USE DEB EFFECTIVELY
In a financial context, deb
t is an amount of money that is owed to another party. Debt is commonly referred to as a ‘loan’ or the use of ‘credit’. Many people use credit or loans to purchase new goods and services and pay for them later.
Debt can be a convenient way to purchase goods and pay for them over an extended period of time, especially for larger items that we generally can’t afford to purchase immediately, such as a home, a car or even a holiday.
Other forms of debt, such as credit cards, allow you 24-hour access to money to shop online and give you access to money for emergencies. Common types of credit include credit cards, store cards, bank overdrafts, personal loans and mortgages. All credit contracts are enforceable by law, and involve a cost – this is the price you pay for being able to make use of the borrowed money. The cost of credit may include interest and other fees.
In a financial context, deb
t is an amount of money that is owed to another party. Debt is commonly referred to as a ‘loan’ or the use of ‘credit’. Many people use credit or loans to purchase new goods and services and pay for them later.Debt can be a convenient way to purchase goods and pay for them over an extended period of time, especially for larger items that we generally can’t afford to purchase immediately, such as a home, a car or even a holiday.
Other forms of debt, such as credit cards, allow you 24-hour access to money to shop online and give you access to money for emergencies. Common types of credit include credit cards, store cards, bank overdrafts, personal loans and mortgages. All credit contracts are enforceable by law, and involve a cost – this is the price you pay for being able to make use of the borrowed money. The cost of credit may include interest and other fees.
THE GOOD AND THE BAD
Borrowed money is convenient because it can help us achieve our financial goals, as long as it is managed carefully. When debt is not managed carefully it can have a detrimental impact on your life, and can also have an impact on your ability to be able to borrow again in the future.
Good debt is debt that a person can manage by being able to make repayments according to the terms and conditions of the contract. Bad debt is where a person is not able to manage the repayments.
When you are considering entering a credit contract, such as taking out a loan, make sure you fully understand what fees and charges and rate of interest will apply. There can be significant differences between the charges of mainstream businesses, such as banks, and other businesses, such as payday lenders.
Borrowed money is convenient because it can help us achieve our financial goals, as long as it is managed carefully. When debt is not managed carefully it can have a detrimental impact on your life, and can also have an impact on your ability to be able to borrow again in the future.
Good debt is debt that a person can manage by being able to make repayments according to the terms and conditions of the contract. Bad debt is where a person is not able to manage the repayments.
When you are considering entering a credit contract, such as taking out a loan, make sure you fully understand what fees and charges and rate of interest will apply. There can be significant differences between the charges of mainstream businesses, such as banks, and other businesses, such as payday lenders.
WHAT’S THE BEST WAY TO MANAGE DEBT?
For many of us, borrowing money helps us work towards our financial goals. But from time to time, our debt can become a burden. And for some, it can result in significant financial hardship. The key to ensuring that debt continues to work for you, rather than against you, is careful debt management.
Consider these tips for paying off your debts.
1) Modify your budget to make sure It accounts for your debt repayments
2) Pay off debts with the highest interest rates first, as these can cost you more in the long run
3) Credit cards require you to pay a minimum amount each month. Consider paying more money than the minimum required so you can pay off your debt faster and pay less interest
4) Think about consolidating your debts if you have more than one, but only do so if it will help you to minimise your overall interest payments and the fees and charges you pay
5) Once you’ve paid off a debt, keep setting aside the repayment amount to help reduce other debts faster or put into a deposit account to help build up your savings
6) Speak to a financial counselor about putting in place a debt management plan.
COMBINE YOUR LOANS INTO ONE AND SAVE
Consolidating your loans could mean you are able to reduce the overall interest rate you are paying and the fees you pay. In addition, consolidation can also make your credit repayments easier to manage, as you will only need to make a single repayment per month (rather than multiple repayments if you had multiple credit arrangements to repay).
Always remember, the aim of consolidating is to reduce your overall interest rate and the amount you pay in fees and charges. You will need to do your homework and read the fine print to make sure consolidating really will save you money in the long run. You will also need to think about how you manage your consolidated loan and any other forms of credit, such as a credit card.
SOME PROS AND CONS
When used effectively, debt provides some real advantages. You are able to purchase expensive items and have the use of them now, rather than waiting until you save up the entire price. A credit card also gives you access to cash in an emergency and is a convenient way to pay for items, especially when you are traveling.
But you need to be aware that debt is not free – interest is what you pay to a lender for the use of the lender's money. There will almost always be fees attached to taking on debt. Also you may get in over your head and be unable to make your repayments, incurring more fees. And depending on the type of loan you take out, repayments can also increase as interest rates rise.
BE AWARE OF PAYDAY LOANS
A payday loan allows you to obtain money when you are in dire need. Sometimes, these are available to people who have been unable to borrow money through mainstream providers such as banks. Think carefully before obtaining one of these loans. You could end up paying extremely high interest rates, in some cases as high as 1000% per year.