Every day, UK debt management agencies field hundreds of calls from consumers looking for help. The particulars of their story are different but the tales feature several common themes. Though making mistakes is part of the financial learning curve, being aware of the most common pitfalls can help you avoid them.
These tips may even keep you out of debt for the long haul, making for a much less stressful life.
Helping someone financially may seem like the right thing to do but it can lead to trouble. Guaranteeing a loan for someone or taking out a joint loan could end badly if the other person cannot make the payments. Never take on one of these roles unless you are able to repay the full loan balance.
Along the same lines is adding a cardholder to your credit card account. This individual is not responsible for his or her spending on the card so think carefully before allowing someone to spend money in your name.
Some people use credit cards for all their purchases, including big-ticket items that they could purchase with cheap loans. Maxing out a credit card is not an issue to them as long as they can afford the minimum monthly payment.
This approach usually results in interest charges that are much higher than loans APR offered by financial institutions. In addition, the debt will take years to clear, making it tempting to spend on another credit card, racking up a second balance.
Some credit products feature special offers like limited-time discounts. If consumers do not cancel the credit or repay a balance in time, they may be penalized. To avoid facing charges and fees, understand the conditions and terms of these offers. Pay off a balance or cancel before the deal expires to avoid falling into a trap.
When many consumers find themselves falling behind with payments, they use new credit to pay existing credit balances or household expenses. This can lead to a debt spiral from which recovery is difficult. As soon as you begin falling behind on payments, get debt advice. Look for a charity or specialty group that provides free debt counseling. There is no reason to pay for this service when it is available at no charge from reputable groups.
Once debt rears its ugly head, the first instinct may be to consolidate it. Unless the total balance is small enough to be repaid quickly, this is not recommended. It only prolongs the repayment period and for some people, it can increase debts. If a consolidation loan does not feature affordable monthly payments, new credit may be needed to cover household bills, creating a bad situation.
Consumers should have an emergency fund that represents six months’ of income. For those who do not, payday loans represent one way to cover unexpected emergency expenses. Shop for the best rate and repay the loan quickly to minimize interest charges.
By staying out of debt, people create a more stable financial situation, making life much easier.