It’s been 10 years since the credit crunch of 2007 that sparked a 5-year recession and a global financial crisis. Yet whilst things appeared to be on the up for a few years, it seems that the UK are at risk of another downfall, due to the levels of personal loans that are being taken advantage of.
Research from StepChange shows that almost 3 million people in the UK are experiencing financial difficulty. Not only that, but whilst the number of outstanding credit card balances, personal loans and car loans has risen by 10% in the past year, the average household income has only risen by 1.5%.
Consumers have become more dependent on borrowing money and it seems that lenders are using this need to their advantage. Many of those who are struggling to pay back their credit card loans have had their credit limit increased, encouraging them to add more to what they already owe. This combination of dependency from consumers and complacency from lenders is causing financial authorities, including the Bank of England, to suggest that there could be another financial crisis in the near future.
If you’re a borrower looking to improve your current situation, read on for our advice on how to reduce your current debt. If we all work towards getting back on track with finances, it could help to reduce the likelihood of another financial crisis in the future.
Be more aware of your financial situation
Develop a comprehensive understanding of your current financial situation and how this differs to your circumstances 5 or 10 years ago, to help you have a clearer picture of where you will be in 5 or 10 years time.
Research shows that those in debt are more likely to have had less pay progression and a more low-middle salary in recent years than others. Consider your salary and if this has grown over the past 5 or 10 years. Have your spending habits changed in correlation with this or have you started to spend more than your salary has grown?
From there, you can begin to see if it’s likely that your financial situation will improve enough to get out of debt in the next few years and if not, what changes you will have to make to improve your situation.
Avoid borrowing for short-term purchases
It can be very tempting to put your everyday expenses on your credit card, or even pay your upcoming holiday off in full using your plastic. However, purchases such as these tend to build up and if you’re only paying back the minimum payment each month, you’ll still be paying it back in a year’s time.
There’s a rule of thumb that if the payment is going to outlive the purchase, it’s not worth borrowing money to pay for it. Instead, use these borrowings sparingly for bigger one-off investments such as home improvements. You’ll soon see your financial situation improving over time.
Keep your cars for longer
Car finance options have become an increasingly popular choice for consumers in recent years. Not only are you offered the chance to drive around in a brand new motor, but you can live the lifestyle on cheap monthly installments.
However, the option to give back the car after a few years in exchange for an even newer one if all too appealing to many and this can become a costly affair. As the depreciation of the car tends to occur most within the first few years of its life, consumers are missing out on a further few years of cheap driving, when they choose to exchange the car for another.
Instead, it is recommended that if you have to take out one of these car finance contracts for whatever reason, you should make an effort to hold onto one car for a further three or four years after the initial stage. You will find that simple changes to your lifestyle such as this will severely impact your finances for the better in the near future.
Switch to icount
Years of borrowing and failing to pay back what you owe can jeopardise your credit rating and future financial stability. If you’re looking for a helpful way to get back on track with your finances, take a look at what the icount current account with prepaid MasterCard could do for you.
Set yourself a daily, weekly or monthly budget and stick to it, simply by loading your budget onto the icount card and using just that. This works fantastically for everyday spending such as the food shop or your daily commute.
With the nifty and complimentary credit builder tool added to your account, you can improve your credit rating even when you’re paying back your loans. Don’t wait to start improving your credit rating until after your loans are repaid – you could have good enough credit for a mortgage, for example, in a much quicker time with the credit builder.
Here at icount, we also have our very own overdraft facility, the iDraft. With the same functionality as a standard overdraft, you can apply to borrow a little extra money for months where your salary won’t stretch. The only difference between a high street bank overdraft and the iDraft is that you will not be penalised for using the facility and you could improve your credit rating further by making small payments into it!