How to manage your debts and boost your savings
One missed payment is all it takes for debts to spiral out of control. If you have a number of financial commitments that you barely manage to keep up with every month, making some small changes to your lifestyle won't just ensure that your credit rating remains intact; it will guarantee that you can build up a savings account for the future. In this article, we're going to explore how you can add valuable digits to your savings, while also making more out of the monthly income you earn.
1. Having some trouble meeting the monthly bills? Get in touch with your lender for a restructured repayment plan.
For consumers who have issues with debt management, the main problems arise when you don't tell your creditor that payment is going to be late. From here, you can experience all sorts of late fees and surcharges, with the interest also being added onto your monthly bill. As a result, you aren't just behind on paying the mortgage, and instalments for your car, but you are also having to contend with the prospect of paying even more than you normally do.
Most lenders have contingencies in place, and will be more than happy to cooperate with you if you structure a reasonable and clear repayment plan that you commit to. If you set five milestones where you are paying less money more frequently until you catch up, but miss the first deadline, you certainly won't give your lender much confidence. From here, they may decide to contact a debt collection agency, with bailiffs taking the valuables you own, assets such as your house being repossessed, and even your ISA being accessed to claim back the cash that is rightfully theirs - irrespective of whether or not it was to put your kids through university. Unfortunately, if you do not meet the commitments outlined in a credit agreement, the law is on the side of the lenders.
2. Only opt for a fixed rate ISA if you are certain that you won't need to withdraw the money to keep up with monthly repayments.
A fixed rate ISA is where the interest you receive on the money saved is set for a period of six months, a year, two years or even more in some cases. Usually, the generous AER for savers using these accounts will be accompanied by a clause that states that money cannot be withdrawn in some cases - and, if it is, you may be penalised heavily for doing so.
Next time your ISA is up for renewal, consider avoiding fixed rate ISAs and bank accounts that tie your money in for extended periods of time. Instead, why not go for a banking service that has flexible withdrawal times? Yes, you may not always benefit from the best savings rates that are available on the market, but at least you'll be able to react quickly to being paid late from work, or a higher-than-expected utility bill.
3. Always complete a thorough review of your finances before you begin a new financial commitment - it will actually save you money in the long run.
Although it may seem like that you will be financially worse off if you don't apply for a loan or credit card, as your cash flow won't be as promising as it could be, overestimating your spending power and defaulting on payments can be a disastrous decision in the long run. Every time you fall behind on credit repayments, your credit rating progressively worsens. This means that next time you are applying to borrow money, and a lender checks your recent transactions through a credit referencing agency, you could find that your request is declined because of your volatile reputation. Lenders don't like to do business with high-risk individuals, as if the consumer in question applies for bankruptcy, the money owed could turn into toxic assets that will never be happened. In the main, this was the cause of the sub-prime mortgage crisis, when money was offered to people who simply couldn't afford to repay financial institutions back.
4. If you are going to engage in a debt payment plan, make sure that you won't incur any cost for the convenience.
Recent coverage in the news unearthed companies that profiteered off consumer's poor finances by charging for a debt payment plan, where your creditors are contacted on your behalf to draw out settling the bills outstanding. So, instead of owing £1,000 over a 12-month period, you may pay back £1,200 over 24 months. Here's the catch, though: the extra £200 you settle over the additional 12 months would go to the people who coordinated the debt payment plan.
The Consumer Credit Counselling Service, or CCCS for short, has tried to raise awareness that its independent body offers this service for free, and more information can be gained from the Citizens Advice Bureau.
5. More vitally than anything, make sure that you compare loans and savings accounts.
A lot of the time, pennies and pounds can be saved if you shop around for the best deal. In the case of an ISA, this means hunting for the highest interest available, whereas for loans, you need to try and find the lowest APR possible. In many cases, the cleaner your credit rating, the easier it will be for you to grab the best deals, and this is because lenders will have confidence in your ability to repay. Never borrow more than you need to, and make sure that you never miss payments on your mortgage, as these can result in your home being repossessed and auctioned if you fall too behind. With support available for income families who suddenly find themselves susceptible to unemployment and redundancy, there is help at hand to prevent the stress and ill health that towering debts can cause. It's time to get out of the red and into the black, so seek advice today.