Taking credit or in other words, incurring debt is often viewed under a negative light. There are famous sayings “Better to go to bed hungry than to wake up in debt.” or “Every time you borrow money, you are robbing your future self.” These are just a few quotes that highlight the pessimistic outlook many have on the concept of credit or debt. The daunting incidents of foreclosures or repossessions would also make it easy to understand why many adopt such a view. However, in our line of business, we see both ends of the two-sided coin that is credit and thereby recognise the benefits that credit may have when it is used and managed responsibly. We try to make credit work for you!
First, the apparent benefit of credit comes from the spending power that it can provide to many who otherwise would not have the ability to achieve their financial goals at the rate to which they would have in the absence of a loan or credit facility. Additionally, in most modern societies, there is an increasing need for a credit history to obtain not only a loan or mortgage but also to subscribe for certain basic services such as a mobile phone plan. By not having any credit history, which is usually developed by having engaged in credit transactions, a person may be placed at a disadvantage. An institution may request that a deposit be paid by that person to compensate for the uncertainty surrounding their ability to repay a debt as that ability is usually evidenced by their credit history. A credit history serves as a guide or predictor of how a person is likely to repay the current credit transaction they are seeking to enter into and without such a guide, most institutions have to resort to other means to mitigate against what they may view as a potential risk. However, we cannot ignore that with credit there is a risk when it comes to repayment. But life is full of risks and sometimes it is a question of ‘take the risk or lose the chance’.
Being responsible with the use of credit can make credit work for you and in so doing there is a need to ultimately understand the ultimate cost of credit. Prior to obtaining credit, one should ensure that they fully understand the repayment terms. Take time to go through with a representative the specific terms of repayment and consequences of missed payments. Try to understand the interest rate and determine whether the repayment terms make financial sense in considering all those factors and whether it is affordable. In determining the financial sensibility and affordability of the debt, the repayment sums should be placed in your budget, remembering to always budget for more than the minimum amount for repayment. Inquire about whether there are any additional fees as such should also be included. Also, consider whether something occurs that affects the ability to repay for three months whether this will have a detrimental impact on the ability to service the debt moving forward. As it relates to credit cards, if you are unable to clear off the amount extended by the end of the month, calculate the length of time you are likely to take to repay such with the interest that would be incurred, to determine the true cost of the credit card transaction you are seeking to make, then ask yourself whether it is worth it and whether you would likely have to use the card again and thereby increase the amount that the interest rate would be applied to. Once the debt is obtained, try to pay off more than the minimum amount and review statements of the repayment closely and do your reconciliation.
Have you ever wondered where did the money go? Most of us have or are still going through that dilemma and maybe it is simply a matter of us, not budgeting.
A budget is an outline of income and expenditure for a set period which can serve as a financial plan and should be re-evaluated periodically. No matter your financial position, a budget can always serve some purpose.
By going through this process, it puts things in perspective with a bit more clarity than you may have had before. It helps identify where and how your hard-earned money is being spent. It can also highlight the possibilities available to you, identify and warn of potential financial problems, outline whether you can take on additional debt or whether you can maximize your savings.
By planning and knowing your current financial position, the budget helps to keep individuals focused and making informed and intentional decisions for their spending. For those with families or in relationships, this may also help facilitate those daunting financial talks by simplifying things into basic figures and presenting a visual aid.
Here are a few tips for helping you along the way:
Start with the most important expenses, those staples in your life, and no I do not mean the coffee. The basic amenities, Shelter, Food, Transport, and Utilities should be set out. Save those receipts! Check your receipt for the last couple of months to get a better idea of how much you are spending and incorporate those expenses into the budget. Remember, you may have to revisit these to begin to reduce some of the amounts if your budget is in the red.
Continue to think about all other expenses you may have missed and remember, when budgeting you may want to establish separate savings funds for major expenses that you know are coming throughout the year. For example, the upcoming insurance payment, car maintenance, or back to school shopping may be tough to tackle with one month’s budget, therefore, have a separate fund from your regular savings to address these incoming expenses to make them more manageable. Record your spending, still keep those receipts, and track your progress. Reevaluate and be realistic.
Let your savings account be that a savings account and keep a checking account for expenses outlined in your budget.
Budget in the Red
Reduce Expenses and Eliminate Unnecessary Expenses
In the United States, the 21st of March 2020 marks National Credit Card Reduction Day. This is a day established to promote the assessment of one’s level of indebtedness due to credit card use and the strategies to reduce or eliminate such indebtedness. While statistics show that Americans’ credit card debt totalled $930 billion in the fourth quarter of 2019, we know that credit card debt and the concerns regarding such isn’t simply an American thing. Therefore, in recognition of this day, here are some tips that you can employ to reduced or avoid credit card debt, a negative credit report and ultimately MAKE CREDIT WORK FOR YOU!
1. Yes, you may have a credit limit, but remember your real limit which is the amount of money you would be able to repay at the end of the month or on your credit card due date. Evaluate your finances and always remember that after you swipe the card, you still have to find the money to repay the card so budget, budget, budget. 2. Be organized! Have your credit card bills available, go through your transactions, check your balance every two weeks so you don’t lose track and compare with your savings or budget, set alerts for your payment due dates. 3. The only automatic set up should be the automatic deductions for the repayment of the credit card to avoid late payments and interest. You should always try to clear off the total balance at the end of each cycle or pay double the monthly minimum payment. If these steps may be too challenging, set up the deductions for at least the minimum payment. Beware of automatic charges by merchants, iTunes, Netflix etc. Avoid saving your credit card information on such accounts or erase and delete if you have already done so. Close the subscription accounts that you do not need. 4. If a lump sum payment at the end of the month is daunting, try making smaller payments more frequently. This will be reducing the amount the interest is being calculated on. 5. Don’t be afraid to ask your financial institution to freeze your credit, seek help or negotiate.
