Introduction
- sensible family budgeting is never easy! However, good home
budgeting or money management doesn’t have to be an impossible task if you keep
your eye on your expenditures each month and know what you’re spending compared
to what you have coming in.
Savings vs
Borrowing – what’s the best option? - Many people
like the feeling of having some money in the bank for a rainy day. This is a
good policy but when you are in debt it is a far better use of your money to
pay off your debts with the savings first and start saving with a clean sheet.
Quite simply, your debts costs more in interest payments than you are ever
likely to receive in interest on your savings. Therefore, saving while you
have outstanding debts such as credit cards and personal loans means that you
are effectively loosing more money each month in charges than you are gaining
in interest – this just doesn’t make sense!
Consolidation Loans
- if you find that your monthly repayments on credit cards and personal loans
are starting to get out of hand, a common reaction is to consider taking a
loan. The attraction of a loan is that if you can
take a single large loan to pay off all your other debts, then you will only
have one repayment per month. One payment per month should certainly be easier
to manage than trying to make many smaller payments to lots of different
creditors. Also the payment could be less than all your
other card and loan payments put together.
Issues to Consider
- How Much Will I have To Pay Back? - the money you owe hasn’t gone away – it is just in a
different place. Quite often, the repayments on your loan can be
cheaper than all your other payments added together but remember, when you
borrow money in the form of a loan, you will have to pay back the amount you
borrowed AND interest. See our
Example of the real cost
of a Consolidation Loan.
- Can I Afford The Monthly Loan Repayment? - when you
are struggling with monthly debt repayments, any offer to reduce these seems
like a good idea. If you can borrow £20,000 in the form of one loan and this
will only cost you £470/mth (interest rates as at April 04), it may seem much
better than the £600 - £700 you are currently paying out to all the cards!
- Family Budgeting - many many people fall into this trap. They are lured into consolidating with the promise of a lower monthly payment.
However, because they can not really afford the new monthly loan payment, they
have to continue to borrow using credit cards. To be sure that you can afford your loan payments, you need
to calculate your
Disposable Income
top of page
