In order to manage your money effectively it is important to understand exactly what credit is and how it can work in your favour. Begin by comparing the different types of credit available to you and examining what will work best for your individual circumstances.
Use this repayment calculator on the Money Advice Service website to help you understand how long it might take to repay any existing credit card debt and the amount of interest you may be charged over this period. Remember, paying more than the minimum each month on your credit cards could save you money and reduce your debt more quickly.
Learn where to go for independent, expert credit advice if you find your debts are spiralling out of control. By understanding the basics of credit repair, taking on board beneficial budgeting tips and establishing good habits you can in turn nurture a healthy credit rating and bank balance.
Let Sarah explain
Sarah Willingham founded letssavesomemoney.com and regularly appears on TV as a personal finance expert. In this video, she explains the things you need to know about managing your money.
Understanding credit and what affects your credit rating is an important aspect of money management. If you are mindful of your credit rating now you’ll be thankful for it later. Having a good credit history means that you will be considered financially sound by lenders and may be offered more attractive terms. If you have bad credit you may find it hard to qualify for a personal loan, mortgage or credit card, which can consequently impact on many facets of your life.
How does credit work?
So how does credit work? It essentially involves borrowing money by a prior agreement with a bank or financial organisation to pay it back at a later date. How much you can borrow, and the repayment conditions within which you must pay it back, may be determined by your credit history and your individual circumstances.
A credit history is accumulated from personal scores by lenders who assess whether you’re a reliable borrower as determined by your past performances. This credit reporting data is then kept on file by one of the UK’s three main credit reference agencies: Callcredit, Equifax or Experian. Everyone has the right to this data and can order a hard copy of their statutory credit report by post or online.
A credit report contains a range of personal details such as your name and your current and previous addresses. If you find that some of the information in your credit report isn’t accurate you can request in writing for it to be corrected.
Understanding credit is not just about avoiding bad credit. It’s about learning how to prevent credit card fraud and the actions you can take to restore a good credit rating if you have bad credit. So find out how to read your credit report and what affects your credit rating. By using an aqua card responsibly you can begin to rebuild a strong credit history. Managed well credit can be extremely beneficial and is a good fall-back if you need access to cash in an emergency.
Credit refers to the concept of a lender providing a loan for a borrower. There are various different types of credit – such as credit cards, overdraft facilities, higher purchase agreements and personal loans – depending on how the borrower intends on repaying the finance.
Credit cards are a type of credit that allow users to borrow money from a bank or credit card issuing company to purchase goods and services or to withdraw cash. There are countless credit card types, and various forms of charge cards, store cards, rewards cards and balance transfer cards available. Here at aqua we offer three different types of credit cards – The Classic, Reward and Advance cards – to suit your individual financial needs.
Other types of credit include loans, which can be paid off in monthly installments over a particular period. Mortgages are a type of credit often used to purchase property. They are secured against a property and are usually paid off in monthly payments over an extended period of time.
Overdraft facilities are another type of credit that, because of a pre-arranged agreement authorised by your bank, allow you to withdraw money after the bank account balance reaches zero. An overdraft has a limit depending on your account history and needs. They are helpful in providing a safety net to cover short-term arrears and to compensate for a temporary lack of cashflow. Be aware that overdrafts incur interest and, depending on your agreement, may include an administration fee or monthly payment charges.
Higher Purchase and Personal Loans
Other types of credit include: a higher purchase agreement is a mechanism for borrowing money in order to purchase goods. Once the purchase is paid off you then rightly own it, but if you don't make regular payments, creditors can ask you to return the goods. Personal loans allow you to borrow an agreed amount and pay it back with interest over a fixed period of time.
For many people, money management can be a daunting task. One basic, but very important rule to managing your money is to not spend more than you earn. Major overspending can swiftly send you into debt, creating severe financial problems.
Create a budget planner
A practical way to start a budget is to keep track of all of your funds coming in and going out, taking into account utilities, taxes, insurance and loan payments. Log a budget planner and record all of your receipts, listing your expenditures for the coming months; everything from food to clothes and social activities should be accounted for. Compare your earnings (ensure it’s your actual take-home pay after income tax) with your outgoings to get a sound surplus amount.
If you’re on a tight budget try and cut back on luxuries like eating out, buying gifts or that bottle of wine. While you focus on spending less, consider alternative sources of income. Sell any unwanted items online or at a car boot sale, or take up a part-time job. Put a back-up fund aside for emergencies and invest money into a savings account that’s not easily accessible. Try to avoid late payment fees and incurring interest on your accounts – unnecessary charges all add up.
Managing your money
Learn how to manage your money - be disciplined in your approach until you’re back in good credit. Prioritise the necessities and don’t overspend, and if you don’t feel confident managing your money alone, consider speaking to an expert. Check your finances on a regular basis. By budgeting effectively you can maintain a healthy bank balance and keep the debt collectors at bay.
Falling into debt doesn’t necessarily mean you’re careless with cash. Debt can often arise from unforeseen circumstances, such as illness, redundancy, separation or sudden life-changing events.
A small debt can quickly increase with accumulated charges and interest. Before you even recognise the problem, what started out as manageable arrears can swiftly spiral out of control. Do not ignore mounting debt. If you are worried about unpaid bills and looming repayments seek debt advice as soon as possible. Finding solutions for debt can be very straightforward and there is help at hand.
Debt can be a sensitive issue, but don’t feel ashamed of your situation. The worst thing you can do is ignore the problem and hope it goes away. Take time to carefully examine your finances and weigh up what’s coming in with what’s going out.
The Citizens Advice Bureau provides free confidential support for anyone seeking solutions for debt. For independent debt advice arrange a consultation as soon as you can.
Managing your debt
Effective solutions for debt include putting together a management plan. Evaluate your wages and any benefits or pensions against your outgoings, such as household bills, mortgage or rent payments. Reduce your regular repayments to a more manageable level. The longer you take to repay a debt the more the total amount to be repaid will increase through added interest, thus affecting your credit rating. Consider taking out an aqua credit card which, used responsibly by making payments on time and staying within your credit limit, could help improve your credit rating in as little as six months.
Tackle debt early and seek debt advice if you’re in doubt. This will not only help you regain control of your finances, but it will also boost your confidence. Remember that if you have money worries you’re not alone. There are numerous solutions for debt so ensure you seek debt advice and investigate all of your options.
It’s often difficult to set aside time for getting a handle on our personal finances. Knowing where your money is going, and how you can make it go further can be extremely beneficial. By sitting down to organise your savings, you may save more than you might think.
Check your finances
Regularly assessing your personal finances is the first step toward responsible money management. Be disciplined in your approach to saving; review your bank statements regularly to give you a better idea of where your money is going and update your budget accordingly.
Start saving with savings goals
Whatever you’re looking to save for, setting a savings goal will help you reach your target faster. The first step is to determine what you are saving money for. This can range from a deposit on a new home, to building up an emergency fund as a buffer for future unexpected expenses. Next determine how much you need to save in order to reach each goal.
Once you’ve decided on the amount for your saving goals, set a time frame for each. Be realistic when setting these timeframes. If you are saving a large amount over a number of years set benchmarks at specific dates to keep you motivated.
To ensure you reach your savings goal determine how much you need to save each month. Gather all your financial documents, including bank statements and bills and from these calculate your average monthly income and outgoings. This will show you how much you can afford to save every month.
Be disciplined in your approach to saving - it may help to set up monthly direct deposits into a savings account. This will give you peace of mind that every month you’ll be one step closer to reaching your savings goal.
The Money Advice Service offers a free, simple savings calculator tool that can help you understand how long it will take to save a specific amount, or how much you need to save to reach your goal by a particular date.