4 Tips to Save Money to Keep Debt Threat at Bay
Paying off debt is a mammoth task regardless of their terms. Even though you whittle down your expenses, you find it extremely difficult to reimburse all of your dues on time and eventually you end up with a painful circle of debts.
Whether you take secured loans or personal, you need to have money set aside to pay back all your borrowings on time. However, things get worse if you have applied for loans for people on benefits. These loans come with high interest rates as you do not have a good source of income and you are completely relying on govt benefits to meet your needs due to which the lender doubts that you will not be able to pay on time. With high-interest rates, they try to mitigate the risk associated with such loans.
However, high-interest rates are not the main reason for incapacity. Unexpected expenses arise out of nowhere regardless of your cash inflows. Loans are usually approved after careful examination of your repaying capacity but it excludes emergency, which unfortunately eats up your savings as soon as it pops up. If you are caught by any car expense, you fluster to manage your budget to pay off the debt and consequently you take a rollover loan, but you can cope up with an emergency without taking a new loan. Here are the tips:
Pay off on time
Debts are undoubtedly debilitating, but it does not mean that you will throw your hands up in despair. It is your additional expense that you can cover by cutting down on other expenses. It is easier said than done, but this is the only way you can hold your end up.
More often than not, you think that “what if you take more when you are already in a debt?” and therefore you dissipate money in night outs, restaurants, and parties. Instead of yielding to your temptation, you should find out ways to have control over your desires.
Motivate yourself that you can do it and you will do it. Cut back on your current spending otherwise, it will be harder to tackle with debts.
Do not consume your whole savings for debt reimbursement
Financial planning is crucial to managing your expenses along with your debt installments. You may drown in debts because of two reasons: either you fail to plan in advance or your planning goes amiss. Borrowers have prejudices that the best thing to get rid of debts is putting all the savings toward debt installments, but this is not a good idea at all. What if you encounter an emergency? You will begin to feel the pinch and take a new loan, which seems like getting back to the drawing board.
You should always put extra money to meet unexpected expenses, so divide your savings into two sections: emergency cushion and debt payments.
Be cautious of credit consolidation offers
Several credit consolidation offers come with zero interest rates for a limited time period, which lure borrowers. Balance transfer seems to be a good deal because you can save money in interests. Beware, as this can be a new trap. You need to be a bit wary if you catch these offers.
There might be balance transfer fees already added in your debt. For instance, if you transfer £5000 from one credit card to another, you will pay £250 as transfer fee (if it is 5%). You have to pay your debt within the stipulated time to avail zero-interest facility. Or else, you will end up with paying the double of the amount that you owe currently.
Use cash as much as you can unless you pay off
You must change your spending habits to get out of debt clutch. Several times when you see a good deal, you use your credit card in the absence of cash. Buy things that you need and pay in cash only. If you do not have enough cash, postpone it for another day. However, if it is so urgent, you should immediately pay your credit card bill before interest is levied.
Use these four habits if you are living on benefits and taking a loan. If you succeed to pay back your debt on time, this will improve your credit score.
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