Many of us are constantly worrying about money. There never seems quite enough to go round and, despite all our good intentions, things never seem to get better. If anything, they get worse! But how can we turn the tide and stop this happening?
There are some common mistakes that people make with regard to money. Let’s look at what these mistakes are and how to fix them.
The main mistake most people make is not looking carefully at their finances. If you don’t have a clear picture of how much money is coming in or going out then you will not be able to manage it effectively.
So the first thing to do is to take a good look at your financial position then make a budget to plan how you use your money each month. You then need to keep track of what you are spending to make sure you stick to your budget. You can read more about budgeting here.
It’s helpful to have an overdraft facility with your bank in case you need to use it for emergencies. But that is the only purpose an overdraft should be used for.
Unfortunately many of us see an overdraft as “extra money” and get into the habit of using it every month. You need to stop this happening or you will slide further into debt. Your budget should not rely on using your overdraft to make it through the month.
If you have used your overdraft regularly you will in effect be carrying that extra amount of debt from month to month. It may be better to take out a small unsecured loan – with affordable low monthly repayments – to get rid of your overdraft completely. Then ensure that you do not use it regularly. Forget it is there, unless there is a genuine emergency.
Credit cards are good if you use them wisely. In fact having a credit card and managing it well is a positive boost to your credit score. They can be an ideal way to make a major purchase if you know that you can afford to repay the balance quickly afterwards.
The problem comes when you use your credit card too much and therefore allow debt to build up. You can soon get to the stage where you are only able to make the minimum repayments on your cards. If this is the case then you are in danger of getting into serious debt: your monthly repayments will only be paying back the interest on the balance without actually reducing the balance itself.
So be careful when using credit cards. Plan carefully and avoid impulse spending. If you are already in the situation of carrying around credit card debt, then you need to stop spending. You may also be better to consolidate your credit card balances into one unsecured loan which would enable you to focus on one fixed monthly repayment rather than juggling around minimum balances.
It is really important to have savings. Ideally you need to have enough to cover around three months living expenses in case of any problems with your home or job. So if you do not have savings, do start putting money away as soon as possible. Even a small amount a month can soon start to build up.
However, once you have some kind of financial buffer, it is better to prioritise paying off debt rather than saving more. If you have credit card debt with high balances these will be having a negative effect on your overall income so it makes more financial sense to get rid of these first. This will release more disposable income and enable you to then save more money more quickly.
You need to have a clear idea about all your financial products. How many bank accounts, loans, credit cards do you have? If you have several and are managing them well, this is fine and is good for your credit score. But if you have so many that you are feeling a bit out of control then it makes sense to rationalise them into fewer products that you manage better.
Also be cautious about applying for too many new products. We are always being enticed by new products but unless they meet a specific need, don’t apply. This is because when you apply for any financial product – even if it’s just out of curiosity – financial companies will check your credit score. In most cases, a note will then appear on your credit score to show that it has been searched by that company. The next time you apply for another financial product, the new company will see that you have previously applied for something else. If you apply for a lot of products – and especially if you have been turned down, – it can lead a lender to think that you are not financially responsible and they may decide to decline your application. You can then find yourself in a vicious circle that is difficult to break out of.
Some more progressive lenders – such as Loans2Go – do not leave a note on your credit score that a search has been made. Instead we do “soft credit searches” where the information is checked but no evidence is left.
But in general if you are genuinely looking for a new financial product or a better deal the best way to research new products is by doing thorough research – for example by looking at comparison websites. You can also apply to one of the three major credit checking agencies (Experian, Equifax or Callcredit) to see your current credit rating before you try to apply for a product.
If you are careful to avoid the above mistakes then your finances should soon be back under control. If you need any help doing this, for example by consolidating your overdraft or credit card debt into a more manageable unsecured loan, then do get in touch with us online or by calling 0330 400 0403.
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