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Good debt or bad debt?
As long as credit is easy to receive, debt will continue to walk with us through life, taunting our every move and aggravating our very existence.
Some debt advisors state that the total amount of debt accrued per month in credit cards, loans, mail order catalogs etc., should not exceed any more than 36% of our gross monthly incomes. This is the maximum target level a mortgage lender will allow while assessing a potential borrower.
What is the best next step to take?
The secret to using debt to your advantage is to make sure that you buy assets which will increase in value. For example, a mortgage will allow you to live in a nice home with the hope of making a profit from it in the future. A student loan will allow you to study for a good job which will bring you many financial rewards.
Instead of using credit for profitable purchases like the above, most people use their cards to purchase everyday items which decrease in value the moment that they are bought, for example, food or clothes. If you do have to revert to your credit card for these goods, you should pay your total balance in full to avoid interest charges.
A credit card should never be used to finance a holiday as a holiday does not appreciate in value. Add to this a card with a high interest rate and you are dabbling with bad debt. An ideal debt to income ratio should not rise above 20% of an annual income when calculating personal loans, credit cards, utility bills etc. Figures that rise above this mark are likely to turn creditors away, even if payments are maintained.
Tagged Credit Card, debt, Debt Advice, Loans
Taking a Stand: Five must read posts of September
Each week I read a vast amount on blogs about debt, investing, saving money and there’s always a special few that are too good to be kept a secret. Now that October is upon us it’s time for me to check back on my personal finance bookmarks and choose a few to share with anyone stopping by at Money Stand. Here’s my favourite blog posts from around the net that were published in September:
1. Execellent Post at GenX Finance on saving money by doing your own home maintenance. This is great advice and a very comprehensive list.
2. Such a great idea which I will personally be taking on board is this post from Growing Money about getting money back from those who have borrowed from you. I’ve lent out more money than I care to remember and it’s so difficult to ask for it back.
3. I came across this post on Debt Kid yesterday which is really how to acheive debt free living in a nutshell. It covers the three main points I always talk about on MoneyStand and is really well written.
4. Over at Debt Management Tips they wrote an article at the start of the month about tackling student debt. If you’re a recent graduate like myself, it’s worth a good read.
5. If you’re considering buying your own home or trying to find out about mortgages, read this inciteful article about how to pay off a 30 year mortgage in 15 years at Consumerism Commentary.
If you missed these posts and any of them interest you, I thoroughly recommend you take the time to have a read!
Tagged blogs, debt, Money, personal finance
Consolidating Your Debts to Decrease Your Commitments
One of the biggest problems with the financial climate today, is the amount of personal debt that many people have incurred.
For most people, their income is limited and, in some cases, has even reduced due to redundancy, or having to take a cut in pay, and, of course, ever-rising prices.
There are many ways to try and sort out personal financial problems, though some are better than others. For instance, it is not generally a good idea to take out further borrowing on credit cards. Any special deals the card companies use to obtain your custom usually have a limited life; when the term expires, you may well find you are on a very high rate of interest, and your debt will start increasing again.
One piece of advice I would offer is to approach a professional for free advice and ask about consolidation loans, (you could try your bank, or a charity like CCCS, or a company like Debt Free Direct). The idea behind consolidation loans is that you borrow enough from the bank to repay all your existing debts. You will then have just one commitment, to the bank that loaned you the money. These days, you can even negotiate terms and interest rates, so, although you may find you are making monthly payments for many years to come, at least you will just have the one commitment. As long as you do not take on any further debt, once you have repaid the bank, you will be debt-free.
If you have a mortgage, you may be able to ask your mortgage company for a second mortgage, borrowing enough to repay your existing debts. You will then have to re-negotiate the life of the mortgage, and the amount you pay back monthly, but, as with a bank loan, you will only have one monthly commitment to worry about.
Of course, it is best to avoid debt in the first place, but this is easier said than done. Consolidating your debts in one of the ways listed above, is the next best solution, and will help to make life a little less stressful.
Tagged consolidation loans, debt, finance, Money
Staying together for financial reasons
Is there more to a marriage than love? It’s not surprising that many couples stay together when the love fades for financial reasons. This practical approach to marriage can stop people falling into debt and don’t forget that married people are much more likely to avoid depression and live longer than their single counterparts. I’ve been reading some debt news articles about relationships and debt which prompted me to write today’s article.
Stay together for financial reasons can make perfect sense considering what could be at stake. So what are the pros and cons?
Children, not only do you give them emotional stability by staying together but also the financial stability to allow them opportunities and open doors that otherwise would not be available to them. Staying together means you don’t waste your money on solicitors, accountants and estate agents, which may come heavily into play for couples that have lots of assets. There is the question of how much you are willing to sacrifice, maintaining your present style of living and not feeling financially restricted can be a major factor in staying together as getting use to living below your means is difficult and will put a huge strain on you and your children.
You need to ask yourself how much will you stand to lose, if you do all the number crunching and the amount won’t create a major financial meltdown then there is no reason to stay married if the love’s not there. If you have substantial financial assets that you have built together such as houses, cars, stocks and bonds as well as retirement funds and insurances that are registered in both you names then you may want to think twice before you call you solicitor for those divorce papers. A separation may be the way forward if you both stand to lose out big-time as a divorce is permanent and may require the 50-50 splitting of your assets whereas a separation involves a different set of financial rules.
Ask an accountant to do all the sums for you and check the financial burden if there were a divorce as it’s not only the splitting assets but also the tax implications. Young couples do not carry so many assets so separation or divorce is far easier as there is far less financial worries involved and they have the time to start building up their finances again however older couples have a far more substantial portfolio so would stand to lose far more.
Staying married when you can’t be lovers is easy as long as you remain good friends and pursue your own dreams and interests, money is far easier to negotiate when your are friendly with each other.
Most people would frown on those staying married for the money but should they one day find themselves in the same situation they may have second thoughts.
Tagged debt, Marriage and Finance
Phone line cheat sheet
Talking to a machine on the phone can drive you insane, especially if the per minute charge is a ridiculously high price All you want to do is talk to a human and all the company your calling wants to do is make you bankrupt but help is at hand from cheapflights.co.uk who have come up with a cheat sheet.
The cheat sheet is a list of lots of airlines and hotels who have automated answering services; the list provides details of what to press and when to get straight through to a real (yes real!!) human being.
I happened across this gem whilst searching for tips to make you richer, and considering many of us call £1+/min call centre’s and have to key in options that aren’t helpful and wait queuing for possibly greater than 20 minutes then it seems fair that this is a brilliant money saving idea.
Check out the cheat sheet here.
Tagged Cheat, debt, Phone, Saving tips
Repossession Rising
Home repossession has skyrocketed throughout 2008, the Bank of England has disclosed that more than 500,000 homeowners are now in negative equity however other sources have said the figure could be breaking 1 million. It is expected that 45,000 homes will been repossessed by the end of the year.This figure equates to 123 repossessions per day and is set to rise to 205 per day in 2009.
The government has recently declared that a 1 billion pound scheme has been agreed with the 8 largest lenders (HBOS, Abbey and Nationwide) to help struggling homeowners. The package is estimated to benefit around 9000 people and will be available to those that have recently lost their jobs or have suffered a loss of income i.e. a bonus.
The bailout will let households with mortgages of up to £400,000 defer their interest payments for up to 2 years however the exact terms of the suspension of payments and how much of the payments are deferred will have to be agreed between the individual and the bank. The scheme is effectively a form of mortgage interest insurance and has been classed as more of a reassurance tool. It is targeted at middle income families and to qualify they must not have more than £16,000 in savings, currently those who are unemployed with mortgages of £200,000 or less can apply for housing benefits
I personally feel that even though the government is stepping in to try and help homeowners it still won’t be enough to fight this economic downturn, there needs to be some serious action to help relieve the millions of people who will feel the burden of debt and money worries. Yes I know they’re trying but all these packages the government puts together have been very rushed and probably not thought through very well. The amounts used for all the different bailouts in recent months (banks etc) have to come from somewhere and taxes will not fully cover it, so what will be happening in a few years time? I see more of us in debt, taxes skyrocketed and prices on goods will be far higher than expected (£8+ a pint!!!) and of course wages will the same!
What do you think of the government bailouts and what do you think the future holds for the economy and the cost of living?
Tagged debt, Repossesion, Tax
Surely the budget takes place in March?
Every newspaper and every news reports tells us we are in the grip of the start of a recession, but for many of us we do not need the media to tell us about the recession many of us are living with it from day to day. This year has seen a large increase in home repossessions, those looking for debt management help and advice and even an increase in the number of people being declared or filing for bankruptcy.
Many household consumables have increased in priced over the last 6 months, most of us are struggling with increased utility costs and as the winter draws in, many people have to choose whether to eat or heat their homes. So how do we manage, is it possible to cut back on unnecessary spending and try to make savings? The answer is yes, there are steps we can all take to spend less and even save some money.
How do we cut down on unnecessary spending and make savings? The key to this is honesty and budgeting. We need to look at our household expenses and spending, identify the essential items and reduce the extras. When we have identified what we spend our money on we can take steps to reduce our spending, we need to agree our budget and look for the best deals. Perhaps we need to look at simple things like our mobile phone contract, or our broadband/telephone package and look for better deals. Perhaps we need to remove some non-essential luxuries such as satellite television packages or even buying non-branded goods when we do our shopping.
We have to be totally honest about our spending, if we hide things we are only bluffing ourselves and this will not help us make savings. There are lots of competitive deals around on things such as insurance, so we have to make sure we are getting the best possible deal. Where possible we should also use cash back sites to make our purchases, making sure we earn something from the essentials that we need to buy. We should all be trying to reduce our carbon footprint to save the planet, but this may also help us to economise on our food and heating bills, if we use less we will spend less.
Because the current economic climate is so gloomy we need to be actively reducing our current debt, this will enable us to make greater savings when the economy perks up.
Tagged debt, Debt Management, Money
Let others help you
Debt is a serious issue, and has serious consequences. If you are in debt it is important to look for debt advice.
Although it can be hard to come to terms with the fact that you are in financial difficulty, once you do this you are opening yourself up to a lot of resources that can help you get back on the straight and narrow.
There are many companies that offer credit cards or loans to assist you with eliminating your debt, but rather than commit yourself to further borrowing it is better to speak to somebody about your options. There are confidential debt lines with trained staff that work with you to look at your options, their aim is to help you be debt free, and so who better to speak to? By talking to these people you will become more informed about what you can do and begin to relieve some of the stress related to being in debt.
Tagged debt, Debt Management
Student loans: not as bad as they are painted
Student loans are a necessity for almost all students. And while starting your working life with a large debt is hardly ideal, student loans are one of the best types of loan available.
The APR of a student loan is the same as the rate of inflation. So effectively, the size of your debt never increases. If your debt at the end of your time as a student will buy you a small car, then after 10 years, although the amount of money may have increased it will still buy you a small car, as the price of the car will have increased at the same rate.
No other bank loan will have such a low APR, because the student loans company does not make a profit while all other loan providers must.
A student loan is the wisest debt to have if you must have one. After you graduate, it’s up to you to make sure you get the help and advice you need to get out of debt.
Tagged debt, Loans, Student Loans
Budget
In addition to the standard ‘write and stick to budget’ there are a number of further ways to help you stay out of debt. One of the most effective ways is to carefully think about whether you actually need to make a purchase – don’t just buy something because it’s on sale, on offer or because you’ve fallen madly in love with it at first sight. If after a lot of careful deliberation you realise that you do need it – then if you don’t have the money, save up for it. Remember that by paying for anything with borrowed money, you’ll end up paying a lot more than the price tag once you add on all that interest.
Another great way to stop impulse purchases causing debt is to freeze your credit cards – Seal them carefully in a freezer bag, and then put this bag into some water to freeze. Your cards will still be there when you need them – but the time taken for them to thaw out gives you thinking time about whether you really need to use them.
If you can afford it put a small amount of money away each week or each month. No matter how small, eventually this will mount up to a nice little pot to help cover any rainy day emergencies. Make sure that this money is put in a high interest savings account – and put the first £3000 in a cash ISA to avoid paying tax on your savings.