Manage debts and immediately set up savings

Anyone who is considering creating a savings fund should know one of the most important principles. The wisest route to take is to clear debts before building up any savings.

Why can't I repay debts and build up savings at the same time?

Many people do actually make debt repayments and contribute to a savings account at the same time. One of the major disadvantages of doing this is that money is being continually wasted on interest payments. Debt interest payments will eat more in money than can be earned in interest in a savings account. Clearing interest accumulating debts first before building a savings account does make financial sense.

Why do the banks encourage consumers to save?

Banks actually encourage people to spend more than they encourage them to save. But, having a savings account and debts is a win-win situation for banks and lenders. Having savings means the customer is lending the bank money at a much poorer interest rate than if the bank lends the customer money. The customer who saves is giving the bank a great lending deal but this doesn't work the other way round.

So the banks love customers with debts?

Banks and lenders will say the opposite but it makes sense to keep customers in debt for as long as possible. Banks and lenders love customers who only make minimum repayments as this means they are paying interest for the longest time period. Customers who make minimum repayments can spend decades paying of their credit cards. Customers who incur late and missed payment penalty fees are also seriously adding to the lender's profits.

Are there any debts which are good?

Some debts do of course make financial sense. Mortgages will usually work out less expensive than renting and are a good financial investment in general. Interest free credit is about as close to good debts as it comes.

Which debts should I clear first?

Any debts with high interest rates should be the first to go. For example, a student loan comes with very little interest added and this can be left until last. Prioritise debts into high interest rate debts and work down the list with the lowest interest debts left until last. Any debts that come with high penalty charges for late payments should also be cleared as soon as possible.

Which debts should be left until last to clear?

Always be wary of clearing debts early that come with penalty charges for early payment. Early repayment charges can be equal to a couple of month's normal repayments. Debts such as higher purchase agreements that come with very little or interest free rates should also be left until last.

Shouldn't I at least have an emergency savings fund?

Having an emergency savings fund is important but more money will be available if debts are cleared first. Savings are savings and it does not matter if it's a regular savings account or an emergency savings fund.

Clearing off interest accruing debts will leave more disposable income in the future, which means savings can be build up quicker when debts are cleared. Saving before debts are cleared simply means the customer is contributing to the bank's profits.

So I should only create a savings fund when debt free?

A savings fund should be left until a debt free status has been achieved. Unless there are some circumstances whereby the consumer has mostly all zero or very low interest debts this should be the case. It simply makes financial sense to clear off interest accruing debts and then build up a savings fund. Many people actually save money with banks from which they are heavily in debt to. This does not make any sense as the customer with savings is, in effect, borrowing their own savings and being charged interest on it.

How Unemployed People Can Manage Debts

Long-term unemployment can bring stress and financial hardship, and mounting debts are one of the major worries. But there should be some debt options available that will help to ease the stress of accumulating debts during unemployment.

Make debts a priority when unemployment hits

For most people money worries will play a big factor during a period of unemployment. Mounting debt payments can add to other worries such as finding a job and paying bills. Credit card and loan repayments are not classed as high priority debts unless they have been secured on the home. But creditors who have not been informed of a change in financial circumstances will still expect regular payments in full every month. Keeping the creditors at bay will mean contacting them immediately to make them aware of the change in circumstances.

Renegotiate credit terms with creditors

Renegotiating credit terms with creditors should result in lower repayment rates and/or frozen interest for a period of time. Creditors should be open to this option as it means they do not have to start recovery procedures. Renegotiating credit terms is not something to panic over. Simply telephone or write to the creditor explaining the financial situation and propose the rate that can be afforded. Don't succumb to pressure from creditors to pay more than can be afforded. If possible, set out how long the renegotiated repayments are likely to last.

Don't panic if creditors refuse to renegotiate

There will be creditors who will be less than open to renegotiating credit terms. This is often a common bluff used by certain credit companies in the hope that customers will pay more than they can actually afford. If a creditor refuses to renegotiate then simply explain the financial situation calmly and state how much can be realistically afforded. The only option open to creditors is to call in debt collection agencies or use a court judgement. Most creditors will not want to use either of these options unless it is a last resort. Don't succumb to pressure from creditors; a court judgement will usually mean creditors will end with up the lowest payment from debtors.

Take a stronger approach with creditors

If creditors are being unreasonable then consider bringing in professional help. By doing this, creditors will then realise that the debtor is fully aware of their legal rights. Creditors will also be aware that the debtor is taking the matter seriously and knows the options that are available.

Work out new repayment rates

Sitting down and setting out a budget will help to assess how much can be paid to creditors. Included in the budget should include:

o All income coming into the household including benefits

o All expenditure including all debts, household expenses, mortgage payments, transport costs

o Work out how much disposable income is left every month

o Assess how much can be paid to each creditors; this should be a minimum payment that can be comfortably afforded

o Make any secured debts a priority

o Contact all creditors in writing with payment proposals

o Enquire about the likelihood of interest being frozen for a period of time

It may be hard to avoid but stressing over debts will not bring a viable solution. Taking a proactive approach immediately and contacting creditors to make them aware of the situation is the best solution. Unemployment is a stressful enough time without harassment from creditors. Customers do have legal rights and protection from creditor harassment.

Debts You Should Avoid

Recognising debts you can and can't afford will seem a simple task. Actually, recognising debts that you can and can't afford means assessing income and debt repayments now and in the future.

Assessing affordable debts

There are debts that are repayable without much inconvenience and it should be easy to recognise if they can be afforded. These debts can take the form of new clothes or food shopping paid by a credit card. Other more significant debts are not so easily assessed. These debts can take the form of buying a car using a loan or finance arrangement, or even buying a property. Large debts require careful assessment to gauge whether or not they are affordable.

Planning a financially safe future

Financial budgets are vital when it comes to future and present finances. It's easy to allow debts to continue for years but it definitely doesn't make financial sense. Setting out a financial budget will help to assess timescales when it comes to debt. A financial budget or plan will help to break down how much purchases will actually cost in total when bought using credit. Present income versus expenditure will be part of the plan but debts that are still being paid in five years time should also be part of the picture.

Can you afford large debts?

Items purchased on credit, such as a new car, are major debts. Some people will simply go ahead and take on this debt without giving the future much thought. Repaying a large debt over many years will drain money in terms of interest payments; the longer the repayment schedule, the more interest. A good rule of thumb for high price purchase items should be the length of repayment. If an item such as a car cannot be paid for in five years then this debt is really not affordable.

Good debts versus bad debts

Not all debt is bad and some debts will actually pay off in the long run. A new car decreases in value as soon as it leaves the showroom so isn't really a good debt. A house can be seen as a good debt due to the fact that home owners are likely to make a profit when it comes to selling. Buying a home is also generally seen as the smarter option to renting; renting will not provide any financial return. Good debts should be taken into consideration when it comes to assessing debts that can and can't be afforded.

Assessing good versus bad debts

It's useful to know what are actually classed as good and bad debts. Good and bad debts will include -

-Property purchases such as homes (good debt)

-Renting property for long periods (bad debt)

-New vehicle purchases (bad debt)

-Student loans, investing for the future (good debt)

-High interest loans such as payday loans (bad debt)

-Household purchases such as televisions using financing over many years (bad debt)

Can a mortgage debt be afforded?

Property is one of life's major purchases and although this ranks in the good debt category it is still a large debt. Most people have no other option than to buy their home using loans and financing. There is a guiding rule that may help as to whether or not a mortgage is an affordable debt. Mortgage payments should not exceed 30 per cent of take home pay per month; this is after taxes have been paid. This sounds easy enough to calculate but mortgage payments can last for decades, and decreases in future income should be a factor.

Building a financial nest egg into a budget

Even when purchasing good debts such as a mortgage there are variables. Financial instability can occur at anytime without notice. Interest rates can increase as can mortgage payments. This is why it is important to build up savings in case income does decrease for any reason. Think of these savings as a safety net, something that can be used to weather any financial storm. Assessing future debts and savings will determine whether a debt can or can't be afforded at the present time.

A financial budget is the best way to assess whether or not certain debts can be afforded. The budget should also figure in future purchases that are unavoidable or simply make good financial sense. This is a long term financial forecast. Although there may be some unforeseen financial bumps the budget should be a good guideline to recognising debts you can and can't afford.

Tips On Minimising Debts

Minimising debts can occur through a combination of cutting back on outgoing expenses, changing your spending habits and cutting out high interest loans and credit cards. Bad money mismanagement can leave a lot people sliding gradually into debt. Many people know that to cope with the rising financial costs in society they will have to accumulate a certain amount of debt, but keeping debts at a minimum is vital. Minimising debts will take a lot of effort and willpower but will be worth it in the long run.

Household debts

    Household expenses are a priority and there is no way to avoid them. There are ways to save on household energy expenses such as gas and electricity; if you get your energy from different suppliers then combining them could save you a lot of money per year. Energy companies are in competition with each other and you may find you get a better deal by shopping around and switching companies.

Other household expenses that are priority will be items such as the weekly food shopping bill. The only way to minimise the cost of these items will be to shop around and find cheaper suppliers. The main aim of reducing your household bill is to free up some of your income that can then be used to pay off serious debt.

Seeking financial help

You may have debts that are spiralling out of control to the point where you are paying a large amount of your monthly income towards debt. It may be the time to seek help from a debt counselling service that will be able to talk to your creditors on your behalf and minimise your debts.

Bank charges

If you find that you are always sliding into the red due to bank charges and penalties being applied to your account then you will be paying a lot of money to your bank. Try phoning your bank, explaining the situation, and reclaiming the charges. If your own branch does not give you back the charges then go over their heads to the customer relations department at the head office. They will look into the problem and will usually offer a repayment as a gesture of goodwill.

Bank charges on overdrafts, missed direct debits and standing orders are profits that go directly to the bank. These charges can mount up in no time and can seriously damage your finances. The best way not to have charges applied is not to go into the red.

Pay with cash instead of credit

Paying with cash instead of using your debit or credit card is the best way to keep track of your finances. Paying by cash means that you will need to go to the cash machine and check your balance; therefore you are more likely to know when you are near your limit. Paying with cash also means you are unlikely to splash out on impulse buying on your credit card.

Minimising debts can be achieved with some astute financial planning and budgeting but it will take time and effort. Debt is easy to achieve but never easy to get rid of, and curbing the desire to spend is difficult for some people. Do not be disheartened if you slip up now and again; think of the process as a long term plan that will eventually bring you to a debt free existence.

How to stay free from debt stress

Knowing how to stay free of debt stress will not solve your debt problem but it can decrease the risk of serious physical and mental illness. Any type of stress is bad news when it comes to health as worrying about debt can lead to a number of serious health issues.

Debt stress and health

People who are in serious debt can add to their problems simply by worrying too much. The debt stress/ill health connection has been well documented and it doesn't just amount to a few nights without sleep. Debt stress has been known to lead to serious health problems ranging from migraines, ulcers, and depression, to severe anxiety attacks. The worst case scenario is that the stress can lead to cardiac problems and ultimately to heart attacks.

High stress levels from debt

Medical reports have shown that people who experience high stress levels due to debt are more prone to health problems. These health problems can be physical, mental or both. People who suffer from stress will usually have trouble sleeping and be more prone to bouts of bad temper. The knock-on effects of this stress will include absenteeism from work and seeking relief in alcohol or other addictive substances. Worrying about debt will not solve the debt problem but only increase the risk of serious illness.

Avoiding debt stress

A great many people who find themselves in uncontrollable debt have a tendency to simply bury their heads in the sand. This is not the way to avoid the problem; it is simply putting off the inevitable and will lead to greater amounts of stress. Debt problems should be confronted as soon as the problem looks serious and there are a great number of agencies that will be able to offer advice and assistance. If you are having problems coping with debt, then talking to the lender should be the first port of call. Lenders should be able to reduce payments or offer longer repayment terms as an alternative.

The main priority

The main priority when it comes to debt problems is to reduce the payments. If you simply let payments mount up then the interest will also mount up. The next step for lenders will be read letters and phone calls to the debtor. This is when stress comes into play. The debtor will avoid phone calls and avoid opening letters. Inevitably the debt will be passed on to a debt collection agency. Talking to lenders should prove to be positive when it comes to reducing payments; it will also immediately reduce your own stress levels.

Understanding stress

oDebt stress is no different from any other type of stress, the only difference is the cause of the stress. There are certain ways to counteract the stress and these can include:

oDecrease stress inducers such as caffeine or fizzy drinks

oSmoking will not reduce stress but stress can lead to increased smoking, so avoid this if possible

oMaintain a healthy diet including vitamin B rich foods such as tuna, eggs and whole-wheat foods

oExercising each day is a good stress reducer

oTake breaks to reduce stress and do an activity that brings pleasure

oTalk to other people about your problems, do not isolate yourself

oThink positively; this situation will not last forever

Talking will help

As the saying goes, a problem shared is a problem halved and when it comes to debt you are not alone. A huge number of people have found themselves in uncontrollable debt situations at one time or another throughout their lives. Debt is one of the most common problems and also one of the most stressful for a great many people. Talking to people will help alleviate some of the stress. Simply talking to someone will reduce stress levels and bring real solutions to the problem.

Husbands Will Be Scarce By 2023

The National Council of Catholic
Women Organisation of Nigeria on
Thursday warned against the
alarming drop of male-child in
education.
With the drop, the group noted
that in the next 10 years, there
would be a scarcity of quality
husbands in the country.
The organisation National
President, Chief Felicia Onyeabo,
stated this on Thursday at a
briefing to herald the inauguration
of Cor Mariae College, Abuja. The
inauguration holds on Friday
(today).
She said, "The future of this country
is going to be very bleak for the
male-child. How many girls do you
see hawking clothes? Go to Onitsha,
they are all men. We have looked
round and have come to see that
there is a neglect of boys in
education. Who are the armed
robbers on the streets? They are
mostly the boys. Let us concentrate
on training boys.
"The NCCWO feels that a vacuum is
being created, and very soon, we
shall be faced with a situation
where our educated girl-child will
not find a corresponding suitable
boy-child to marry. This is because
more boys drop out of school,
apparently because the high rate of
unemployed youth discourages our
young boys from appreciating the
need to be educated.
"The NCCWO also consideres the
fact that in the near future, quality
husbands will become extremely
scarce, with too many highly
educated women looking for
husbands, and settling for anyhow
husbands, just to get married. The
result of this type of situation is
better imagined and will not augur
well for Nigerians."

Are You In Debt?

Are you facing money problems? The early warning signs are usually very clear and include the following:

You are completely broke long before payday

You are regularly having to borrow from friends and relations just to make ends meet

You are missing debt payments

You are coming under pressure from your bankers and other lenders

Your money worries are keeping you awake at night

How did you get to this point? Is it your lifestyle? Are you extravagant? Do you make poor spending decisions? Do you feel under pressure to try to keep up socially? Perhaps you are just not earning enough to fund your current lifestyle and obligations. There are so many reasons for money problems, but the good news is that by recognizing and acknowledging the fact that there is indeed a problem, you can start to take the deliberate and necessary steps to address it.

Your attitude to your debt problems can hinder your financial recovery. If your way of dealing with it is to wish it away, remember that inaction will only make things worse. With interest, late payment penalty charges, and the attendant fees and charges you will find that almost all your money goes towards debt service. It is important to get your debt under control or at least to try to reduce it significantly.

It is important to know how much you owe if you are going to get out debt. Who do you owe? How much do you owe? What is the interest rate on your loan? To get a true picture of what you owe, list all your debts – in no particular order at first. You can list them according to amount, due dates, interest rates, your creditors; it doesn't really matter.

Be sure that you are current with the minimum payments on all your debt. If you are finding this difficult approach your creditors to discuss the possibilities of restructuring the debt in a way that enables you to repay over an adjusted period and in amounts that you can more easily afford. Failure to make timely payments will only make things worse.

Track your expenses for a month to determine exactly what comes in and what you are spending it on. Create a budget and set strict spending limits for food, transport, clothing, school fees, entertainment, and utilities. There is usually some waste lurking in the monthly budget; be realistic and honest with yourself, as you must find a way to cut back. If you can find just that little bit of extra money after budgeting for the entire essential expenses, then you can use this towards reducing your debt.

Make every effort to stop the bleeding. Try not to incur any additional debt. You will have to live below your comfort level for a time and will certainly have to do without some luxuries, but it will be well worth it in the end.

Prioritise your debt and put your bills in the order in which you want to pay them off. Ideally it should be organised according to interest rates. The higher the rate, the more you are paying beyond your actual principal so it makes sense to pay off the debt with the highest interest first. On the other hand, some people prefer to pay off smallest debts first, as this is motivating and quickly gives a sense of achievement as they systematically pay off their debt. As you start to tackle your "priority" debts, determine how much extra you can afford to pay each month over and above the minimum monthly repayments.

Bear in mind that the most important debt isn't necessarily the largest. These are the ones where serious action can be taken against you if you don't pay what you owe such as rent or mortgage repayments, secured loans, and utility bills. If you don't sort these out, you will be disconnected from utilities, or face eviction or the repossession of your home.

It is almost impossible to live totally debt-free; most people will have to borrow money at some stage in their lives. Borrowing can be a useful way to help spread out the cost of large purchases or expenses that you could perhaps not otherwise afford. It can also help you through difficult times or periods when there just isn't enough cash. Borrowing to invest can make it possible to attain greater levels of financial success than if one depends solely on ones own resources.

Debt often has negative connotations, yet one must differentiate between "good" and "bad" debt. "Good debt" is debt that creates value and can help to build wealth and generate income. This includes borrowing to buy property, to finance an education, a business or for investment purposes.  "Bad debt" is where you borrow to finance lifestyle purchases such as clothes, jewelry, expensive cars, holidays, or just to have a good time; these are expenses that should ideally be paid for with cash and not with credit or personal loans, as they quickly lose value and do not usually generate income or wealth.

Debt has become a necessary part of life but should be viewed as a tool to help you attain your financial goals. Using credit responsibly should help build wealth, provide greater opportunities, and enhance your quality of life; yet for those who borrow excessively and for the wrong reasons, debt can have dire consequences. Sometimes it makes sense to borrow; sometimes it doesn't. Do give yourself some credit, but be careful.