A question we are sometimes asked is ‘what do we do if rates rise and we find it hard to make payments?’. The root of the answer lies in not getting into debt you may not be able to service in the first place, having said that the home of your dreams is not always going to be sold at a dream price and many people are feeling an increasing debt burden in 2008. This is down to a slowing economy, redundancies, increased margins on loans, and ECB rate increases.
Today’s post will have some simple tips about money management and ways to avoid bad debt. For a start you need to get a piece of paper and write down guaranteed outgoings, such as mortgages, personal loans, credit cards, groceries etc. If there is a hierarchy in what requires priority food comes first then further down the line debts, for debts (if you ever have to make that choice of which one not to pay) make sure you pay your mortgage first, and personal loans further down the line.
However, before we consider worst case scenario let us look at the basics, and that piece of paper. Do you have loans outside of house borrowing? Do you have savings? If the answer is ‘yes’ to both then look at the outgoing/reward ratio. If you are getting 4% on savings but paying a personal loan at 9% then you should clear off the personal loan. Ideally you will always have a nest egg for a rainy day but cashflow also counts and being able to manage week to week is vital.
There is a group called MABS who can help you can call them on 1890 283 483. They primarily help people with budgeting, in situations where a particular event has not been the cause of financial woes (getting made redundant, disability/illness) it is usually a case that a person has simply borrowed too much. When rates rise it happens in all arenas of debt so mortgages get more expensive as do credit card debts and personal loans and it is this which often proves to be the tipping point.
Consolidating debt is sometimes an answer but you need to be very aware of what this involves and the long term cost implications, as well as that it needs to be used as more of a ‘final solution’ than as a ‘first response’. The better answer is to avoid further debt and to get your spending in line with your earning.
Creating a budget to work with the money you do have is often a simpler exercise than making more money, you can take a second job but do so only to solve a problem, don’t increase your spending on the back of it!
If you actually do miss a payment the moment may cause stress but the skies don’t open up, there is no earth rumbling, you’ll get a letter, then a call, but at the same time it is a serious matter, you can’t disregard the implications, so if you do have problems get help or advice and do so fast.
Debt problems will be an increasing feature of life as we enter an economic cycle of having less, Irelands economy had huge performance and on the way up many things were affordable which will not be affordable on the way down. So it is vital to make appropriate changes and plan for this. If you do want to talk about consolidating loans feel free to call us on 01 6790990 and one of our qualified advisors can talk you through the pro’s and con’s of debt consolidation.