Debt

Should we be Doing Everything to get out of Debt?

Sometimes it can feel that there is pressure on us to get out of debt. Some people therefore hate the idea of borrowing and feel like they want their debt gone as quickly as possible or that they do not want to borrow at all. However, other people do not mind being in debt, they borrow as much as they can so that they can have more things. It is not always easy to know whether either of these attitudes is the correct one.

The problem with borrowing is that sometimes it can be really useful and can even help us to better ourselves but sometimes it can be unaffordable and perhaps avoidable. Once we are in debt it can sometimes be expensive and difficult to get out of but it can also sometimes be easy to manage and useful.

For example if we have a mortgage we normally benefit in a selection of ways. We have a home to live in and do not have to pay rent, which tends to be dearer than a mortgage. The debt is really big but it is spread over a long period in order for it to more affordable. The house will normally gain in value during the time of ownership and this means that once the mortgage is paid off, the home will normally be worth more than what it cost to buy plus the mortgage costs so you end up with more than you started with. There are cases where this does not happen, perhaps a property drops in value for some reason or if you sell too quickly and the housing market has dropped then the house may be worth less than you bought it for, but these instances are rare. There are also cases where mortgage repayments cannot be met and the home has to be repossessed. This could be in the case of an interest only mortgage where at the end of the term of the mortgage there is not enough money invested to pay for the property or if repayments are not made due to financial difficulties on a monthly basis. Paying back a mortgage early does have advantages as the borrowing will cost you even less money but as long as you are up to date with repayments, it will not be that expensive due to the offset form the increase in value of the property.

Another example of where borrowing can be good is for a student loan. If the loan enables you to get a degree which will get you a job that pays better, then it can be worth it. You will be paying it back for a long time, but the increase in salary that you get as a result of the loan will outweigh the cost of the loan. However, with this sort of borrowing, it is important to make sure that you carefully choose the course that you do so that it leads to a career that will pay well. There are many courses out there and some will lead you straight into specific jobs, but many are general and you may find it difficult to get a job in that area afterwards. This debt will be paid off slowly once you start working and at the moment in the UK, if you are not earning very much money, then you will not have to pay so much back and if you do not pay it back in a certain amount of time, you will not have to pay the rest back. Therefore, paying this debt off early could actually mean that you will be worse off not better.

Most debts though can be very expensive and do not have the same advantages as above. The more expensive the debt, the bigger the repayments will be and the more costly they will be as a whole. The longer that you take to pay them off, the more expensive they will become. With some debts, such as personal loans, you will have an agreed repayment schedule and so you will have money going out each month in order to pay for it. This means that when you take out the loan, you know how much you will be paying back and therefore how much the loan will cost. If it is on a variable rate, then this could go up if interest rates rise, but this would be the case with most forms of borrowing. Although this is a more controlled way of borrowing, it is still expensive and paying back early would save money.

Borrowing on credit cards, overdrafts, short term cash loans and similar are some of the most expensive ways to borrow and repayment is more haphazard. With cards, you will normally be expected to pay back a small minimum amount each month and then you can choose when to repay what is owed. This can be really good for people who do not have a enough money to buy the things that they want as they can use the card and buy what they want. However, the costs are very high, with interest on credit cards being very much higher than other forms of borrowing. If you delay repaying the card, which you are allowed to do, you will find that the costs will really add up and you can end up paying a lot more for the items than you would have originally been prepared to do. Paying off this sort of expensive debt can make a huge difference as you will make a significant difference to the amount of interest you will be charged for it. So we should be making most effort to pay back this sort of debt.

Debt

Is Growing Household Debt Something a Nation Should Worry About?

There are many nations that now have growing household debt. Some people worry that this is a problem and others do not. Is it something that we should be concerned about?

When a report states that household debt is growing this may not be a bad thing. It could mean that a lot more people have mortgages, are buying their own homes and in the long run savings themselves money and investing. Mortgages are usually considered to be good debt and so an increase in these would be seen as a good thing.

There are other forms of good debt as well, such as student loans where the loan will allow a person to get extra education and get a better job as a result meaning that that they will earn enough money to pay back the loan. Sometimes borrowing money to buy a car, so that you can drive to work or to do a house extension rather than paying more to move would also be considered to be good debt as well. If the person has carefully planned the borrowing, knows they can easily make the repayments and has chosen the right loan for them, then this could also be seen as good debt.

However, if the borrowing increase has come from bad debt, then this may not be so good. Bad debt is borrowing money to buy luxury items that are not necessary. Not planning the borrowing properly, not thinking about the cost or considering whether repayments will be possible. In this sort of situation debts can spiral with one loan being used to make repayments on another or a sudden change in circumstances, meaning that repayments are not possible.

Economies grow when money is borrowed. In order for businesses to grow they will need to borrow money to expand so that they can sell more and make more money. For personal debt this is not always the case. With student loans and mortgages this is the case, where you are investing the money that you borrow so that you can be better off in the future. However, when you are spending the money on luxury goods that are not necessary then things are different. You will still be helping the economy to grow as you will be paying out for goods which will help those businesses to make more profit but your household finances could be shrinking not growing as you will be paying more out on repayments.

So on a personal level household debt rising in general should not worry us. We do not know exactly what that debt is being used for and it could be good or bad debt. It may just be a sign that borrowing is cheap and so people are taking advantage of it or that a lot of people are buying houses or going to university. Even if the borrowing is bad debt it may be good for expanding the economy and if the borrowers can pay it back, then it could have a positive effect overall. However, on an individual basis we are in control of what we borrow and how much. It is important for us to make sensible decisions as to whether we think it is wise to borrow or not. Borrowing in the spur of the moment is never sensible, you need to consider whether you really need the money, whether you can wait and save up, whether it is being used for something worthwhile and whether you will be able to make the repayments.

If your personal debt is rising then you need to take a look at why this is happening. Are you finding it harder to make ends meet due to rising prices or are you spending more money on things that you do not need. Try to analyse why things have changed and whether you can easily do something about it. Ideally you want to have some money left at the end of each month so that you can pay back some of your debt. If your circumstances have changed, then it may be possible to make other changes so that you can rebalance your earnings and spending. Try to come up with a plan.

If you are finding that it is really hard to cope and you just do not know how to get back on top of your finances then it is wise to see a debt counsellor. There are free services available where you can talk through your money concerns and come up with plans to help you to manage your money more easily. Just talking things over with someone can be a big relief and start you focussing on finding a solution to getting out of debt. It can help to make things clearer in your head and they may have solutions that you had not heard of.

Contactless

Should we be Worried about Contactless?

There are many people that worry about having contactless on their debit and credit cards, but is their worry justified? A contactless transaction allows you to spend up to £30 in a shop without using your pin number on a credit or debit card. You can just touch the card to the payment device and it will deduct the money.

There is a selection of concerns that people have with this system. Firstly they worry that if their cards get stolen, someone will more easily be able to steal money from them using this system. They could take the card into shops and spend small amounts of money on the card and keep the items for themselves. They also worry that there may be people with card scanners in their bags which will take money off your card as they walk past you, without you even realising.

The cards only allow a certain amount of transactions to be done using contactless before asking for a pin to be entered. This is a security check to make sure that only a small amount of money can be stolen from the card. You could check with your bank to make sure that they do this and find out how many transactions they allow. The transaction amounts are limited to small amounts so that any theft is limited as well.

If you are still concerned then there are things that you can do to protect yourself even more. If you card has been stolen then report it as soon as possible and the bank will cancel it so no more transactions can be made on it. If it is a credit card then it is easier to get back any money stolen on the card, so you could consider carrying this rather than a debit card. Do not leave your card on the edge of your bag or pocket. If it is in a purse or wallet with other things between it and the edge, then it will be harder for any signal to reach the card. Check your statements regularly and if you suspect money has been stolen report it to your bank as soon as possible.

If you would rather not have contactless cards then you may find that some financial institutions will issue cards which do not have this facility on them. Ask and see, starting with your own bank and find out whether there is anyone that can provide this for you. You could leave your cards at home and just use them for online purchases and use alternative ways to pay in shops such as cash and cheques, although many places will no longer accept cheques.

Worrying about things like this is likely to increase with payments being made with mobile phones as well these days. It is likely that they will become more widespread and it could be difficult to avoid them in the future. It is therefore worth making sure that you are aware of everything you can do in order to protect yourself against fraud or theft. You bank should have details available and there is plenty of information online as well.

Unfortunately there will always be risks with carrying any sort of money, whether it is in the form of cash or cards. Cash can be stolen as well as cards and it is easier to spend and harder to trace. At least with a card, once you notice it is missing you can report it and transactions can then be blocked. With a credit card you should be able to get back the stolen money as well, so they may be the safest option even if they have contactless on them.

The wisest thing to do is to keep a close eye on the transactions going through your account. Make sure that you can identify each one as being one that you have made. If there is any that you do not recognise then contact your bank. They may have more details allowing you to more easily remember that transaction or if you know that it was not a transaction that you made, they will be able to deal with it, cancel and replace the card and return the money if they agree that it was not a transaction made by you or any other card holder.

It is good to be careful when using contactless and look after your cards as much as possible to avoid theft. However, stressing about potential theft is not healthy for you and if you are doing everything you can to protect yourself from it, it is sensible to try to forget about it and not worry, if you can. It is easy to say, but harder to do but worrying does not get us anywhere and can even make us ill.