Traditionally, January is one of the hardest times of the year. It’s cold, wet and dark. Summer seems like an age away, and all the food and celebrations have caught up to you – as well as the credit card statements.
Yes, with Christmas over it now comes to paying off your credit cards you used to make Christmas extra special. Believe it or not, entering 2018 worrying about money is extremely common. Everyone can find themselves in a financial tough spot, especially after Christmas and especially those with bad credit. With that in mind, here’s some tips of how to battle the financial strain, after the festive period. If you’ve found yourself a little short, we talk types of loans, risks and financial lending options available to you. There’s no quick fix for sorting your finances and getting out of debt, but this article offers advice on how to better manage your finances, to help you get there.
1. Plan
It’s all about planning. Laying out what you have to repay, when and how much it will cost. So, step 1 is to plan. Look at all your payments, and see if you can manage them into one affordable repayment – instead of juggling multiple bills for the next month.
Consolidating Debt
First off, an excellent way to manage your repayments, is to group them together. Instead of paying off three separate cards and the rest, borrow a lump sum to pay them all off in one go. That way, you can keep your eye on the singular repayment that you now have.
Borrowing money with bad credit is tricky however, you have to be smart about where you look. If high street lenders will not approve you, try not to turn to pay day loan companies. They are costly, with staggering high representative APRs you’ll be paying back a lot more than you borrowed. Short term repayments can cripple your finances, so it’s important to look for other alternatives. Guarantor loans are an ideal way to borrow money, only for those with bad credit. But, what are guarantor loans? Simply, they rely on trust based lending, as opposed to your credit score. Credit history can stop lenders supplying you with a loan, but guarantor loans are an affordable way to consolidate debt into one manageable payment – especially for those with a poor credit.
All you need to qualify for a loan, is to provide a guarantor with your application. Who can be a guarantor? Anyone! A friend or family member, colleague, landlord – pretty much anyone who trusts you to make repayments on the loan. Many guarantor loan companies ask that they be between the ages of 18-75, have a good credit score and be a UK homeowner. However, your guarantor needs to agree that should you fail to make payments on the loan, they will cover the costs. There’s no upfront payments, and money can be borrowed from anywhere between 1-5 years, making the repayments affordable. The APRs are lower than payday loans, and are the most affordable option for those with bad credit.
You should always seek independent financial advice before borrowing money, as borrowing money can leave you with serious money problems.
2. Budget
Once you’ve looked over your debt and managed it into one payment, it’s time to create a monthly budget. What can you afford to lose? Do you really need that £4 coffee every morning before work? At least for January, tighten your belt until you can afford to splash out a bit again. Look at your income vs. your out goings. Bills are more important that that new gym membership. And that weekly takeaway adds up to more than your think.
Compromise where you can, cheaper alternatives are always out there to help you save money. Exercise outside, make your coffee at home and eat in! You’ll be surprised what you can afford to cut out of your monthly spend. What you’ll save on unnecessary expenses will make your January a lot easier, money-wise.
3. Think Ahead
When managing your money, try and think past January 31st. Don’t break the bank as soon as February starts, creating a monthly plan and budget can make your life a hell of a lot easier. If you can implement the same tactics throughout the year, you could save yourself a lot of money in the long run.
Always look over all your income and out goings too, see if you can afford to take out a loan or credit card. Borrowing money isn’t always the best option, but if you’re looking to improve your credit and consolidate debt, a guarantor loan is a much safer and sensible option than a payday loan. Borrowing money may seem like a quick fix, but you need to consider the longevity of it. Will it cost more than you can afford? Repayments will have interest on them, and even though the rates are fairer on a guarantor loan, they are not interest free. So, always consider whether you can afford to take out a loan, and how much is feasible to borrow. Taking out a loan you can’t afford to repay can land you in more financial difficulty, so do your homework before applying for a loan.
By following these simple steps, you can make January a little easier for your wallet. Effectively managing your money can help get you out of debt, all it takes is planning and patience.
Credit Score
As previously mentioned, taking out a loan is no small task. If you’re already struggling with repayments and meeting bills, then you may find paying a loan back challenging. Paired with the fact that missing these various payments directly affects your credit score. Independent websites like Clear Score and Experian will check the details of your credit score and let you know what kind of deals and rates you can get on credit cards and loans. It’s a free service that helps you pin point how well you manage your repayments.
If you’ve never had your name on a bill, credit card or loan, then you may have a non-existent credit score. This can affect your financial opportunities in the same way a bad credit score can. Loan companies and banks judge your reliability as a lender based on your credit score. No score, no loan – or at least no good rates.
Good or Bad?
According to credit checker, Experian, scores range between 300-850 (on their credit scale). Scores ranged between 300-549 being considered very poor scores, whilst scores of 750-850 are considered excellent. Depending on where you fall on the scale, depends what kind of deals you can get on loans and credit cards.
My Credit Is Bad, What Next?
If you’re credit score is less than ideal, don’t panic – it’s not set in stone. Credit scores change over time, fluctuating between good and bad. Whilst this effects your borrowing options short term, it’s not the end of the world. You can still get a loan with poor credit, it just limits your options. Traditional lenders will charge your higher representative APRs on loans, because of your credit. However, there are other borrowing methods available that range between risky and safe.
We Need to Talk Payday Loans
One of the greatest scams of the 21st century, payday loans target you when you’re in need of a helping hand financially. The advertise quick pay outs, no upfront fees and loan amounts of as little as £100 – making you feel like it won’t cost you that much. Back when these loans came about, the APRs where marked between 1000% and even higher! Paired with short term repayment plans, repaying these loans caused serious financial problems and crippling debt for those who took them out. Whilst the APRs have been lowered, they are still not great.
The controversy around payday loans is that proper credit checks are not in place. Loans are granted to almost anyone, with no affordability checks put in place. Whilst missing or extending payments for the loan can incur some significantly expensive charges on a loan that was meant to be quick fix. They target people caught short at the end of each month, dependent on how much borrow, it can cost you a lot.
Payday loans are considered risky in the world of lending, with payments that can stack up over time that will cost you a fortune. But, for those in need of ‘fast cash’, they can seem appealing. This brings it back to managing money. If you can create a budget, you can understand what you can afford to borrow, against what you can afford to repay.
Lower Risk, Bad Credit Loans
We’ve spoken about guarantor loans, but what makes them better than payday loans? Without relying on credit checks, is it fair to say that guarantor loans are better than their bad credit loan counterpart? Yes, it is. Why? Because, guarantor loans have fairer interest rates, affordability and longer repayment terms that won’t hinder you financially.
Whilst they don’t rely on credit, loan providers to require that you have a guarantor to support your application. They sign and agree that should you be unable to make a repayment on the loan, they will cover the cost. No charges, no added interest – just fixed, affordable rates. Whilst missing your repayments may impact your relationship, which puts off many potential guarantors, you should only ask someone that is financially stable and trusts that you won’t miss repayments.
Pros and Cons
Guarantor loans are good, they’re better than payday loans but they’re not perfect. Whilst taking out a guarantor loan can help you improve your credit over time (by repaying the loan on time), they are not as cheap as some other loans. Conversely, these cheaper loan rates are only available if you have good credit. They fall in the middle between payday loans and traditional lenders. Guarantor loans are typically for larger loan amounts than payday loans, from anywhere between £1,000 – £15,000 (payday loans are between £100-£1000). Borrowing a larger amount of money over a longer period does cost, but if you can factor in this extra cash boost into your budget, you can manage your finances better, whilst improving your credit too.
Budgeting and Borrowing
An easy way to see if you can afford to borrow money, is to look over your budget plan. Your regular outgoings each month vary for everyone, but the basic things should include:
- Grocery Shopping
- Bills
- Travel
- Other expenses (clothes shopping, going out etc. – you do need a social life to keep you sane)
- Debt Repayment
By setting yourself an amount you can afford to spend each month on each section, you can create an affordable budget that won’t leave you out of pocket every month.
Once you weigh your monthly income against your outcome, you can see how much you have left. Then, decide if you need to borrow money to hold you over or in case of an emergency. But a loan should never be taken lightly, it is a commitment and an investment (you’ll always pay back more than you borrowed, no loans are 0%).
Guarantor loans are personal loans, so can be used for almost anything. From car finance, to wedding loans – or even saving it for a rainy day, they are a fairer way to borrow money when you have bad credit. As long as you factor in the repayment amounts into your monthly budget, you could slowly move out of the red, and into the black. If you decide to use a guarantor loan as a debt consolidation loan, to manage all of your debt into one monthly payment, you could take off the pressure of juggling multiple repayment bills and schedules. Debt management loans can help you stay on top of your finances. However, always seek independent financial advice before taking out a loan. If you cannot afford to repay the loan, it may cause you serious financial difficulties. Debt management services are on hand with advice on how to stay on top of repayments. Citizens Advice and National Debtline are just a few examples of free, impartial and independent advice for financial debt.
P.S. Many thanks to Robert Smoker for providing this valuable material. Robert, the CEO of TFS Loans, has an extensive work history within the finance sector. Having worked with a prestigious Private UK bank for over 36 years, he has had many head and executive financial roles under his belt since the late 70s. His extensive knowledge of the financial and loans sector carries into his writing, creating content for financial blogs and more.
