Overdrafts

Tips on Repaying an Overdraft

Many people have an overdraft facility and use it quite regularly. It can be useful to cover emergencies if you run out of money and need some in a hurry. However, it can be easy to start getting into the habit of getting overdrawn each month and perhaps not having enough money each month to clear the overdraft before you start borrowing again. This can be extremely expensive, particularly if you use an unauthorised overdraft and so you should work on paying it back and staying in the black as soon as possible.

It is worth making a pledge to yourself to get this in hand. Make sure that you are prepared to be focussed and make some changed in order to get it paid off. It may not be easy, so you will need to keep focused on it. It could be worth writing it down as a goal and fixing a date as to when you want to no longer get overdrawn on a regular basis. Making a specific goal like this can really help you to stay on track and if you write it down and place it somewhere you look each day, you will have a constant reminder.

It is good to start by seeing whether you can reduce your spending. There are many changes that can be made to make things cheaper, even things that you normally buy. This means that you can reduce what you are spending without having to go without. Things like switching suppliers, or going to different shops to buy things could help and so it is worth looking at price comparison sites to see whether you could save money. Even a little bit here and there could add up to an overall significant saving. You will also be careful about what sorts of things you spend money on though. Think about each purchase and whether you can find it cheaper or perhaps even do without it. It can be hard going without things, but if it means that you can stop getting overdrawn it can be worth it, especially if they are luxury items that you do not need.

It can be worth seeing whether it is cheaper for you to borrow money a different way. Using a credit card might be cheaper than an unauthorised overdraft as long as you pay it back as quickly as you can. You may even be able to borrow from a friend or family member which would be cheaper, although this can lead to problems if they need the money before you can afford to pay them back. If you cannot change the way you borrow, it could be worth asking the bank if you can have a larger overdraft. If you borrow more than you are allowed or borrow when you have no overdraft facility then this will be really expensive. An unauthorised overdraft can be one of the most expensive ways to borrow money and so should be avoided wherever possible.

Timing your spending is crucial as well. Keep checking how much money you have in the bank and know when you have money going in. Then you can wait until there is some money n there before you buy things. It is easy these days to check a balance on an ATM or online and so you should easily be able to keep a check on what is going on in your account.

Making more money is a way to stop the overdraft without having to go without or reduce spending. This could be easier, especially for those who find it hard to spend a small enough amount but have already cut back as much as they can. You could try making money doing some freelance work, selling things, working extra hours in your job or taking on a second job. You could find some work online as there are plenty of opportunities if you hunt for them. They may just be small irregular jobs, but it could be enough to help you out of a tight spot.

It is worth making sure that you try to maintain your new ways once you get out of debt. Work hard to monitor your spending and stick to a budget. Think about whether you need the things that you are buying and compare the prices to make sure that you are not paying too much. You should also be on the look out for opportunities to make more money and even if you do not need it immediately, you can save it ready for when you do. Building up some savings, once the debts are paid off, can be really worthwhile. Make sure though, that you do not have savings and debt as this is not worth it. Debt cost a lot and savings do not earn much interest so usually it is much better to pay off the debts with savings, particularly in the case of expensive ones like overdrafts.

Mortgages

Is it Good to Choose a Fixed Rate Mortgage?

Mortgages can be quite complicated because there are many different types. If you have had one for a while and are thinking of switching then you may be familiar with your choices but if you have not taken out a mortgage before you may not be. Many financial advisors may recommend that a first time buyer take out a fixed mortgage.
But why is this and is it the wisest choice?

The benefit of having a fixed rate mortgage means that you will know exactly how much money you will be paying out each month. You will then be able to plan around these payments and you will have no nasty surprises if the rates change. When you first take out a mortgage you will often be stretched financially. You will find that as the years go on, you will be likely to have more salary and should be able to afford the payments more easily (although having children and other circumstances may be an exception to this). Having a fixed rate for a few years though, will help you get used to paying a mortgage and give you some stability with regards to knowing how much you will need to be paying.

If you are thinking of switching to a fixed mortgage then this could again be because you want the financial stability. However, you may also be hoping to save money by switching. Consider whether you think interest rates may drop while you are in your fixed rate period and therefore whether it is worth it. If interest rates are very low, it is less likely that they will fall, but there is always a chance. Of course, if you are comparing to what might happen with a variable rate account, then you may think that if interest rates drop then they will drop as well, but this may not be the case. The lender may decide to not reduce the rates, just because the base rate has dropped, so unless you have a tracker, you may not benefit anyway.

Therefore, there are disadvantages of taking out a fixed rate mortgage as well. If you have a fixed rate and the base rate goes down, you will not see a reduction in how much you pay, but others may do. You may feel a bit annoyed if this happens and be stuck paying a lot more than others. However, if interest rates are already really low, the chances of them falling significantly is very low and therefore a fixed rate might be less of a risk than if rates were high and likely to fall.
If you have a fixed rate, you could be tied into it. This means that if you see a more favourable deal, then you may not be able to switch to it because you are not allowed to move your mortgage. You may even find that you are tied in after the deal ends to use the lenders variable rate for a while. Do make sure that you check this before signing up so that you know exactly what you are letting yourself in for.

If your fixed rate goes on for five years, for example and rates start falling really early into the term then you could be spending a lot more money than you need to over those years. If rates fall rapidly and by a lot then this could add up to a lot of money. However, it is sensible to look at what the rates are at first. If they are high, then chances are they could drop and have a long way to fall. If they are low, then they are less likely to drop and not by so much. However, things re hard to predict and you never know what might happen!

It can be wise to think about the term for the fixed rate period. You may like the stability of being on a fixed rate for quite a long time, but if you worry that rates may come down and better deals available then you may rather take up one for a shorter term so that you can have the freedom to switch fairly quickly, if you want to.

So deciding whether to take a fixed rate mortgage can be tough decision. You have to weigh up the advantage of having stability for a few years against the risk that interest rates may fall and you may lose out. It is not an easy decision as it is difficult to predict interest rates. Other economic changes could also have an influence on how much you earn, spend and job stability which could all have an influence on how easy it is to pay your mortgage. This means that unless you can predict the future (which no one can!) you will have to try to prepare for the worst, just in case but hope that everything will be okay.

Loans

When is Taking a Personal Loan a Good Idea?

Banks will often allow people to take out a personal loan especially if they have a car or home to secure it on. They will lend thousands of pounds which is often paid back over five to ten years. The term and amount will vary as will the interest rates. Often the interest rates will be lower for those that have a better credit record.

It is worth thinking hard before taking out a loan. Consider whether the item that you are buying with the money is worth it. Calculate how much it will cost you if you take out the loan in full. Calculate the cost of the fees and interest (based on the current interest rate) and see how much more it will cost by the end of the term to buy the items that you are using the money for. It may make you think that it is not worth it. Loan websites such as Emu.co.uk will be able to help with this.

You should also consider whether you can save up and pay for the things instead of getting a loan. Obviously this will depend on how soon you need the item(s) but it will be a lot cheaper to wait and save up than borrowing the money.

It is not easy to decide whether the loan is a good thing to take or not, but thinking about the total cost can help you to make the decision particularly if the item that you are buying is a luxury that you can wait for.

If you are using the loan to pay for necessities, then you may feel that you do not have a choice, You need the items and if there is no other way to pay for it, then you may feel you need the loan. However, before you go ahead and apply make sure that you do a few last minute checks. Make sure that you do not have enough money in savings to pay for the item. Compare the costs of different personal loans to make sure that you have the best deal and compare loan types to check whether there is a better loan available for you that could suit your needs and is cheaper. Obviously rates vary and these will change during the course of the loan term, but the best that you can do is to find the best deal when you take out the loan and hope that it continues to be the best. If you borrow over a long term, then you may be able to switch lenders if there is a better deal anyway.

It is also worth thinking hard about repayments. Consider whether you will be able to keep up the repayments for the whole term of the loan and what might happen if you cannot. It can be wise to consider taking out insurance that pays it for you if you cannot, but the terms of these can be quite tight and it may only be in very specific circumstances that it will pay out, so watch out for that. If there is more than one income coming in to the household, that will reduce the pressure as even if one person cannot work then there will be someone else that can. Consider whether they will be manageable even in your current circumstances. If you already struggle to pay for things, then the monthly repayments could be hard and you may find that you go through tough times trying to make ends meet and you have to decide whether you think that it is worth it.

Think about how you will feel knowing that you have an outstanding loan. Some people can just take it in their stride but there are others who will feel the pressure of it a lot. If you have never borrowed money before, think about what impact it might have on you and how you may feel if you Know that there is a debt waiting to be paid.

Consider the economy as well and whether you think it is a good time for a loan. Think about whether you think interest rates might go up as borrowing will get a lot more expensive. Unless your loan has a fixed rate, it will become more expensive if interest rates go up and this could make it a struggle to repay and will also mean that it is much more expensive. Also if it is likely that there will be job losses then you may be at risk of not having so much income to be able to afford the repayments.

It might all sound a bit dramatic, but there are people who get into big financial trouble because they take on too many debts thinking they will be able to cope and then circumstances change meaning that they cannot. It is not a nice situation to be in and so if you can protect yourself against being in this situation you will be a lot better off.