Be Smart - Use Credit Wisely !
*Personal Loans
There are a number of ways to obtain a personal loan, over the Internet, replying to a letter received in the post offering credit, general advertisements or a visit to
your local bank branch. Shop around and look for the best rate of interest and bear in mind that the longer the term of the loan the more you will pay.
*Overdrafts
If you need to temporarily overdraw, it is essential that you get approval from your bank before you do so, to avoid higher interest rates and charges for unauthorised lending - typically £25.
*Credit Cards
Even though they are very convenient they promote the feeling that you are not actually paying money for something you buy on a credit card. This means you can spend what you like, when you like as long as you do not exceed the agreed credit limit. However, as you approach your agreed limit, you may find that the credit card company informs you that your credit limit has been raised substantially, instead of warning you that you are nearing the limit.
If you do not pay off the balance in full each month, you will be charged interest. As time goes by, you will be paying less of what you borrowed and more of the interest as well as being charged interest on the interest allocated to your account in the previous month. Therefore after a period of time a large amount of what you owe will be accumulated interest.
*Store Cards
Store cards work in the same way as credit cards but usually attract a higher rate of interest. Unless you receive other valuable benefits from having a store card, you would most likely gain from using a credit card instead.
*Interest Free Credit
Before signing an interest free agreement, make sure it is exactly that. It is possible to obtain interest free goods where the total value of the item you are buying is split over a period of time and you only repay the value of the goods. However, some agreements have an interest free period only for a short time and then revert to interest bearing. To be sure, it is best to ask for a quote for the total amount repayable before signing.
*Hire Purchase
The main difference between other forms of borrowing and hire purchase is that with other forms of borrowing the goods belong to you straight away, whereas with HP they become legally yours only when you have finished paying for them. If for some reason you stop paying for the goods, they can be repossessed if you have paid less than one third of the total or you can be taken to court to pay the balance. This form of credit is usually more expensive than for example a loan from your bank, also if your circumstances change for the worse during the agreement, you may lose both your goods and the money you have already paid.
*Catalogues
Many people who buy goods through catalogues pay for the items they purchase on a monthly basis. The risk with a catalogue is that during the time you're paying for the items you already have, a new catalogue will arrive and you will be tempted to buy items you don't really need.
*Secured and Unsecured Loans
One of the main factors in determining the rate of interest you will be charged when you borrow is whether your loan is secured against one of your assets - usually an item of significant value e.g. your house. If you fail to repay, the asset can be forcibly repossessed by the lender or at least they can make you sell the asset so that the amount can be reclaimed.
A secured loan is when you offer such an asset as security to the lending organisation. The advantage here is that you will pay a much lower rate of interest than with an unsecured loan. However when balancing this out against the fact that you may lose your home if you fail to repay, the disadvantages can be huge.
*Think before taking on new commitments
Most people fall into debt through no fault of their own - often as a result of redundancy, illness or relationship breakdown etcetera. But it may be that you simply took on more credit card borrowing or interest-free loans than you could afford to repay. If so, resolve to do things differently in future. Having an up-to-date budget showing your income and expenditure will show what money you have available. Check carefully to ensure that any new commitment really is affordable before you sign up for it.
Better still, try to save up for the things you would like to have. Don't buy on impulse.
When it comes to the wise use of credit, being able to afford the repayments is not the only consideration. It is also important to match the repayment period to the 'useful life' of the thing you are buying. For example, if you are taking out a loan for a holiday, you don't want to be paying for it in 3 years time!
Tuesday, June 26, 2007
How To Maximize Your Income
Maximizing your income means that you are taking all the opportunities available to you:
* To increase your earnings
* To reduce the amount of tax you pay by making sure your tax code is correct and checking that you are claiming any tax credits you are due
* To claim any benefits you are entitled to
You should start by checking that you are receiving all the tax and welfare benefits that you are entitled to , from the following sources.
Inland Revenue
Information about Tax credits can be obtained from the Inland Revenue website - ( www.inlandrevenue.gov.uk )
Welfare Benefits
Information about benefit entitlement can be obtained from your local Citizens Advice or local authority welfare rights office. Information about how to claim can be found on Benefits Agency website ( www.dwp.gov.uk )
Other Possible Sources of Income Maximisation include :
Employment - overtime. This can be useful to help clear priority arrears.
Lodgers - but, bear in mind the following points:
* You may need permission from the landlord or mortgage lender under your tenancy or loan agreement.
* The effect on any benefit income.
* Contents and/or buildings insurance policies may sometimes be affected, although this is less likely where the owner or tenant remains in the property.
* The personal situation of a family should be carefully considered. Debt is extremely stressful and the family may not be able to cope with the additional stress of a lodger.
Downshifting - if you have a substantial amount of equity in your property you may consider selling and moving to a smaller property. This has considerable personal implications and sale/removal costs must be considered.
CSA/Maintenance - it is well known that relationship breakdown is one of the most common reasons for debt. In such circumstances the possibility of obtaining maintenance through the Child Support Agency needs to be investigated.
* To increase your earnings
* To reduce the amount of tax you pay by making sure your tax code is correct and checking that you are claiming any tax credits you are due
* To claim any benefits you are entitled to
You should start by checking that you are receiving all the tax and welfare benefits that you are entitled to , from the following sources.
Inland Revenue
Information about Tax credits can be obtained from the Inland Revenue website - ( www.inlandrevenue.gov.uk )
Welfare Benefits
Information about benefit entitlement can be obtained from your local Citizens Advice or local authority welfare rights office. Information about how to claim can be found on Benefits Agency website ( www.dwp.gov.uk )
Other Possible Sources of Income Maximisation include :
Employment - overtime. This can be useful to help clear priority arrears.
Lodgers - but, bear in mind the following points:
* You may need permission from the landlord or mortgage lender under your tenancy or loan agreement.
* The effect on any benefit income.
* Contents and/or buildings insurance policies may sometimes be affected, although this is less likely where the owner or tenant remains in the property.
* The personal situation of a family should be carefully considered. Debt is extremely stressful and the family may not be able to cope with the additional stress of a lodger.
Downshifting - if you have a substantial amount of equity in your property you may consider selling and moving to a smaller property. This has considerable personal implications and sale/removal costs must be considered.
CSA/Maintenance - it is well known that relationship breakdown is one of the most common reasons for debt. In such circumstances the possibility of obtaining maintenance through the Child Support Agency needs to be investigated.
How To Reduce Your Spending
If you have already maximized your household income to the very limit, then the only alternative solution to increasing you budget surplus is to reduce your spending.
The first thing to do is look at your expenses (as detailed in the step 2). Ask yourself the following 3 questions for each category:
* Is this category absolutely necessary?
* If not can we do with out it?
* If not can we substantially reduce our spending?
Once you have identified the areas where substantial reductions can be made, you will need to think of ways to actually achieve your goal.
Below is a list of ideas to help you get started:
* Housing - look for D.I.Y. opportunities and shop carefully for furniture and appliances. Take advantage of genuine sales wherever possible.
* Transport - do what you can to use one car and perform routine maintenance yourself. If you are going to town try to use public transport.
* Utility Bills - make sure you are with the cheapest supplier for gas and electricity. Compare prices and switch online to get your best deal.
* Food - prepare packed lunches for work and school. When purchasing food prepare a list and stick to it. Try to use money off coupons from papers and magazines where possible.
* Clothing - plan your spending in advance and do not over purchase.
* Insurance - shop around for the best deal and make sure you only get the cover your family really needs.
* Entertainment/Recreation - draw up a list of things you and your family can do in the vicinity of your home that are cheap or completely free. Try to stick to a limit on spending money and holidays and book accordingly.
* Savings - open a separate savings account where you can deposit the required monthly allowance for bills that do not fall due on a regular monthly basis or to deposit monthly amounts to help save for a holiday etcetera.
The first thing to do is look at your expenses (as detailed in the step 2). Ask yourself the following 3 questions for each category:
* Is this category absolutely necessary?
* If not can we do with out it?
* If not can we substantially reduce our spending?
Once you have identified the areas where substantial reductions can be made, you will need to think of ways to actually achieve your goal.
Below is a list of ideas to help you get started:
* Housing - look for D.I.Y. opportunities and shop carefully for furniture and appliances. Take advantage of genuine sales wherever possible.
* Transport - do what you can to use one car and perform routine maintenance yourself. If you are going to town try to use public transport.
* Utility Bills - make sure you are with the cheapest supplier for gas and electricity. Compare prices and switch online to get your best deal.
* Food - prepare packed lunches for work and school. When purchasing food prepare a list and stick to it. Try to use money off coupons from papers and magazines where possible.
* Clothing - plan your spending in advance and do not over purchase.
* Insurance - shop around for the best deal and make sure you only get the cover your family really needs.
* Entertainment/Recreation - draw up a list of things you and your family can do in the vicinity of your home that are cheap or completely free. Try to stick to a limit on spending money and holidays and book accordingly.
* Savings - open a separate savings account where you can deposit the required monthly allowance for bills that do not fall due on a regular monthly basis or to deposit monthly amounts to help save for a holiday etcetera.
British Loans : Your Personal Budget
Having a budget that details all your income and expenditure will help you to maintain control of your finances and, if necessary, help to illustrate the problems you may be having to your creditors.
*Start with the reality of your current situation :
Keep a record of everything you spend money on to complete an accurate picture of your monthly expenditure.
Make a conservative estimate of your annual income and divide it by 12 to get a monthly figure.
You also need to work out expenses that do not necessarily occur every month, such as insurance, holidays, car repairs, vet bills etcetera.
Estimate how much you spend on these each year and then divide by 12 to determine your monthly cost.
The information below will give you a good idea of what needs to be included.
MONTHLY INCOME:
Your basic salary
Partner's basic salary
Guaranteed overtime
Pensions
Child Benefit
Income Support
Tax Credit
Other benefits
Maintenance
TOTAL INCOME £
MONTHLY EXPENDITURE:
Commitments Everyday Spending Occasional
Mortgage / Rent Food & sundries Christmas
Water Pocket money Birthdays
Ground rent Childminder Holidays
Service charge Toys & books Car repairs
Council tax Pet food House repairs
Property insurance Laundry Decorating
Contents insurance Chemist Replacement
Electricity Parking Furniture
Gas Public transport Vet bills
Oil TV rental Clothing
Telephone Video rental Dentist
TV licence Evening classes Opticians
Car MOT CD's Trips/outings
Road tax Alcohol Meals out
Vehicle insurance Cigarettes Other
Personal insurance Newspapers
Private pension Magazines
Maintenance
payments Petrol
Other
Second mortgage
Loan repayments
HP repayments
Credit card payments
School fees
Other
Total Commitments £ ( You may wish to further classify this figure into Total Everyday Commitments £ , and Total Occasional Commitments £ )
Total Monthly Expenditure:
Total commitments £
Total everyday spending £
Total occasional £
Grand total £
Balance:
Monthly Income £
Monthly Expenditure £
Monthly surplus/deficit £
If the difference between your income and expenditure is a positive amount, you have a budget surplus and have money to pay towards your unsecured creditors.
If, however, you have more expenditure than income, you have a budget deficit and will need to make changes to your spending habits to find money to pay your unsecured creditors.
You should also ensure you are maximising your income.
*Start with the reality of your current situation :
Keep a record of everything you spend money on to complete an accurate picture of your monthly expenditure.
Make a conservative estimate of your annual income and divide it by 12 to get a monthly figure.
You also need to work out expenses that do not necessarily occur every month, such as insurance, holidays, car repairs, vet bills etcetera.
Estimate how much you spend on these each year and then divide by 12 to determine your monthly cost.
The information below will give you a good idea of what needs to be included.
MONTHLY INCOME:
Your basic salary
Partner's basic salary
Guaranteed overtime
Pensions
Child Benefit
Income Support
Tax Credit
Other benefits
Maintenance
TOTAL INCOME £
MONTHLY EXPENDITURE:
Commitments Everyday Spending Occasional
Mortgage / Rent Food & sundries Christmas
Water Pocket money Birthdays
Ground rent Childminder Holidays
Service charge Toys & books Car repairs
Council tax Pet food House repairs
Property insurance Laundry Decorating
Contents insurance Chemist Replacement
Electricity Parking Furniture
Gas Public transport Vet bills
Oil TV rental Clothing
Telephone Video rental Dentist
TV licence Evening classes Opticians
Car MOT CD's Trips/outings
Road tax Alcohol Meals out
Vehicle insurance Cigarettes Other
Personal insurance Newspapers
Private pension Magazines
Maintenance
payments Petrol
Other
Second mortgage
Loan repayments
HP repayments
Credit card payments
School fees
Other
Total Commitments £ ( You may wish to further classify this figure into Total Everyday Commitments £ , and Total Occasional Commitments £ )
Total Monthly Expenditure:
Total commitments £
Total everyday spending £
Total occasional £
Grand total £
Balance:
Monthly Income £
Monthly Expenditure £
Monthly surplus/deficit £
If the difference between your income and expenditure is a positive amount, you have a budget surplus and have money to pay towards your unsecured creditors.
If, however, you have more expenditure than income, you have a budget deficit and will need to make changes to your spending habits to find money to pay your unsecured creditors.
You should also ensure you are maximising your income.
Monday, June 25, 2007
How To Get Loans : Simplified Version
Personal Loans :
Your first step is to figure out how much it will cost you and whether you can afford it or not?
Then, shop around for the credit terms that best meet your borrowing needs without posing undue financial risk.
Compare the Annual Percentage Rates (APR's) and other allied costs.
Carefully select the Best Financial Institution available , and then apply for the Loan.
Home Loans (Mortgages, Remorgages ,Refinance , etc):
Figure out how much down payment you can afford , and also factor in any allied costs involved in the Loan.
Seek prominent institutions offering about the same Loan amount, and Loan terms.
Compare their various terms ,(especially their APR's) and carefully select the Best Financial Institution which is fully suited to your needs.
Auto (Car) Loans :
Auto Loans are expenses rather than savings.
Therefore you must comprehensively :
Assess your monthly budget and wisely decide the precise Car Make and Model to suit your needs.
Compare the various terms (especially the APR's) of all of the different schemes , and carefully apply for the very best Car Loan available.
Buy your chosen Car , and lawfully ensure that you enrol in the most appropriate Car Insurance Scheme.
Your first step is to figure out how much it will cost you and whether you can afford it or not?
Then, shop around for the credit terms that best meet your borrowing needs without posing undue financial risk.
Compare the Annual Percentage Rates (APR's) and other allied costs.
Carefully select the Best Financial Institution available , and then apply for the Loan.
Home Loans (Mortgages, Remorgages ,Refinance , etc):
Figure out how much down payment you can afford , and also factor in any allied costs involved in the Loan.
Seek prominent institutions offering about the same Loan amount, and Loan terms.
Compare their various terms ,(especially their APR's) and carefully select the Best Financial Institution which is fully suited to your needs.
Auto (Car) Loans :
Auto Loans are expenses rather than savings.
Therefore you must comprehensively :
Assess your monthly budget and wisely decide the precise Car Make and Model to suit your needs.
Compare the various terms (especially the APR's) of all of the different schemes , and carefully apply for the very best Car Loan available.
Buy your chosen Car , and lawfully ensure that you enrol in the most appropriate Car Insurance Scheme.
Mortgages and Loans : The APR Minefield
APR stands for the Annual Percentage Rate of charge.
You can use it to compare different credit and loan offers.
The APR includes important factors such as:
* The interest rate you must pay;
* How you repay the loan; the length of the loan agreement (or term); frequency and timing of instalment payments; and amount of each payment;
*Certain fees associated with the loan; and
*Certain compulsory insurance premiums (for example payment protection insurance).
All lenders have to tell you what their APR is before you sign an agreement.
The APR will vary from lender to lender. Generally, the lower the APR the better the deal for you, so if you are thinking about borrowing, do shop around.
Example 1:
If you borrow £1,000 for one year at 20% interest, and at the end of the year you repay a lump sum of £1,200:
*You will be paying an interest rate of 20%; and
*The APR will also be 20%.
Example 2:
If you borrow £1,000 for one year at 20% interest, and pay throughout the year in equal monthly instalments (12 x £100 = £1,200),
*You will still be paying an interest rate of 20%; but
*The APR, however, will be roughly 40%.
Example 2 is more expensive because you are paying back the £1,000 gradually throughout the year. In Example 1 you have the benefit of being able to access the £1,200 for the whole year, which you could invest and earn interest on. By paying in instalments you're losing out; this increases the cost of the loan - hence the higher APR.
Questions which you must ask all Lenders ;
If you find a deal with a low APR, ask the lender the following questions:
* Does the interest included in the APR vary, or is the rate fixed?
If the rate is variable, your repayments could go up or go down.
If the rate is fixed, your repayments will stay the same.
* Are there any charges that are not included in the APR?
This could include charges for services such as optional payment protection insurance.
If so, make sure you understand:
-What the charges are;
-Whether you really need the services offered;
-How much you would have to pay; and
-When you would have to pay.
* What are the conditions of the loan or credit and do they suit you?
For example, do you have a choice about how and where you make the repayments? If you suddenly have spare money, can you pay the loan off early - without penalties?
* Can you afford the monthly payments?
A more expensive loan (with a higher APR) could have lower monthly payments if they are spread out over a longer period of time. That might suit you better if your budget is tight, even though you would pay more in the long run.
You can use it to compare different credit and loan offers.
The APR includes important factors such as:
* The interest rate you must pay;
* How you repay the loan; the length of the loan agreement (or term); frequency and timing of instalment payments; and amount of each payment;
*Certain fees associated with the loan; and
*Certain compulsory insurance premiums (for example payment protection insurance).
All lenders have to tell you what their APR is before you sign an agreement.
The APR will vary from lender to lender. Generally, the lower the APR the better the deal for you, so if you are thinking about borrowing, do shop around.
Example 1:
If you borrow £1,000 for one year at 20% interest, and at the end of the year you repay a lump sum of £1,200:
*You will be paying an interest rate of 20%; and
*The APR will also be 20%.
Example 2:
If you borrow £1,000 for one year at 20% interest, and pay throughout the year in equal monthly instalments (12 x £100 = £1,200),
*You will still be paying an interest rate of 20%; but
*The APR, however, will be roughly 40%.
Example 2 is more expensive because you are paying back the £1,000 gradually throughout the year. In Example 1 you have the benefit of being able to access the £1,200 for the whole year, which you could invest and earn interest on. By paying in instalments you're losing out; this increases the cost of the loan - hence the higher APR.
Questions which you must ask all Lenders ;
If you find a deal with a low APR, ask the lender the following questions:
* Does the interest included in the APR vary, or is the rate fixed?
If the rate is variable, your repayments could go up or go down.
If the rate is fixed, your repayments will stay the same.
* Are there any charges that are not included in the APR?
This could include charges for services such as optional payment protection insurance.
If so, make sure you understand:
-What the charges are;
-Whether you really need the services offered;
-How much you would have to pay; and
-When you would have to pay.
* What are the conditions of the loan or credit and do they suit you?
For example, do you have a choice about how and where you make the repayments? If you suddenly have spare money, can you pay the loan off early - without penalties?
* Can you afford the monthly payments?
A more expensive loan (with a higher APR) could have lower monthly payments if they are spread out over a longer period of time. That might suit you better if your budget is tight, even though you would pay more in the long run.
Mortgage and Loans : Simple Jargon Buster
Advance: This is the money you have borrowed plus all the additional fees.
Base Rate: In the United States, this value is set by the Federal Reserve and is known as the Discount Rate. In UK, this is the base interest rate set by the Bank of England.
Bridging Loan: This is a temporary loan that enables the borrower to purchase a new property before the borrower is able to sell another current property.
Conveyance: This is the legal document that transfers ownership of unregistered land.
Disbursements: These are all the fees of the solicitors and governments, such as stamp duty, land registry, search fees, etc.
Early Redemption Charge / Pre-Payment Penalty / Redemption Penalty: This is the amount of money due if the mortgage is paid in full before the time finished.
Equity: This is the market value of the property minus all loans outstanding on it.
Freehold: This means the ownership of a property and the land.
Land Registration: This is a legal document that records the ownership of a property and land. This is also known as a Title.
Leasehold: This means the ownership of the property and land for a specified period, which may be sold separately from freehold, which may be owned by another person.
Legal Charge: This is a legal document that records the data of the rightful owner of a property or land.
Mortgage Deed: This is a legal document that stated that the lender has a legal charge over the property.
Mortgage Payment Protection Insurance: This is a form of insurance that ensures that the current mortgage payment will be paid if the borrower proves unable to do so.
Private Mortgage Insurance: This is a form of insurance the lender has the borrower take for loans over 80% of the appraised value. This will pay the lender only the owed portion up to 80% on a defaulted loan.
Sealing Fee: This is a fee made when the lender releases the legal charge over the property.
Subject To Contract: This is an agreement between seller and buyer before the actual contract is made.
Base Rate: In the United States, this value is set by the Federal Reserve and is known as the Discount Rate. In UK, this is the base interest rate set by the Bank of England.
Bridging Loan: This is a temporary loan that enables the borrower to purchase a new property before the borrower is able to sell another current property.
Conveyance: This is the legal document that transfers ownership of unregistered land.
Disbursements: These are all the fees of the solicitors and governments, such as stamp duty, land registry, search fees, etc.
Early Redemption Charge / Pre-Payment Penalty / Redemption Penalty: This is the amount of money due if the mortgage is paid in full before the time finished.
Equity: This is the market value of the property minus all loans outstanding on it.
Freehold: This means the ownership of a property and the land.
Land Registration: This is a legal document that records the ownership of a property and land. This is also known as a Title.
Leasehold: This means the ownership of the property and land for a specified period, which may be sold separately from freehold, which may be owned by another person.
Legal Charge: This is a legal document that records the data of the rightful owner of a property or land.
Mortgage Deed: This is a legal document that stated that the lender has a legal charge over the property.
Mortgage Payment Protection Insurance: This is a form of insurance that ensures that the current mortgage payment will be paid if the borrower proves unable to do so.
Private Mortgage Insurance: This is a form of insurance the lender has the borrower take for loans over 80% of the appraised value. This will pay the lender only the owed portion up to 80% on a defaulted loan.
Sealing Fee: This is a fee made when the lender releases the legal charge over the property.
Subject To Contract: This is an agreement between seller and buyer before the actual contract is made.
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