Published on October 22nd, 2012 | by Pete0
How to Not Get Into Debt
Isn’t the internet a funny place? For some reason there seems to be a huge amount of guides titled “how to get out of the” while there are very few on how to prevent oneself from getting into debt in the first place. You cannot really assume that everyone is waiting for an opportunity to jump in and wreck their credit files. Nevertheless this is something that is happening everywhere.
The stats are alarming – the current outstanding personal debt of the British population is staggering £1.4 trillion. On average each household owes around £53,000 including mortgages. And unfortunately, not all of this is money that the people can afford to pay back. A large chunk of £1.4 trillion is the so-called bad debt – something that will never be paid back, bringing us even deeper into the recession. In fact, lenders write off £13 million in loans every day. In the meantime – Citizen Advice Bureau will hear around 8,000 calls for help related to debt issues every working day.
The question is – what to do? It all starts with proper education. You cannot expect people to grow savvy with their money if the daily message they get from the media is spend, spend, spend! We do hope that these simple tips will help when it comes to loans, budgeting and managing money.
*Start early – money shouldn’t be a taboo topic in any family. Children should understand the basic mechanisms of money making and spending from a young age. Money management is a habit that takes time to develop and fine-tune. Children should be taught to save money – first it’s a piggy bank, then a proper bank account. Did you know that there are banks where a child can open a bank account with the parent as a co-owner from the age of 13?
*Manage your money – know exactly how much you take in and spend each month. No nasty surprises please! Bookmark your online banking page and check in several times per week just to keep an eye on things. Better yet download free bookkeeping software or keep expenses in a simple copybook.
*Keep a track of your credit rating. A good credit rating is a must even if you’re not inclined to jump at every opportunity of getting another loan. You’ll need to be on the green end of the scale even if you want to obtain a monthly mobile phone contract, not mentioning more serious stuff like mortgages or car finance. You can use www.creditplus.co.uk/credit-rating-guide.html a free credit rating tool to gauge your current rating or occasionally use one of the official agencies to check for possible issues on your file.
*Go easy with credit cards. Do you really need a credit card? That plastic thing in your pocket may be one of the most expensive ways of borrowing money. A personal loan or an overdraft facility on your debit card will be much, much cheaper. Utilise specific loan products for specific purchases. Buying a car? Get car finance instead of going for a personal loan.
*Save a fixed amount of earnings every month. Once you start on a paid employment, make sure you put a certain percentage of your income in a high-rate savings account. A flexible ISA may be the best paying option at the current climate. The thing is that if you don’t live over your budget, you should be able to save at least 5% of your monthly income regardless of your salary. When you reach a higher level of income, increase the proportion of savings.
We believe that by following these simple tips we can create debt-free living for ourselves and our children.