Excluding mortgages, the average UK person owes £8,000 to credit card and loan companies, according to a report in the Guardian newspaper. 6 million of us worry that we’ll never be free of debt, 4.1m of us are in severe financial difficulty, and nearly two-thirds of us admit that the amount of debt we’re in makes us worried.
On the face of it, it doesn’t look good. However, it’s important to remember three things:
- First, we should only ever take out debt (excluding our mortgage) if it helps us over a temporary emergency financial problem, if it’s for a long-term investment like improving your home and buying a car, or if it’s for a once-in-a-lifetime experience.
- Second, any debt we take out is only ever bad if we can’t pay it back or it puts too much pressure on our family finances. If we can make repayments and still have money left to meet the essentials and enjoy life, then your debt is manageable.
- Third, we all work hard for our money and we’ve got to make our money work hard for us. Be careful with the money you earn and spend it in the right way. If you do, you may never need to take out a loan in the first place.
Here’s Oyster Loan guide to making sure that you understand enough about both your personal circumstances and the loan you’re thinking about taking out so that, if you really do take on a new finance facility, you don’t end up regretting it.
Try to make your money stretch as far as possible
Let’s make a budget for your household. A budget can show you just how much spare cash you have at the end of a month to spend on yourself and your family. Even better than knowing for certain how much you’ve got to play with though is the fact that a budget actually shows you how to save money.
By spending money in the right way, you could end up giving yourself a £2,000 pay rise – even more. But how do you do it?
The first thing to do is to add up all the income your household receives every month. Make sure to include:
- everybody’s wages,
- any rent or board a lodger might be paying (remember that, under the Government Rent A Room Scheme, you can let out a room in your home for up to £7,500 and not pay any tax on it)
- any rental income you might receive from investment property you have
- any benefits or tax credits
Once you’ve added everything together, you know for certain what your monthly income is. The next step is to add together all of your expenses.
Your expenses will include:
- Your monthly rent or mortgage payment
- Council tax
- Utility bills
- Maintenance and repair costs
- Food (including the weekly shop, school meals, takeaways, and food at work)
- Kids (childcare, after-school activities, presents)
- Debt repayments (loans, credit cards, child support, student loans)
- Dentists and opticians
- Transport costs (car, fuel, insurance, maintenance and repairs, savings towards a new car)
- Health and beauty
- Pet-related costs
Be as honest and as thorough as you can so you come up with the most realistic and accurate figure for how much you’re spending each month.
Take away the expenditure from the income and that leaves you with your “disposable income”. No matter whether there’s a large amount left or a small amount left, everyone can always be smarter with their money so that they more disposable income at the end of the month.
What are the best ways to increase the amount of money you have in disposable income every month?
- Childcare costs – have you applied for the new Tax-Free Childcare from the Government? They’ll pay up to £2,000 a year towards your childcare costs each year (£4,000 for your child if they have a disability). Click here to apply.
- Free childcare for 2-year-olds – find out more here
- 15 or 30 hours’ worth of free childcare for 3 and 4-year-olds – find out more here
- Over 1m Brits have not applied for Marriage Allowance – find out more here
- Citizens Advice are able to offer you guidance on any benefits or tax rebates you’re not currently applying for
- Shop around online – the internet has some great bargains on things you’re already buying and some sites even pay you back if you shop with them
- Insurance and household bills – the best deals always go to new customers so make sure you use a comparison site to save hundreds every year
- Grocery shopping – even the discount supermarkets are doing great food now. Is it time you checked out your local cheap supermarket?
- Credit repayments – why not swap your current expensive credit cards for cheaper ones offering over one years’ interest-free finance?
- Mortgage – is it worth speaking with a mortgage broker to see if you could be paying less on paying off your home loan every month?
- Gym membership – if you’re paying £30 or £40 a month for your gym, why not check out the new chains offering membership for a tenner a month?
By spending a bit of time following some of these easy steps, you could free up an extra £40 or more a week to go into your monthly disposable income.
Are there any extra ways you can bring money into your household? Why not…
- …ask your boss for a wage increase and more hours? If it doesn’t affect your entitlement to childcare, benefits, or tax credits, this could be a quick win for you
- freelance on the side? As long as it doesn’t interfere with your employment contract, offer your skills to others online for extra cash. Alternatively, you could try to work a few hours a month for Uber, Just Eat, or Deliveroo.
Just like your savings, any extra income you earn can go straight into the all-important disposable income pot. It’s always better to keep as much money in your own bank account as you can than it is to transfer it to someone else’s when you might not need to.
With any luck, the extra disposable income you have can be put aside to save for a rainy day. But even if you do and there’s an emergency, what can you do?
Don’t end up regretting the reason you took out a loan
Over 1M payday loans and short-term loans are taken out by Brits every year. Payday loans are there to cover for financial emergencies – things you just weren’t expecting to have to pay out.
It could be that there’s something in your house that needs fixing straight away. Other times, it could be your car breaking down and you need it back as quickly as possible to get to work or to take the kids to and from school. It could be funeral expenses. Your glasses may have got broken and you need to buy a new pair.
However careful we are with our cash, sometimes life gets in the way and you need access to money quickly.
Even though payday loans and short-term loans are designed to be used only in an emergency, it’s surprising how many people take it out for different reasons.
The Debt Advisory Centre recently discovered that:
- 25% of payday loans or short-term loans were taken out for a holiday or for a treat
- Over 10% borrowed money from a payday lender or a short-term lender to buy a gift
These are really not the best reasons to take out a short-term loan. There are many people who would get genuinely upset if they found out that someone they loved took out a payday loan to buy them a present.
Remember that, on any loan, you take out, you have to pay it back in full and on time to your lender. If you miss a repayment, this could really badly affect your credit score and any future chance you have of getting another loan from anywhere.
The best rule of thumb is that you should only take out a payday loan or a short-term loan when it’s a real emergency and when you can’t get help from anywhere else (including your friends and family).
Make sure that your repayments don’t cause you and your family hardship
Another important factor to consider is the repayment of your loan. If you take out a payday loan, the whole lot plus interest must be paid back when you next get your wages or within 30 days.
With a short-term loan, you can borrow money for between 2 months and 12 months.
Whether you take out a payday loan or a short-term loan, make sure you understand how much disposable income you have each month and how much of that you can comfortably afford to pay back to your lender.
A loan is there to help you out for a short period of time while you steady the financial ship again. The last thing it should do is add further stress to your life and put you and your family at risk of greater hardship while you’re paying the loan back.
Take out a loan for the right reason
To make sure you take out a loan and you’ll have no regrets doing sure:
- be certain that this is an emergency and you need the money,
- that you can comfortably meet the monthly repayments, and
- only borrow what you need. If you’ve got a bill for £500 but you can comfortably put £200 of your savings towards that bill, only ask a loan provider for £300.
Making sure you get the loan you want with Oyster Loan
At Oyster Loan, we help our customers find the cheapest loans possible. How do we do this?
All you have to do is fill in our application form and we’ll get back to you as soon as possible. When we do, we’ll let you know the lenders who will be more than happy to lend you the money.
Our service is completely free and it won’t cost you a penny.
If you want to take out a loan and you’re certain that you can afford the repayments, apply with Oyster Loan today.
To start your application, please click here.