Debt Problems
Credit Card Debt – When Should You Seek Advice?
When it comes to spending your money, there are several ways you could do it.
Nowadays, one of the most popular ways to spend is by using a credit card – it’s quick, it’s convenient and it lets you spend money you may not otherwise have until payday.
While credit cards offer a quick and easy way to make purchases, they don’t come without their risks. Spending too much money on your credit card can be dangerous – particularly if your situation was to change and you weren’t able to afford your repayments… in this situation, you could soon find yourself struggling with debt.
At what stage should you look for advice, though? Well, that’s a good question, and this guide takes a quick look at it.
Understanding credit card debt
Before taking on credit card debt, it’s important you bear a few key points in mind. First of all, the money you spend on your credit card has to be repaid. If you don’t repay it by the ‘deadline’ set by your credit card provider, your debt will start accruing interest at the agreed rate.A problem can arise when you are unable to afford your credit card debt repayments each month. Whatever the issue, if you fall behind on your monthly payments, you could soon find yourself struggling with unmanageable debt as the interest grows.
At what stage should I seek advice?
Generally speaking, as soon as you notice something isn’t right (e.g. you’re spending more than you earn, or you’re finding it hard to meet all your expenses), you should seek advice.Of course, if you can spot a potential issue before it really starts causing you any troubles, so much the better – the sooner you seek advice about your debts, the sooner you can get some pointers on getting / keeping them under control.
Avoiding problems in the first place
There are ways you could improve your chances of avoiding any problems in the first place. We’re going to discuss two of these briefly now.Firstly, you could take out a debt consolidation loan to repay all your unsecured debts (including credit card debts) in one go – replacing them with just one, easier-to-manage debt.
This could help you simplify your finances by leaving you with just one payment to make each month instead of several. It could also allow you to pay less each month – if you arrange to repay your debt consolidation loan over a longer timeframe than your original debts.
Please be aware, though, that debt consolidation does have its downsides. For example, arranging to repay your loan over a longer timeframe will mean you’re in debt for longer – which means you’ll be paying interest for longer too, so it can end up costing you more in the long run.
Another way you could avoid financial problems is by planning your monthly budget out in advance – so you’ll be able to see how far your money will go each month, and whether or not you’re likely to come up against any problems (like running out of money before the end of the month).
Of course, problems can’t always be avoided. If you’re made redundant, for example, or you have to take a pay cut, you’re simply not going to have as much money at your disposal each month. And although you can’t predict whether this will happen, you can take measures to protect yourself in case it does. For example, you could reduce the amount you spend on your credit card, so there’s less chance of running into problems when it comes to repaying your debt. Or you could work on repaying any existing credit card debt quickly, so there’s less to worry about in the future.
If you’d like to talk to an expert about it, Debt Advisory Centre could help you explore your options.
Guest Post by Debt Advisory Centre
How Are You Going to Recover from Overspending on Christmas?
It’s the first week of January and you’re filled with financial dread. You can’t believe the shape of your finances. Not a good way to start a new year, huh? It might seem daunting to meet new year’s financial resolutions when you have no money in your account. So many people are in the same boat as you. Wait until the credit card statements start flooding in! Some of you spent cash only on Christmas, which is smart, but whether you spent cash or credit cards, if you overspent you’re feeling the cash crunch as you’re struggling to pay January’s bills.
Here are some tips to help you recover NOW and then plan more effectively for the next Christmas:
NOW:
- Eat Frugally. Shop sales, eat up those leftovers, forget restaurants and don’t even think about buying your daily Starbucks or Tim Horton’s until you’re back on track.
- Clip coupons. Become a coupon queen or king. You might be surprised at how fast the savings add up! Why not consider putting everything you save into a jar to pay toward your debt or do it all year long to help you save toward next Christmas?
- Set up a strict budget and follow it to the letter. It’ll help you get back on track fast.
- Prepare for next year carefully.
How will you be better prepared next year? That’s a good New Year’s resolution. Here are some tips:
THEN:
- Set a holiday spending limit and stick to it. Then portion your income so that you put aside a portion of that money between now and the holidays.
- Shop throughout the year instead of all through December. One of the reasons Christmas hits us so hard is that we often pull the money out all at once, leaving a gaping hole in our finances. Yes, there are great sales after Thanksgiving but if you see something perfect for a good price in the summer, for instance, why not buy it and put it away? That’s one fewer gift to scramble for next December. Keep a running list so you know what’s been bought.
- Draw names. Did you overdo it buying for all the siblings, cousins, aunts, uncles, and neighbours? Maybe it’s time to set a limit. Maybe drawing names or giving smaller tokens (such as homemade gifts like tins of baked goods) to some of those people is a better idea.
- Start a Christmas fund. Open a high interest savings account now. Portion a certain amount of your income to go toward it automatically. Don’t make this money easily accessible! You can use this as a Christmas fund alone or double this account as an emergency / savings / Christmas / holiday fund.
- Keep all your holiday spending money separate. Open a separate bank account, use cash, or use a specific prepaid debit card. This can help you stay within your limits and not leave yourself short for January.
Hopefully you had a lovely holiday, despite your financial faux pas. A bit of frugality can help you get out of debt quick and some planning can help you have a smoother season next time.
Doing a jar or envelope budget? It’s a great way to portion your income. Learn more about it: Jar Budget Technique.
Debt advice: How to Protect Yourself
Guest Post:
Many people will tell you that the best way to avoid problems to debt is to avoid getting into debt in the first place. This is good advice, but in today’s world it’s often unrealistic for most of us.
Most of us borrow money from time to time – in the form of mortgages, overdrafts, credit cards, etc. Without credit, many of us would be unable to go about our daily lives.
All debt can carry some risk, regardless of how financially comfortable you are now. A sudden change in your circumstances, such as unemployment, could make your debts unaffordable. If you’re struggling with debt, there are a number of places you can go for information, such as http://www.debtadvisorycentre.ie and http://www.adviceguide.org.uk/
So what can you do to lessen your risk of future debt problems?
Budgeting
Budgeting is undoubtedly one of the most important things you can do if you’re serious about protecting your finances. Start by writing down a list of all your regular monthly costs, and adding up the total – this makes up your total outgoings. Subtract your essential outgoings from your monthly income, and what’s left is safe to spend on non-essentials (or save).
Remember also to budget for less regular costs – things you only pay for once every three, six or twelve months, for example. Ideally, you’ll want to put aside an equal amount every month – so for three-monthly bills, put aside a third of the total each month to make sure you’re covered.
If at any stage you find your outgoings are higher than your income and you’re falling further into debt, you should consider seeking debt advice from an expert.
Saving
Even if you budget your finances well, it’s extremely useful to have a ‘second line of defence’ in case anything unexpected happens. One of the best defences you can have is a good savings account.
Experts tend to say that you should aim to have at least three months’ salary in savings at all times – but less than this is better than none at all. We all have to start somewhere, and even a few hundred pounds could potentially get you out of a sticky spot.
However, repaying debt should almost always take priority over saving, since the interest rates on debts tend to be far higher than on savings. In other words, you’ll almost certainly save money in the long run if you focus on clearing your unsecured debts first – and then start saving once those interest charges aren’t eating into your money.