Debt Guidance for the Financially Illiterate.

If you are new to ideas of debt and personal finance, don’t panic. It is not as complicated as it first looks. However, it is worth spending time learning the basic of debt and personal finance; it can save a lot of regrets later on. These suggestions and guidance may hopefully appear common sense; however, they can easily be forgotten causing the banks to make more profit at your expense.

1. Never Miss a Payment.

It is important to never miss a payment to any creditor – credit card company, bank, loan company e.t.c. If you do you will be give an adverse credit score. This makes it more difficult to get credit in the future. Banks may refuse to give a loan / mortgage and you may end up paying a higher interest rate.

Top Tip:

• Set up a direct debit to pay the minimum monthly payment. This means you will never miss a payment, even if you forget or it gets lost in the post.

What Happens if I miss a credit card Payment?

• Don’t panic. In the first instance send the full payment. Secondly, contact your company and apologize for the delay. Thirdly, write a letter to the company giving a reason for the late payment; perhaps there was a problem with the post? J If you pay and write a letter of explanation, they may forgive the mistake and not hold it against your credit company.

• Don’t be intimidated by banks and credit companies, you may not believe it but, they don’t like adverse publicity, they like to look good.

2. Find Lowest A.P.R

A.P.R. stands for annual percentage rate. This is the rate of interest charged on your outstanding balance.
Not all loans are equal. The interest can vary significantly. For example,

• A secured loan like a mortgage may have an interest rate of 6%
• A standard bank loan may be 9%
• Credit Card interest could be 17%
• Store Card could be 28%
• Loan shark (unofficial loan to people with adverse credit histories) can be upto 50%
• If your lucky a Loan from your parents / friends might be 0% J

The higher the rate of interest the more your monthly repayments will be. It also means it is more difficult to pay off your loan. This is because a higher % of the loan will go to paying interest and not capital.

Therefore, don’t use credit cards and store cards to hold your debt/ Move this debt to a lower interest bearing loan.
3. Never Bury your Head in the Sand.

There are many people who feel “they know nothing about personal finance”. Therefore, they give this as a reason to justify ignoring their debt problem. However, this only stores up the problem for the future. It is important to always be aware of your situation. If you are fully aware of your outgoings, income and debt it makes it much easier to manage. If you are struggling with your financial situation, don’t be embarrassed or afraid to seek advice.

See also:

• Top 10 Tips for reducing and eliminating Debt
• 3 Different Ways of Reducing Debt