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.
Are you one of millions who think they can’t afford to save any money?
Chances are, you’re approaching saving in the wrong way – but if you want to get back on top of your finances, it’s important that you start putting some money away for times of need.
Those times of need occur more frequently than you might think too, in fact, around 75% of us will need a large sum of money at some point during each year – owing to an emergency situation that we could not foresee.
If you’re sick of seeing an empty savings account – or having to turn to friends and high cost loans when you’re struggling – see which of the following 6 tips might work for you and mean you can start putting some money away for a rainy day.
Make an achievable plan
Try to think of not saving as a bit of a bad habit – this way, you can set some little goals to change your ways. The key to changing your approach to something is to introduce it in an achievable way, notching up a little ‘win’. For example:
You set yourself a goal of saving £500 per month – within a few days you realise it’s not achievable and start using some of the cash you intended to save. Your head drops, you’ve missed your target.
Alternatively – you set a goal of saving £50 per month. You don’t notice the money missing and at the end of the month you’ve got £50 saved and potentially another small amount that’s left over to put on top of it. A win!
You don’t have to start big, whether it’s £10 or £1000 – it’s a step in the right direction.
Shift the cash quickly
You only have to look at high street shopping figures to know that, as a nation, we are more carefree with our money when we’ve just been paid. That big balance in the bank gives us a sense of financial freedom – even if it is short lived.
This is exactly the right time to put some money away into a savings account. Then, you only impact the more financial free time at the beginning of the month – rather than trying to stretch your more limited money resources when the month is coming to an end.
Reduce the cost of your debt
Debt is debt right? You pay it until it’s gone and pay off everything you owe.
If this is what you think – you might be in for a pleasant surprise.
Firstly, if you’re struggling with debt, there are companies out there who can help you reduce it down to a manageable level. Not all offer the same level of service though – so by checking out a site like Face The Red and an in depth service review like this one: 2017 Freedom Debt Relief Review (Most Recent Updates) – you can be certain whether or not the company you’re considering will be helpful.
It’s not just companies that can help though – being smart with your balances can prevent interest (and therefore increased levels of debt) occurring in the first place. Check for 0% interest on balance transfers with credit cards and loans – but make sure you keep a tight diary that will alert you when your low interest phases are about to come to an end.
Find a way to make a second income
A lot of people choose to have a ‘savings income’ – from which either all or some of the money they make is filtered straight into a savings account.
Perhaps you could do a part time second job when you have a few spare hours? Or take part in what’s being referred to as a ‘gig economy’ – where you’re paid for individual jobs or tasks you take on.
Don’t worry – this doesn’t necessarily mean you have to become an Uber driver or Deliveroo rider – there are plenty of second jobs that can be done from the comfort of your home – producing items to sell, offering your skills on freelance platforms, monetising you blogging or other online expertise – and so forth.
Again, save as quickly as you can when the money hits your account and you’ll start to see your balance build.
Use an app to understand your spending
We all know that small amounts add up to larger sums of money – but on a day by day basis, these bigger amounts are difficult to keep a running total of, which is why using a spending app can be an eye-opening experience.
With this kind of app, you log your spending on a daily basis – whether that’s scanning receipts, accounting for costs that come directly from your bank account – or just logging money that’s spent here or there.
Each amount spent is allocated a category – and normally these can be created just for you – for example, lots of people will have ‘fuel costs’ – but you might like to add categories that are specific to you, your life and your spending. When your spending data starts to build you’ll understand exactly where your money goes each month. Seeing how much money you spend on takeaways, smoking, socialising or your hobbies might make you want to reassess and start channelling some money into your savings instead!
Question all your outgoings
There are so many things we spend money on that just ‘tick over’ in our accounts without question – and there could be money locked up here that’s going to big companies – rather than your savings.
Get into the habit of questioning each of your outgoings periodically. The questions you ask will depend on what the money is being spent on, for example:
Insurance payments: Am I paying too much? Can I get a better deal elsewhere? Did I compare when I got a renewal?
Phone bills: Am I using all my allowances? Could I talk to my service provider and see if there’s something more suited to my needs? Could I shop around and find the same deal cheaper elsewhere?
Subscriptions: Do I still want what I’m subscribed to? Would I rather have the money in savings? Do I even use the service?
It’s important not to be complacent with the smaller amount of money – they’re adding up somewhere, you just need to choose whether that’s going to be in the account of a multi-million-pound company, or in your savings.
Are you one of the millions of people who’ve put a debt reminder letter in a drawer – hoping that the problem will go away?
If you are, you’re most definitely not alone.
Lots people ignore their debt – some for a few days – but many for weeks or even months, trying to forget about it, hoping it will go away.
The problem is, debt doesn’t go away – and actually, ignoring it can make things worse. We’ll walk you through what happens to debt when it’s ignored – and the steps you can take that will get you back on track.
Pretending debt doesn’t exist
People refer to ignoring debt as ‘burying your head in the sand’ – and, true to the phrase, the world goes on around you – even if you’re ignoring it.
And, unfortunately, your creditors are part of that world. They don’t stop their process just because you’ve stopped replying or answering their phone calls. What’s worse – ignoring calls often ups the intensity of how they contact you – and often adds additional charges.
As a result – the final amount you’re expected to pay can add up to a lot more than the initial debt – and in a lot of cases, the amount of money becomes expected as a one-off, rather than being payable in instalments as it had been previously.
How does debt catch up with you?
You may have heard rumours or hearsay that there are ways to avoid paying your debt if you hold out long enough – and while there’s some technical truth to how companies track their debt and for how long – this is an extremely damaging misconception – and can lead you into an incredible amount of financial trouble.
6 years is the amount of time that most people say it takes for debt to be written off. This figure actually comes from a person’s credit report – that’s to say, resolved financial issues are removed from your credit report after that amount of time. However, just ignoring phone calls for a few years isn’t the same!
Companies will track you down – it’s that simple. Credit referencing agencies take your information any time you sign up for a mobile phone, insurance, a payment plan for utility bills – and a host of other financial actions. They then share that information with other companies – who will get in touch with you if you owe them money.
Debt recovery and bailiffs
If you continue to ignore your reminders your debt will be passed to an agency or court for further action to be taken – and unfortunately, this is where ignoring the problem comes to an abrupt end. Some bailiffs have the power to enter your property without your permission – even employing the services of locksmiths and the police should they need to.
From there, they can remove property from your home – to contribute to the debt that’s owed. It’s not as simple as knocking on your door and taking things away – but when you reach the point a bailiff is coming to your home, there’s no more hiding from money issues.
What can you do?
If you’re facing debt that, for any reason, feels unmanageable – it’s vitally important that you talk to the companies that are chasing you. This will normally stop them adding admin charges while you’re trying to get a solution in place.
There’s good news too – there’s every chance that you might be able to reduce the amount you owe.
There are a variety of ways to tackle reducing your debt – negotiating with lenders, a debt consolidation loan, a specialist debt management product – and others – but how do you know what’s right for you?
A good place to start is to have a look at some online reviews. Face The Red is a site dedicated to reviewing companies that offer debt management options – you can see one of their reviews here: https://www.facethered.com/accredited-debt-relief-review/. Taking some time to consider your options is a great first step.
Opening a line of communication
Although it might feel like the last thing you want to do – talking to the people you owe money to is important.
You’re not the only person they’re chasing for money – in fact, most companies have full departments dedicated to debt recovery – meaning they expect tens of thousands of people to fall behind with their payments at some stage.
People often put off talking to their lenders because they think they’ll be angry or abrupt – and actually, the opposite is more likely to be true. Companies want you to repay the money you owe, and you’ve not likely to do that and continue to communicate if someone is unpleasant to you over the telephone. Generally speaking, you’ll find the people you talk to professional and courteous – and often really understanding of the situation you’ve found yourself in.
Working out how much you can repay
Whether you talk to the company directly or us a specialist service to reduce your debt, you’re going to need to know how much you can afford to pay. To do this you’ll need to put together a quick household budget – but don’t worry, it won’t take you long.
The first thing to do is to list any household income. After this, list all your essential outgoings – mortgage, rent, bills, food, clothing – and so forth. You can take this figure away from your ‘incomings’ figure to work out what you have left over beyond your living expenses.
Putting a budget together like this is important for two reasons:
- It will give you an indication of how much it costs you to live – and how much you can look at paying back to the companies you owe.
- This exercise shows the companies you’re talking to that you’re seriously considering how to work your way out of debt.
Although it might mean tightening the financial belt for a period of time, starting to pay back the money you owe can come with a huge sense of relief. You know that those letters in the drawer aren’t going to go away – nor are the phone calls or knocks at the door. Working toward reducing or handling your debt now is likely to save you from lots of sleepless nights and debt related stress further down the line.
Money is not exactly the root of all evil, but it can give a person a massive headache. 1 in 4 Americans say that money is something that is on their minds the most, daily. That’s a large number, by any standard, and one that was discovered in the Life + Money Survey conducted by the GOBankingRates 2015. While a quarter of people worry about money on a daily basis, over half of those are concerned about three or more financial problems at a time.
Naturally, one of the best ways to combat financial issues is to confront them – even if that means a temporary loan, to get rid of an emergency payment before it escalates (maybe your car broke down and you can’t get to work without it. If you can’t work, those debts will just get worse). You can apply for a prosper personal loan here, for example, to help you in a pinch.
The message is, however you decide to face these concerns, is to face them. You can declaw the fear of debt and money management by taking direct action, feeding the feelings of progress and accomplishment instead. It’s not as scary as it might seem, and as you will see there are things that can be done, depending on the concern.
For many people, the single biggest concern is just making ends meet. Budgets can be a struggle to stick with for many people, with a fifth of people saying that budgeting is their biggest financial concern. This isn’t all that surprising, however,since that the struggle of sticking to a budget, for around two thirds of people, comes from them not having that much of a budget to start with such is the cost of living in modern America.
How do you fix the problem of overspending and not being able to stick to a budget? The first step is to work out your income and expenses for the month. While doing this, look to see where you could save a couple of dollars – there is always something can be trimmed back. For instance, you could eat takeout less or switching your cable TV package for a cheaper one. Quitting smoking can save a lot of money too, and improve your overall health into the bargain.
Setting out a monthly plan in this way allows you to see your income vs expenses in a big-picture kind of a way, and helps you stick to budgets better.
If this is a concern of yours then you are not alone, not even close. Over half of the population of the United States have no retirement savings to speak of, and almost 30% of those don’t have savings or a pension plan either, according to the U.S. Government Accountability Office. With figures like that, is it any wonder that planning for retirement is one of the biggest concerns of Americans in 2017.
People that are approaching retirement age, unsurprisingly, have a more finely tuned sense of urgency about building up their savings. Those aged between 55 to 64 are among those most likely to say that retirement saving is their biggest financial worry.
Fixing this problem is a little trickier than simply ‘saving’ or budgeting. That said, it is still better to face these things head on rather than ignore it and hope it all works out. You should always aim to save the maximum amounts per year that you can, however. For example, employee contributions in 2015 for 401ks were $18k. People aged over 50 can also add an extra ‘top-up’ of $6k a year so that they can catch up.
Even if you are behind with contributions, hitting the maximums now will help you be better prepared. If you are not involved with a 401k, then that obviously has to be your first priority. Additionally, if you able to get professional help then you should probably do so in order to get your accounts in order.
Credit card and medical debts can be financially crippling, and sometimes impossible to avoid, at least in the case of medical debts. This very real struggle is highlighted in the GOBankingRates survey, linked to above. The survey mentions that credit card debt is a significant worry for roughly 12% of all Americans today.
Getting on top of credit card and medical debts and taking ownership of them is crucial and to achieve this you need to get a firm grip on your financial habits. If this means a lifestyle change so that money can be diverted from non essential items to pay off debts then so be it. Own that debt and do something about it. Living within your means, and even lower, does not mean that you have to live like you are penniless, it just means being smarter with your lifestyle / purchasing choices.
Lack of emergency funds
When wages don’t increase, there are several side effects that can be seen almost immediately. Savings rates don’t improve for a start, and saving for that rainy day just gets harder not to mention living expenses increasing which is an issue on its own when income stays the same. Finding that extra bit of cash to put away in case of emergency is a non-starter for many people.
Those people on lower incomes to begin with often say that the rainy day / emergency fund issue is one of their top concerns. Not having that buffer, in case something goes wrong, can leave people feeling exposed and vulnerable, sometimes being just one mishap away from total disaster. If your car dies on you for example, and there is no money saved away to fix it, then that could result in a lost job – making the situation far worse than it could have been.
Over half of Americans will experience this kind of stress at some stage, and it isn’t just the threat of losing a job. Medical expenses can be a massive problem too, as can issues around the home such as burst pipes or broken water heaters.
This problem can be addressed by stowing away just a few dollars a month. Even just $20 can have a profound effect later down the line should the unthinkable happen. This could be extra cash from anywhere. Small change from the store, refunds… Anything that can be deposited.
You are not alone if you are struggling with finances, and there are things that can be done to help yourself. Hopefully you will now have some idea on how to proceed.
Moving house is always an extremely stressful time, and that pressure only intensifies when you’re buying a property – mortgage applications can add all kinds of wrinkles to the moving process. When you’re already spending a small fortune on a new home, why should you dig even deeper and locate the finance to pay a commission to such a professional?
There are actually a number of reasons why bringing a professional Dumfries Mortgage broker into your house purchase is advisable. While you may balk at the idea of paying for the assistance initially, it can save you a great deal of money and heartache further into your investment.
The first, and arguably the most important, thing that a mortgage broker can offer anybody buying a house is protection. We all remember the housing market crash of 2008, with a great many homeowners being offered mortgages beyond their means and running into trouble making repayments down the line. Unlike a high street lender, who will have his or her own priorities, a mortgage broker will be working for you and you alone.
This means that your broker will ensure that any mortgage recommendation will be in your best interests; if a mortgage broker is suggesting you put pen to paper on an application, they will need to justify their decision. This is a legally binding contract that allows you to make a complaint or request further justification if you consider this to be necessary. This means that your broker will only advise you to sign on for a mortgage that you can comfortably repay.
Yes, a bank or building society will run their own affordability and legibility checks, but bringing a mortgage broker into the equation will give you plenty of opportunities for legal recourse in the (hopefully unlikely) event of a problem arising; if your mortgage was agreed on a basis of false or erroneous information, you’ll be eligible for a compensation claim to ensure that you are not left out of pocket.
A High Degree of Specialist Expertise
Next up, consider the expertise that a mortgage broker can bring to the process – they do this for a living, after all. Only so much information can be gleaned from searching online and along the high street, and the offers made available in such circumstances will be drowned in small print that a layperson may struggle to decipher. It’s human nature that anybody searching for a mortgage will focus on the interest rates on offer, for example, but a broker will be aware the other costs and hidden fees that can add up.
A price you see on advertisement may not end up being the price that you are expected to pay once all expenses have been totalled, and a mortgage broker can prevent any nasty surprises from arising and leaving your house purchase in jeopardy at the eleventh hour.
Just as appealing is the fact that you can bring such a professional aboard to do the grunt work of actually finding a mortgage for you. Sit back and relax, while your broker brings the possibilities to you – no more trawling around the high street and the darkest corners of the Internet attempting to make sense of the lingo. You can also be assured that any offer brought to you by a mortgage broker is entirely legitimate, from a trusted vendor. Different people will have different experiences from a variety of lenders and you can’t rely on anecdotal evidence – you can, however, place your faith in a broker to bring you the best possible mortgage deal from a supplier that can be relied upon.
Managing the Long Term Effects of a Mortgage
Perhaps more importantly, a mortgage broker will never encourage you to apply for a lending plan that you are unlikely to be accepted for. An unsuccessful mortgage application can be extremely damaging to your credit rating, which will make future applications trickier – and all of that can be avoided by simply staying in the appropriate lane when seeking a loan. What’s more, a mortgage broker will have fast-track access to a number of senior employees within the average high street bank or building society and special broker-only rates, potentially opening the door to great offers that would not be available to you otherwise.
Mortgage brokers are also qualified professionals within the field of finance, meaning that their services will not begin and end with the application of your mortgage. A qualified broker will also be able to source and advise on appropriate home insurance for your new property, and will be able to make suggestions on the best possible health, life and redundancy insurance packages.
Never take a chance on matters such as this, as they could mean the difference between keeping your home in the event of an unexpected turn of events, or facing the further misfortune of foreclosure.
These years of study will also mean that a mortgage broker can complete conveyance paperwork far more quickly and efficiently than most applicants could ever manage by themselves.
The rules surrounding mortgage lending are constantly adapting and changing, and have grown considerably stricter in recent years. Some of the questions that will be posed on the many application forms will be somewhat baffling to a layperson, and a qualified mortgage broker will know exactly how to answer them based on information that you provide and still get the best possible rate based on your circumstances.
Taking out a mortgage can be a huge event, especially if you are doing so for the first time, and there is a great deal that can cause home buyers a headache and unnecessary expense. Bringing a mortgage broker on-board to assist in the process can be the difference between success and failure in your application – and in making future repayments.
Making plans for the future can often strive with uncertainty, and we can only make plans on what we already know. However, as more and more people have seen the risk involved with only hold paper-based assets, more are thinking outside the box when it comes to planning for their future.
As such, people have quickly realized how relevant precious metals have become when looking to secure our future. Of course, gold is one of the most popular investments, and for good reasons. However, we shouldn’t overlook the value of other precious metals, as many play an important part in the everyday world, both financially and physically.
While we should always seek expert advice before making and commitments, especially if you’re looking to get involved with precious metals retirement investing, there are some precious metals that are constantly on the radar of investors, and the reasons why.
Rhodium is very rare and silver in color. The metal itself is often used for its reflective properties, so it’s not unusual to see used in the manufacturing of lights and mirrors. It also has a high melting point and can keep corrosion at bay. South Africa and Russia have been some of the biggest producers of Rhodium.
Platinum is a metal that is able to withstand a mass of hydrogen with little to no effect. Its incredible resistance means it’s used for jewelry, as well as dentistry tools. Again, South Africa and Russia have been among the biggest producers of platinum.
Ruthenium is another precious metal that is well renowned for both its rarity and its hardness. As well as being used to plate electrical contacts, it is also used as an alloy to help build better resistance. South American and Canada are some of the biggest producers of this precious metal.
Known as one of the densest metals on the planet, osmium also has a high melting point. North and South America are among the largest producers of this brittle metal and is used to harden platinum alloys for electrical contacts.
Another dense metal that also has a high melting point, rhenium is used in the manufacturing of filaments and contact materials. The United States and Chile are among those who produce this precious metal.
When it comes to being recognized, silver is a close second to gold, both in use and desirability. Like gold, silver is often used in the manufacturing of jewelry. While it can be lower in value than gold, this doesn’t mean that this metal isn’t worth considering when making plans for precious metals retirement investing.
Indium is a rare metal that is used to create semiconductors, corrosive-resistant mirrors and alloys. China, South Korea and Japan are the largest producers of Indium.
Palladium is relied upon by many automobile companies for their catalytic converters, as well as being used by several electronic companies for plating. Russia, South Africa and Canada are among the biggest producer of this adaptable metal.
This is merely an overview of the precious metals available, but gives you an idea of how much diversity there is when making a potential investment. While no two precious metals will have the same value, you can be sure that a precious metal is a valuable asset in its own right, regardless of whether it’s silver, gold or indium. They will not be prone to the same risk as paper-based assets and can be seen as a way of minimizing risk when trying to structure a robust financial plan.
Which Precious Metal Should I Invest In?
There is no right or wrong answer when determining as to which metal you should invest in for the future, because there can be many factors to consider. However, if you’re looking to invest in several precious metals, then it can be advisable to ensure that you have access to a custodian that is able to store the precious metals, as well as receiving financial advice as to what kind of investments are worthwhile based on your current portfolio. Thigns change however if you are looking to invest in precious metals as part of a gold IRA rollover process for your retirement. It is a very complicated process and you have to get a reputable custodian to help you with the rollover process (source: mineweb.net – gold IRA)
Are Precious Metals More Valuable Than Paper-Based Assets?
When building a portfolio, you may receive a series of conflicting advice as to whether you should invest in paper-based assets only, or look to diversify. The reason precious metals have become a popular commodity when planning for their future is their resilience in the financial market. While nobody knows what’s around the corner, many people have chosen to make investments in precious metals as they are known for counteracting any inflation incurred from inflation on paper-based assets.
If you’re unsure of how precious metals will help secure your financial future, then it can be advisable to speak to a professional to ensure that you’re given the advice you need.
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.