Warning signs
If you say 'yes' to any of the questions below then you need to start dealing with your debts and managing your money more
effectively:
- Are you spending 25% of your take-home pay just to pay
interest on unsecured loans (credit cards, overdraft etc)?
- Can you only afford to make the minimum repayments on any
credit cards?
- Are you 'robbing Peter to pay Paul' (ie borrowing money to
pay-off other debts?)
- Do you have a perpetual overdraft and use credit cards to buy
essential items like food?
- Have you been regularly extending your mortgage over the last
few years to pay-off other debts but aren't in the least bit
worried because house prices always seem to go up - don't they?*
To start tackling problems you must start by measuring the level
of your debt - make a list of your various loans and find out
exactly what interest rate you are paying on different debts. By
identifying the most expensive debts you'll find out what has to be
paid off first.
Why is the rate of interest so important?
There is a huge difference whether you have a debt with a 6%
interest rate or one with a 16%.
£10,000 loan at 6% your monthly interest only
repayment is £50,
£10,000 loan at 16% your monthly interest only repayment is £133.33
This adds up to £1,000 a year more. The sad thing is,
many credit cards have a rate higher than 16%. You cannot afford to
be 'donating' money like this to any financial company - it's wrong!
What to do...
It's an obvious point, but the two ways of reducing your debts
are to cut back on your spending and to earn more income. And the
most effective way to start repaying your loans is to do a
combination of the two. When you have made your list of loans and
their interest rate, then start our 20:7
action plan - any delay is money given away!
Property prices
* Of course this may not be a problem if you bought you house 20
years ago and still have a huge amount of equity in it, but it is
worth remembering that that in some parts of the UK House prices
between 1989 and 1994 fell by over one third. From the first half of
2002, it took just 4 years for UK house prices to double. The
current housing boom is now into it 13th year...
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action plan/home
Debt Cutting Expert is an independent advisory website based on journalistic research and does NOT constitute financial advice. Any information should be considered in regard to specific circumstances. All suggestions are followed at your own risk and should be checked-out with your own research.
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