Is Debt Starting To Affect Our Mental Health? What Should You Do?

Is Debt Starting To Affect Our Mental Health? What Should You Do?

According to a recent UK survey carried out by market research company ComRes and insolvency & restructuring trade body, R3, 22% of all adults stated that their finances are affecting their mental health. The survey targeted over 2,000 British adults living East of England.

According to R3, the survey revealed other key causes of mental health issues revolving around personal health or family member health issues. Job, relationship and current global issues also account for some of the main causes of mental health problems in the UK.

The survey reveals that over 37% of all adults living in the Easter region don’t have enough money to wait for the next payday. They attribute their financial struggles to the rising cost of food (52%) and transport (45%).

According to Frank Brumby, R3 Eastern Chairman, financial struggles are universal regardless of the occupation, age or location of an individual. He goes ahead to state that financial worries have an enormous negative effect on a person’s well-being even if the concerns are about the financial situation of other people such as friends and family members.

According to R3 research findings as well as the experiences of R3 members’ clients, a lot must be done to educate people on the options available to them when they find themselves in debt problems. Brumby attests to the fact that improving financial education is among the best ways of reducing stress and mental health problems caused by debt.

R3 Eastern indicates that the personal finance landscape in the eastern region is relatively benign with real wages/income growing while interest rates remain low. Personal finance concerns have however remained sizeable. Bureaucratic obstacles are also stopping many people from taking advantage of the best suitable insolvency procedures.

Brumby continues to state that personal finance pressures will definitely increase in the region considering inflation is bound to rise throughout this year. There are many obstacles which can be solved by easing access to insolvency procedures. According to Brumby, the £680 fee payable by all individuals entering bankruptcy should be paid over time instead of one time to ease stress and boost mental recovery.

Below is a 9-point action plan by R3 Eastern to help anyone with financial/debt issues.

1. Acknowledge your debt problem: Refusing to admit that you have personal finance problem only makes the problems worse.

2. Ask for help: After admitting you have a debt problem, the next step is seeking professional advice. You can get professional financial advice easily for free. You can call the National Debtline, your local Citizens Advice Bureau or a licensed insolvency practitioner.

3. Prioritise debt repayment: Seeking professional advice will help you identify the source of your debt problems as well as effective ways of dealing with them. One of the best ways of dealing with debt problems is prioritising debt repayment. You must adjust your lifestyle to find money for repaying your debts. If you have problems doing this, you can ask for help from an advisor.

4. Be 100% honest with yourself: To solve personal debt problems, you must be honest about the kind of lifestyle you can afford while repaying your debts. Start by calculating how much money you owe. Proceed by adding your most important expenses. Your income should be able to cater for debt repayment as well as those expenses you can’t afford to live without. To accomplish this, you will need to take some drastic measures such as; looking for discounts more aggressively, moving to a cheaper home, etc.

5. Budget: Budgeting helps to identify essential financial commitments as well as trace where your money goes. When you are in debt, you don’t have the luxury of not following where every single cent you spend goes. Budgeting will help you get a true picture of your current financial situation. A budget will also help you stay on track as you try to get out of debt.

6. Maintain open communication with your creditors: Debt problems result in a lot of unnecessary stress due to lack of open communication at an early stage. If you let your creditor know that you have problems repaying as soon as possible, the creditor can extend help which might not be available if you waited. For instance, your creditor can revise payment terms giving you more time and flexibility.

7. Take your time: Although time may not be on your side when dealing with debt problems, avoid being pressurised to make decisions if you haven’t thought them through carefully. Most importantly, the decisions should be supported by expert advice.

8. Stop taking up new debt: You also need to stop applying for new credit cards, payday loans among other types of short-term debt before you get your situation under control.

9. Understand your options: Lastly, you need to know and understand all options available to you. If you need formal insolvency, there are several options appropriate for different debt levels. DROs (Debt Relief Orders) are great for small debt. Other options include; (IVAs) Individual Voluntary Agreements and bankruptcy. It costs more money and time to choose the wrong option so, make sure you understand all options first.

How to Avoid Payday Loan Scams and Unauthorised Firms in the UK

How to Avoid Payday Loan Scams and Unauthorised Firms in the UK

The FCA has gone to great lengths to regulate the conduct of finance industry players in the UK. In an effort to protect consumers, the FCA has a guide that is bound to help you avoid being scammed and/or dealing with unauthorised firms.

The consequences of dealing with unauthorised firms are dire. For instance, individuals who conduct business with unauthorised firms aren’t covered by the Financial Services Compensation Scheme or the Financial Ombudsman Service in case anything goes wrong. To avoid losing your hard earned money, it is important to avoid unauthorised firms. Furthermore, most scams are orchestrated by unauthorised firms.

This leads us to a very important question; how do you avoid scams and unauthorised firms in the UK? Below are 10 important steps to consider according to the FCA.

Step 1: Don’t accept cold calls

You should treat cold calls with extreme caution to avoid being scammed or dealing with unauthorised firms in the UK. Ideally, you should not pick cold calls and if you do, hang up immediately. It doesn’t matter how attractive an investment sounds, most scammers cold-call potential clients. They may also email or text you. For this reason, never open or respond to unsolicited correspondence. It is possible to set protective mailing and telephone preferences to keep you safe.

Step 2: Check if the firm you are about to deal with is registered or authorised

This has to be the easiest but most overlooked way of avoiding scams and unauthorised firms. You shouldn’t deal with any firm that isn’t authorised or registered by the FCA. The FCA has a register (https://register.fca.org.uk/) that lists firms as well as individuals that are authorised or registered to conduct business in the UK. It is advisable to access the register directly from the FCA website as opposed to clicking links in emails for security reasons.

It’s also advisable to beware of registered firms which don’t volunteer adequate information to the FCA since firms aren’t obligated to provide a lot of information about their business. When confirming the identity of any authorised firm on the FCA register, ask for the FRN (Firm Reference Number) as well as the contact details. It’s also good to call the firm back using the switchboard number on the register as opposed to any direct line they may offer you. If you can’t find contact details or the firm claims the details are outdated, call the FCA consumer helpline (0800 111 6768) for help.

Step 3: Check the FCA list of unauthorised firms

FCA has a special list (https://www.fca.org.uk/consumers/unauthorised-firms-individuals) containing all unauthorised firms. To avoid being scammed, make sure you check if the FCA has blacklisted the firm or individual/s you want to conduct business with. The FCA list contains all firms as well as individuals that the FCA has received complaints about. Although the list changes regularly, the FCA adds new firms and names as frequently. Please note that you shouldn’t assume that the firm or individual you are about to deal with is legitimate simply because they are not in the FCA list. The firm/individual may not have been reported to the FCA yet.

It’s also worth noting the FCA has another list (a warning list) http://scamsmart.fca.org.uk/warninglist/ that contains names of individuals and firms that contact people unexpectedly about investment opportunities. You can use this list to see the kind of investment opportunities, firms and individuals you should avoid.

Step 4: Conduct additional checks

Today’s scammers use tactics that keep evolving so don’t stop even after checking the FCA’s list of unauthorised firms. For instance, you should investigate the firm’s website using Companies House (https://www.gov.uk/government/organisations/companies-house) or directory enquiries to ascertain if the firm has issued the correct details on their website.

Step 5: Be cautious of cloned firms

Most scammers pretend to be subsidiaries of a company authorised by the FCA. The scammers usually claim to be overseas firms authorised to conduct business on behalf of FCA authorised firms. Beware of such firms (commonly referred to as cloned firms). To avoid being scammed by cloned firms, check the website of the authorised firm to confirm if the firm has subsidiaries or authorised partners.

Step 6: Stop sending money immediately

If you have already started conducting business with a firm but start getting suspicious that you are being scammed, stop sending money to the firm or individual in question immediately. If you have already surrendered your bank account details, inform your bank immediately.

Step 7: Beware of overseas firms

Most scammers today will present themselves as overseas firms making it hard for you to check and ascertain if they are regulated. Luckily, the FCA has compiled warnings from foreign regulators here: http://www.iosco.org/investor_protection/?subsection=investor_alerts_portal. These warnings are about foreign firms operating illegally and/or scamming people in the UK. Before dealing with any overseas firm/scheme, find out how that firm/scheme is regulated.

Step 8: Report unauthorised firms

If you suspect you have been dealing with an unauthorised firm, contact the FCA immediately through their consumer helpline number (0800 111 6768). The FCA has a reporting form that allows you to report as much information as possible about the ”suspect” firm or individual.

Step 9: Be cautious about further scams

Scammers take advantage of the fact that individuals who have been scammed will want to get their money back. As a result, beware of individuals or companies that call to assist/help you get your money back.

Further scams can assume many forms. For instance, you may be offered another deal that comes with some fees that must be settled before you can get your money back. You can also be threatened with some legal action if you request for a refund or stop sending money. Scammers also ask for personal information such as bank account details for them to send you a refund. Instead of getting back your money, the scammers can attempt to steal your funds and/or sell your personal information.

Step 10: Don’t forget about fake liquidators

The FCA has received numerous reports that scammers are impersonating liquidators/claiming to represent legitimate liquidators. Such scammers usually charge a fee, tax to sell/release/return your investment. You may also be asked for an upfront payment. Avoid such firms/individuals by all means. You can find legitimate liquidators by clicking here: https://www.gov.uk/find-out-if-a-company-is-in-financial-trouble

Summary

Although there may be other steps to follow when you want to avoid fraudsters and unauthorised firms in the UK, the above steps are the most important according to the FCA. If you follow them to the letter, you don’t have to worry about being a victim of any financial scam in the UK.

Donald Trump Wants To Scrap The Consumer Protection Agency, What Does This Mean For Borrowers In The US?

Donald Trump Wants To Scrap The Consumer Protection Agency, What Does This Mean For Borrowers In The US?

US President Donald Trump is facing immense pressure to get rid of America’s consumer protection agency CFPB (Consumer Financial Protection Bureau). This is according to the man set to head the agency. If this happens, rogue debt collectors, loan sharks, and payday lenders will have unmatched freedom to rip off American borrowers.

According to Randy Neugebauer who is slated to replace the current CFPB Director, President Trump is facing immense pressure from the Republican Party to break up the agency completely. The former Texas congressman held talks with the then President-Elect Trump shortly after his election victory in November.

While speaking to The Independent exclusively in his 1st interview since the new Trump administration took office, Mr. Neugebauer stated that his meetings with President Trump have involved discussions revolving around deregulating as well as gutting the CFPB.
Mr. Neugebauer went ahead to state that some of his colleagues are in favour of doing away with the agency completely. He is however of the opinion that it’s better to change certain aspects of the agency as opposed to doing away with the agency completely. Mr. Neugebauer feels that the government shouldn’t be telling the public what types of financial products are the best but rather, creating a safe environment where the public is safe from unfair lending practices.

This is where the CFPB comes in. The agency has the power to take any necessary action against companies which break the law. The agency also takes on cases revolving around race or age discrimination.

Under Mr. Neugebauer’s watch, the agency’s current form is likely to be dismantled which may result in the agency losing much of its influence. Mr. Neugebauer claims that American consumers are currently being suffocated by regulations. He prefers a consumer environment where consumers have the freedom to choose the loans they want whether the deals available are good or bad.

Mr. Neugebauer has stated that he is willing run the agency if appointed. However, it will depend on what the long-term plan of the agency will be. Although Mr. Neugebauer admits to having had broad discussions with President Trump, he goes ahead to state that he hasn’t discussed any specific job offer with the president.

Mr. Neugebauer has been on the record voicing his support for payday loan lenders, despite the apparent lack of transparency as well as crippling interest rate charges that have contributed to calls for payday lenders to be banned.

He also backs President Trump’s executive order aimed at reviewing the 2010 Dodd-Frank financial regulations. Mr. Neugebauer states that the Obama administration rules meant to get rid of risky lending practices were an overreaction. Mr. Neugebauer views the current regulation as blanket regulation meant for the whole financial market yet some entities weren’t part of the cause of the financial crisis that warranted the 2010 Dodd-Frank financial regulations. In his opinion and those of many others, the regulation went too far.
Under the current CPFB director Richard Cordray, customers who have been victims of credit scams or unfair banking sector practices have received billions in compensation. However, Mr. Neugebauer claims that the problem was overstated and individual states were doing a better job when compared to the CPFB.

He admits to the fact that there are people who will always try to abuse the system, however, action can and has been taken against such people.
Furthermore, the CFPB is already under threat given the federal appeals court ruling in October that the agency has an unconstitutional structure. The ruling also gave President Trump the power to dismiss the current director at will and appoint his replacement anytime even before his term ends in 2018.

The agency which came into being after the 2010 Dodd-Frank reform law was enacted is among former President Obama’s main domestic policy achievements. The achievement is, however, unpopular with libertarians who think it has resulted in unplanned long-term commitments that shifts from the initial objective. Most libertarians feel the agency should either be reformed or disbanded.

A bill has already been introduced by Representative John Ratcliffe and Senator Ted Cruz to disband the agency. If the bill is passed prompting the disbandment of the CFPB, the move will be hugely controversial. Many banking sector players have warned against such a move claiming it will do more harm than good.

The FCA ''killed'' Payday Loans But What Has Come After Appears To Be Just As Bad For Borrowers

The FCA ”killed” Payday Loans But What Has Come After Appears To Be Just As Bad For Borrowers

Many people in Britain applauded when the FCA (Financial Conduct Authority) put an end to Wonga-style payday loans back in 2015. Fast forward two years later, the applause is over. In fact, fear has set in over whether the FCA’s payday loan assault has resulted in a new uncontrollable headache for borrowers.

The FCA has gone as far as launching an investigation on the impact of the payday loan cap on borrowers. There is evidence from numerous industry sources (debt charities and industry groups) suggesting that there is an increasing number of people who have been completely locked out of the credit markets or have been forced to turn to high-cost loans.
According to Jane Tully, Director of External Affairs at Money Advice Trust, it is possible to ”regulate away” supply but you can’t ”regulate away” demand. Simply put, the FCA’s actions only dealt with the supply of payday loans (payday loan lenders) but didn’t think about the effects on borrowers.

According to Tully, payday loan problems have been displaced. There are many people today who are accessing many other forms of high-cost credit because they have no option. Such people have a higher chance of falling into debt now more than ever.

Although the FCA payday loan cap was designed solely to tighten lending practices as well as protect borrowers, the cap has had negative effects such as killing the supply of payday loans. This has, in turn, left many people with fewer suitable short term loan options.

Before the cap, the payday loan industry had two main industry players namely; Wonga, and Dollar Financial. These dominant payday loan lenders are in the process of being forced out of the payday loan lending business.

Wonga’s revenues dropped by a record 64% in 2016. Dollar Financial has already closed hundreds of Money Shop stores and put their payday loan business up for sale.

According to the CFA (Consumer Finance Association) C.E.O., Russell Hamblin-Boone, the payday loan industry markets to a higher demographic, however, this has attracted some unforeseen consequences. The CFA represents twelve of the biggest payday loan lenders in the UK.

According to recent consultations carried out by the FCA, there is a sharp increase in the number of UK citizens missing their utility bill payments in the past two years.
According to debt charity; StepChange which focuses on individuals facing financial distress, over 40% of all its clients miss one or more bill payments every month. StepChange has also discovered that 34% of all individuals who are denied payday loans turn to other types of short-term credit.

According to StepChange’s policy adviser, Laura Rodrigues, those people who miss bill payments state that they don’t have adequate money to cater for all their major expenses. Rodrigues also recognises the fact that there is a gap in the market that has been created by the FCA cap. There are few suitable alternative forms of short-term credit which exposes possible FCA social policy issues.

According to the Consumer Finance Association, approximately 600,000 people struggle to get short-term loans in the UK as payday lenders continue exiting the market. The apparent squeeze on short-term credit supply has also forced people to fall into the hands of unscrupulous lenders now more than ever before.

Individuals who have been shut out from accessing short-term loans because of the tighter affordability checks have been forced to turn to high-cost credit products such as logbook loans, unauthorised overdrafts, guarantor loans, etc., which aren’t price capped or haven’t undergone serious regulatory scrutiny. According to the FSCP Chairman, Sue Lewis, the same protections applying to high-cost short term loans should apply to all other types of credit.

Although influential groups like the Financial Services Consumer Panel (FSCP) which advice the FCA have requested the government to regulate these types of loans the way payday loans are regulated, nothing has been done so far. The FCA, however, plans to lay out a post-cap policy this summer.

Pension Scheme Could Earn Britons Hundreds of Pounds Monthly if Used Before April 5

Pension Scheme Could Earn Britons Hundreds of Pounds Monthly if Used Before April 5

Britons who have reached retirement age are being urged to increase their state pension income by taking advantage of a government offer that is due to be withdrawn on April 5th.

The scheme allows all Britons who missed out on the recent state pension introduced in 2016 to trade in a lump sum in exchange for a generous (index-linked) income for life. Any person who attained state pension age before 6th April 2016 has approximately two weeks to take advantage of the scheme which requires Class 3A national insurance as a pre qualification requirement.

According to Steve Webb, Former pension minister & Royal London policy director, retirement products working in a similar manner pay out two to three times higher than what annuities pay. Besides offering extra income, the scheme also offers a 50% payout to survivors when a pensioner dies.

In essence, a 65-year-old pensioner can trade in £8900 for £520 annually which would increase according to CPI inflation figures every year. The same pensioner would get just £195 annually or £347 after inflation adjustments if he/she bought an index-linked annuity.
The total cost of purchasing additional state pension under the top-up scheme depends on an individual’s age as well as the top-up amount. However, there is a maximum amount set at £25/week or £1,300/year. According to Mr. Webb, the scheme is attractive to individuals with a small pension/saving pot. The scheme is also attractive for women as well as individuals in good health since they are bound to live longer.

The scheme offers better value when compared with the annuity rates available today in the market. It’s a great way to boost a person’s recurrent income according to Mr. Webb. As a result, anyone who is eligible should consider taking advantage of the scheme before the April 5th deadline.

How Do You Plan For Retirement Successfully?

How Do You Plan For Retirement Successfully?

We all want to have a stress-free retirement. However, very few people give much thought to saving or investing for the future. Those who have taken some steps agree to being overwhelmed, daunted and bored by the entire process. The good news is; successful retirement planning doesn’t have to be boring. It doesn’t have to be overwhelming either. Here’s what you should do to retire successfully.

Step 1: Know your retirement investment options

To retire successfully, you need to invest in things that generate income for you long after you have stopped working. With that in mind, setting up a fixed deposit savings account won’t get the job done. In most cases, savings don’t earn enough interest to cover inflation and leave enough income behind. As a result, you need to consider other options. There are many investments specially meant for individuals planning for retirement. Employers have special retirement investment options for their employees. The government also offers the same. It’s important to take advantage of such investment options but first, understand how they work. Invest in financial education.

When considering retirement investment options, focus on the risk/reward ratio. You should avoid investments that expose you to a lot of risks for obvious reasons. Your retirement funds need to be secure. Nevertheless, the investment option/s you choose should reward you accordingly. Retirement vehicles such as; defined benefit plans, company pension plans, individual retirement accounts, etc. are great. If you don’t mind taking more risk for a higher return, you can consider portfolio investments such as; stocks, bonds, mutual funds, annuities, cash investments, etc.

Step 2: Plan meticulously

This step is obvious but commonly overlooked by many people. Saying you want to retire successfully won’t get you anywhere. You have to formulate a concrete plan to kick start the process. A plan gives you a clear vision for the future. A plan also breaks down the entire process into small manageable steps. Most people become overwhelmed by retirement planning because they look at the entire process as a whole. Planning for 20-40 years of your life can be overwhelming if you look at everything as a whole.

Furthermore, successful retirement planning is all about making clear, definitive steps as opposed to random ones. Financial success isn’t about making one big decision but making small decisions with one big goal in mind. A good plan makes everything easier and gives you direction. You increase efficiency and waste less effort. There are many great planning tools available online today so, it shouldn’t be a problem creating a great retirement plan. The most important idea in every retirement plan is to make sure you save enough and make the most use out of your savings to create long-lasting and growing income streams long after you have retired.

Step 3: Make lifestyle adjustments

To retire successfully, you need to compromise on something. Most people want to be financially free and lead a great lifestyle at the same time. It doesn’t work like that! You need to make lifestyle sacrifices initially. This step is crucial because it can jeopardise a great retirement plan. The most important principle of wealth building is investing/accumulating assets. You will never be rich/accumulate enough money for retirement if you don’t control your expenditure.

Step 4: Start immediately

Time is crucial when planning for retirement. Your probability of success is higher when you have more time. Furthermore, procrastination is among the main causes of failure in life. To retire with enough money, you should start acting immediately. Procrastinating only pushes your retirement date further. You also have less time to make mistakes and recover from them if you procrastinate.

Step 5: Take full responsibility every step of the way

Last but not least, you need to own the entire process. Planning for retirement successfully takes serious commitment and consistency. You have to take all the necessary actions and adjust accordingly when the need arises. If you don’t like the pace at which you are going, make the necessary adjustments. If you aren’t content with the results of a certain retirement investment option, look for another one. You can’t afford to rely on anyone 100% when planning for your future. You must do your homework. It’s important to get expert advice, however, own the entire process. Invest in financial education so that you can be able to make wise decisions on your own.

Summary

Planning for retirement successfully shouldn’t be a daunting task if you follow the steps discussed above to the letter. Investing in financial education is the first and most important step. You also need a concrete plan. You should also make the necessary lifestyle adjustments and start taking action immediately. Lastly, take full responsibility. Don’t blame someone else. You are solely responsible for your financial future.

What Questions Should You Ask Before Taking A Loan?

What Questions Should You Ask Before Taking A Loan?

Many questions linger in the minds of borrowers before they take loans. When you consider the implications of taking a loan and being unable to repay it, it’s important for every borrower to be properly informed from the onset. In case you are wondering what you should ask yourself and your bank before you take a loan, here are important questions to consider.

1. Do I really need a loan?

It’s easy to get a loan nowadays, so it’s crucial for you to ask yourself if you really need one. Banks advertise loans all the time. However, you need a better reason to take a loan. If you don’t have a reason of your own, let your bank give you a good reason. Some banks have business loan programs meant to provide people with business loans as well as the expertise needed to set up prosperous businesses. If you’ve always wanted to start your own business, you can consider such a program.

2. What type of loan is the best for me?

You should ask yourself and your banker this question before you decide to take a loan. This question is important since there are many types of loans ideal for different purposes. For instance, a payday loan is perfect for emergency expenses. However, it’s not handy for starting a business. Personal loans also have notable benefits over business loans and vice versa. Depending on your reasons for taking a loan, your banker should be best suited to suggest the best type of loan for you. Nevertheless, you should be able to assess if the type of loan you are about to take is actually the best type of loan for you. You can assess things like interest rate charges among other repayment requirements i.e. the term of the loan to decide if the loan in question will work for you.

3. What’s the total cost of the loan?

This is another crucial loan question to ask yourself and your banker. It’s worth noting that loans are usually structured in terms that can be difficult to understand. Some lenders actually do this on purpose. The chances of a loan being more expensive than you actually think are very high so, make sure you find out the actual cost. You should do your own calculations if you have to or ask your banker to do the same on your behalf. This question is very important since the actual cost of most loans is usually hidden in confusing financial jargon. Don’t take chances. Know the total cost of any loan beforehand otherwise, you won’t be able to make an informed decision.

4. What happens when I repay early?

It’s also crucial to find out if there are any penalties if you repay your loan early. Most lenders don’t want you to repay your loan early since they earn most of their money in the form of interest income. It’s usually in the best interest of banks for borrowers to service the loan for the entire term. To discourage early repayment, banks usually have penalties. Although most banks disclose these penalties, some may hide them in the fine print. It’s crucial to find out if there are such penalties and when they apply if you are interested in repaying your loan faster.

5. What documents do I need to provide?

To get your loan amount in record time, you need to ask yourself and your bank what documents you need to provide to qualify for the loan in question. Business loans require business documents ranging from licenses to financial reports. Personal loans require bank statements, pay slip/income information, etc. Since different lenders tend to have different requirements, find out the type of documents you need in advance and provide them with your application to reduce the time it takes for your bank to process your loan.

Summary

You shouldn’t take a loan because everyone else is taking one. You shouldn’t assume the total cost of your loan either or take any loan that comes your way. It’s also important to know all the requirements for qualifying beforehand to avoid wasting time. Loans come with many requirements, risks, and costs that you should be aware of before committing yourself.

Saving Money vs. Taking Out Loans

Saving Money vs. Taking Out Loans

It is always advisable to build an emergency fund by saving a portion of your income every month. An emergency fund is always handy when you incur unexpected expenses such as; medical bills and car repair bills. You can’t afford to put such expenses on hold. If you don’t have savings, you will be forced to take out short-term loans such as payday loans to cater for the expenses. Saving money has always made sense. There are however exceptions. Below is a discussion to help you make an informed decision if you are torn apart between saving and taking loans.

Saving money is highly recommended

You should always strive to save a portion of your income every month whether you have loans or not. Developing a saving culture is important because there will always be something that you can buy with excess money. Furthermore, life is full of eventualities. You can fall sick, get involved in a car accident, lose your job, etc. When any of these eventualities happen, you need to have an emergency fund to cushion you before you get back on your feet. In such cases, you may not be able to qualify for a loan. Your savings will be your last resort. Having substantial savings also gives you that much-needed peace of mind. Many people suffer from financial stress because of living from hand to mouth. You need to save to avoid unnecessary stress when you incur unforeseen expenses.

When is taking loans better than saving money?

When you have a business idea that requires a substantial amount of money, it may be better to take a loan than to try and save up money. Taking loans for investment purposes is advisable. It can take you decades to save up enough money to start your business. Furthermore, most business opportunities don’t remain viable for long. You will almost always lose out if you save up to start a business. Savings can only take you so far if you don’t have a substantial income. There is nothing wrong with taking a business loan provided you have done your research. You should also make sure you get favorable loan terms.

Short term loans like payday loans are also ideal when you don’t have access to your savings. If you have a locked your savings in a savings account, you may not have immediate access to your money in case of an emergency. Payday loans come in handy in such cases. The loans are available instantly at reasonable interest rates if you borrow from a reputable payday loan lender or use a licensed broker like Swift Money. Payday loans are also easier to access. You can apply online. Some savings accounts aren’t accessible online. In cases where you don’t have the luxury of time, it’s always better to take out a payday loan or other types of short term loans instead of waiting to save up.

Saving and taking loans

There is nothing wrong with saving and taking loans at the same time. As long as you qualify for a loan and you have a good reason for taking the loan, you can save while you take up new loans. You should stop taking up new loans if you will have problems repaying them. However, don’t forget the benefits of taking up loans. For instance, you are bound to boost your credit score by taking up new loans provided you service them as required. Savings don’t offer such benefits.

Should you start saving after you are debt-free?

Although it is better to start saving when you are debt-free, in most cases, it may take too long for you to start saving if you focus on clearing all your debts first. Some debt i.e. home loans take more than a decade to clear. Home loans can take less time if you channel your savings to repaying the loan. However, it’s not advisable to do so if you don’t have a substantial emergency fund. Your priority should be setting up an emergency fund. Once you have done that, you clear your debt and then go back to building your savings account.

Furthermore, it may make more financial sense to service debt than repay it as soon as possible. Most lenders charge fees for early repayment making it better to continue servicing debt. You may also be getting a loan at a very good rate.

Summary

When it comes to saving vs. taking loans, it’s a matter of perspective and scenario. It is prudent to save in most cases. In other cases, however, it may be better to take loans. In a nutshell, it is up to you to analyse your current situation to be able to make an informed decisions.