your energy supply away from pre-paid meters and even making it difficult to get an attractive mobile phone contract. So how does one go about improving their credit score? Here are 7 ways that have proven to be effective:
1) Make Sure Applications are Consistent – When you apply for various types of credit make sure the information you provide is consistent. To credit rating agencies things like different mobile numbers, different job titles or different addresses indicate you may be a fraud risk, which in turn will affect your credit score.
2) Do Your Homework Before Applying for a Loan – Credit rating agencies are not kind to those who submit a rash of applications in the hope of finding the best rates. In fact, too many applications and your credit score could take a hit. Avoid this by researching different credit products ahead of time and only applying for the one with the best terms.
3) Steer Clear of Payday Loans and Credit Card Cash Withdrawals – Payday loans and cash advances are tempting but both are seen by credit rating agencies as proof that your money management skills are wanting. Some payday lenders advertise that paying them back on time will boost your credit score. But that’s only true if yours is already in the gutter. If, like most people, you are trying to improve an already decent credit score resist temptation and pass on both of these types of quick cash.
4) Go It Alone – Many people are not aware that if they have a joint bank account, credit card or car loan their partner’s credit history will impact their own. You may have broken up with the former love of your life years ago but if he or she went on a credit fuelled rampage after that break up their bad behaviour can come back to haunt you and weigh like an anchor on your credit score. Even if you were quick to close down any joint accounts their name (and their credit score) will be inexorably be linked to yours for years.
5) Always Pay on Time – This should go without saying but many people – particularly those with limited exposure to the credit system – are simply not aware how much a missed or late payment can negatively impact their credit score. The best way to avoid this is to make direct debit payments each month for minimum amounts and then make manual payments on top of that whenever possible. In this way you’ll never be late with or miss a payment.
6) Cancel Any Unused Credit Cards – You may be holding an unused credit card back to have in case of emergency one day but if you hold onto it too long it can have a negative impact on your credit rating. That’s because credit rating agencies consider excessive amounts of available credit to be a potential source of abuse at some future date. Cancel any cards you are not using and only keep one or two that you consistently maintain in good standing. This is an excellent post that shares some practical tips on The Most Efficient Way to Pay Off Your Debt
7) Do an Annual Check of Your Credit Files – Even tiny errors in your credit file can send shock waves through your financial life. You should make it a habit to avail yourself of credit monitoring services and go through your file with a fine tooth comb on an annual basis looking for any inconsistencies. These credit monitoring services often provide a free trial period so sign up, check your file and then opt out.
Avoiding common pitfalls and following these suggestions will go a long way toward repairing or enhancing your all-important credit score and putting you back on the road to the life you’ve always wanted.
Debt problems have to be resolved as quickly as possible. Its urgency cannot be overstated as it certainly has a number of serious and long-lasting consequences. It can affect not only you but your family as well. Of course, you may have realized it by now but we have to emphasize it here.
Making a Budget
There is no other way to get out of debt than to dig yourself out of it, slowly and steadily. To do this, you will need to make a monthly budget. Keep in mind that you have to maintain a certain level of discipline during this period and follow the budget as best you can.
When making a budget, make sure to set aside a certain amount for debt repayment before anything else. Try to limit your expenses on any luxury items. Stick to the bare essentials for a while and you will soon solve that debt problem in no time.
Readers need to understand that this is no walk in the park. Getting into your debt problems is certainly much easier than getting out of them. However, we are not saying that it is altogether impossible. You just have to act decisively and stick to your own game plan.