Credit: Is It Always Bad?

Credit gets a bad wrap in financial circles, especially those focused on helping folks get out of debt. However, is getting credit always such a dangerous thing? We’ll investigate below. 

Credit is Good - How The System Works

One reason that credit could be said to be good or at least valuable is that it is the system that allows you to make big-ticket purchases without having the cash to pay for them outright. Yes, OK, in an ideal world we’d all buy our yachts, houses, and vehicles in one single purchase, but in reality, this hardly ever happens. Despite this situation though, we can see get access to these things, and that is largely due to credit. 

Credit is Bad - Can Create Debt

The biggest problem that many people have with credit is the charges that are made to use it. These usually come in the form of interest. This is a fee that you pay on top of the money you owe back. 

The problem here is that if the interest rate you pay is set high or is not fixed, you can end up paying a large sum back, while still not paying off too much of the actual money that you owe. Something that can make it very difficult to get out of debt. 

Credit is Good - Choose To Use It Well

However, it is important to note that the issue with credit isn't strictly cut and dried. In fact, you have to remember that it the credit providers and cards are something that we choose to use. That means if we make a good choice it can be a helpful thing. 

Some people argue that this choice reduces when you don't have a good crediting rating and this forces you to pick credit offer with high repayments rates. However, as you can see from this post, it is just about doing your proper homework and finding the best offers out there to suit your needs. Then you can be in control of your credit borrowing instead of it being the other way around. 

Credit is Bad - Perpetuates The System

Some folks believe that the whole idea of credit is wrong, and it plays into our materialistic society. They suggest that it is something that keeps us in the trap of wanting things that we don't really need or can't afford just because we are exposed to them via adverts all of the time. To them it keeps us trapped in a system that works purely on consumerism and not need.

Credit is Good - Provides For Emergencies 

One factor that the critics of credit often forget is that for many people it is their only recourse when in the midst of an emergency. That means they don't put their grocery shopping on their credit card, and a trip to the mall certainly isn't something that they would use it for either. 

Instead, having access to credit means if they encounter a medical problem, or their vehicle is involved in an accident they can cover this cost. It also means they can pay and it won’t eat into the rest of their budget that is earmarked for other things. 

Yes, sometime it means paying off over a longer period. However, it also means you can set a payment that is affordable and won't interfere with your families everyday life style will still allowing the debt to be paid off. 

Credit is Bad - Lenders don't always check 

Last of all, some people perceive credit as bad because some lender are unscrupulous on who they are lending to. This means they grant credit without doing the proper checks and at a rate that most people struggle to pay off. Something that can cause serious problem for the browser while just making added money for the lender. 

Luckily, the financial industry has clamped down on these sort of lenders recently and the system is much more closely regulated. Something that makes it a lot harder for borrowers to get into unreasonable debt solely by using credit.  

In Conclusion 

Unfortunately, most us cannot change the system or even go against it in our everyday lives. That is why, in conclusion, it is much more productive to see credit as useful service that can help out in emergency situations such as when medical fee need to be arranged, and when we need to make larger purchases. Credit, in fact, could be said to be a good thing for the most part, as long as we handle it correctly.

Credit Score Myths Debunked

Our credit score is essentially our license to spend and borrow money. But few us really understand what makes a good credit score or what makes a bad credit score. This has led to many myths being developed. Here we look at these myths and determine which ones are true and which ones are false. 

Your credit score is an actual number

FALSE. A credit score isn’t a fixed grade from 1 to 10 as some of us believe. In fact, when lenders or creditors check our score, they’re simply getting information based on a variety of sources, which then leads them to make their own decision based on the materials available. Because of this your credit score can change depending on the person who checks it. It’s all up to how trusting that person is, and some people may be more trusting than others.

You can’t get loans with bad credit

FALSE. As already mentioned, some lenders are willing to take the risk with low credit score holders. In fact, there are certain installment loans out there that are specifically catered to people with a low credit rating. If you have a low score, target these specific lenders and ignore all others – every time you are rejected a loan this goes on record in your credit history for other lenders to see, and too many rejections could start to put off even the most trusting of lenders.

No credit history can be just as much of an obstacle as a bad credit history

TRUE. Without any history of borrowing, lenders are unable to tell how trustworthy you are. It’s for this reason that banks recommend taking out a credit card and buying small items on it, simply to have some form of credit history.

Getting on the electoral register will improve your score

TRUE. A good credit score isn’t all about how good you are at paying off debts. Hints of fraud can also make lenders wary when checking your credit rating. This could involve having two bank accounts signed to different names, or two bank accounts registered to different addresses. Fraudsters may also often avoid going on the electoral register as this is used for criminal investigations and has details such as your current address and date of birth. Not being on the electoral register, even if you don’t ever plan to vote, could imply to a lender that you are trying to act under the radar and that you could be about to run off to Mexico with any money they lend you.

Your credit history stays with you for life

FALSE. All your early debts and bad decisions involving pay day loans will generally be wiped from records – but not until after six years. This means that by being a good borrower and spender for six years, you could erase any trace of a bad credit history.

Uncovering The Terrible Consequences of Bad Debts

Debt should be a good thing - and everyone sees it as such at first. You don’t have enough money to afford a house or a car, so you borrow it. The trouble begins when it turns into bad debt - and there can be severe consequences.

The differences between debt and bad debt are relatively easy to understand. Debt is affordable and can improve your life. Bad debt, however, is not affordable. The impact it has can be frightening, stressful, and it can start to take over your life.

In today’s guide, we’re going to take a look at some of those vital consequences bad debt can have on your household, family, and lifestyle. And we will also give you some ideas for escaping from this ever-increasing problem. Read on to find out more as we uncover the true - and terrible - consequences of bad debt.

The credit impact

First of all, the most obvious impact of bad debt is that your credit report will take a significant hit. Without a decent credit score, you can find it hard to get a mortgage, loan, or credit card. Poor credit ratings can even affect your ability to get credit from a simple store card, or take out a contract on a cellphone. You might struggle to get a plan for your utilities at home, or even rent a home. And it can also have a bearing on your chances of getting a job. More employers than ever are running credit checks before offering candidates jobs. Many people will find it tough to lead a normal lifestyle, just because their credit score is bottoming out.

Higher interest rates

Bad debts come higher interest rates on your loans, credit cards, and everything else you can imagine. As a bad debtor, you are viewed as a riskier borrower than someone with good credit. In simple terms, you end up paying for this risk with a higher interest rate. It means the second you start to spiral into debt problems, you end up paying more. It is critical that you stop this spiral downwards in its tracks to prevent your issues becoming impossible to deal with. Find a nonprofit debt charity or organization to help. Alex Kleyner is the CEO of National Debt Relief. He suggests seeking help from debt relief organizations with A+ ratings from the Better Business Bureau.

Stress and anxiety

People with bad debts live in deep fear. When the phone rings or the doorbell goes, their first thought is that a debt collector is waiting to pounce. Letters will fall through the door with alarming regularity - and demands for payment will increase. But when you have no way of paying, the situation just escalates. It is critical that you address these problems as soon as possible. The longer you leave it, the worse your situation will become. And, the more likely your stress levels and anxiety will increase. Often, hiding away and not responding can lead to these feelings intensifying. However, it’s important to understand that being in debt is not illegal. Tackling your debts head on can help you reclaim some control. Once you start chipping away, you will know it will be possible to get there in the end.

Medical impact

Stress and anxiety are two of the major issues that debt can have on your health. But these two conditions can also lead to other, more dramatic problems. Stress is known to be a cause of stroke, high blood pressure, and heart disease, for example. People with stress are also more likely to develop stomach problems and ulcers, too. And anxiety can lead to severe mental health conditions surprisingly fast. If you have bad debts and your health is suffering, get help as soon as possible. Your doctor will be able to outline a course of action that you can take.

Criminal issues

Having bad debts can also lead you to make desperate decisions. When you can’t find the money to pay people back, there is a lot more temptation to steal, for example. You will also be more open to serious problems such as blackmail. People without money will often do anything they can to survive, and it doesn’t take long for it to happen. Given that most Americans are only one paycheck away from financial ruin, it is a grave concern. While your situation might be comfortable right now, how confident can you be that things won’t change? A job loss or serious illness can lead to you dropping into poverty within a few months - and it can be hard to climb back out. Desperate times call for desperate measure, so it’s vital to understand that even a saint can sin when in debt.

Relationships

Bad debts can also cause a lot of problems in your relationships. Again, stress is a significant factor. There will be many moments of conflict, and it’s a highly volatile situation. Any relationship, no matter how close, can undergo a severe amount of strain. Don’t forget, your kids will be affected by bad debts, too. They will be more aware of your financial hardships than you think. And, they could start missing out on things at school, because you just cannot afford them. In fact, many children in households with bad debts experience stress themselves. Plus, they are more likely to develop mental health challenges as they get older. Be wary of the strain bad debts can place on your relationship. Get help if you need it, and always try to communicate as well as possible.

Working life

Finally, your working life can be affected by your household debts, too. With so much pressure on your plate at home, workplace productivity is likely to take a dip. You will have a lot on your mind, from worries about money to fear of debt collection agencies. Ir is also likely you will miss more days off sick than you used to. The result could be many disciplinaries, and perhaps a termination of your contract. If you are experiencing debt problems, it might be worth talking to your employer. Good bosses should make allowances for you, and they might even try to find you more shifts or work to ease your financial burden.

Why You Should Choose a Cash Loan Over a Credit Card

Unexpected emergencies can happen to all of us. Your house might need urgent repairs, the car could break down suddenly or a relative might need help. In almost all household emergencies, you are going to need access to funds to fix things or simply to tide you over. For most people who don’t have substantial amounts of cash available in a savings account, borrowing will be the only way to cope.

The temptation will be to either reach for your credit card or to apply for a new one. Credit cards represent a simple and no-hassle way to access thousands of pounds in borrowing quickly and easily. You simply use them as you would your debit card and either pay off the entire balance within a month or make the minimum payment and accrue interest on the outstanding amount.

But although credit cards are a simple way to borrow money, they do come with a number of financial health warnings that you should consider before you start racking up significant sums on your Visa, MasterCard or American Express account.

Cash loans are a good alternative to credit cards if you need to borrow a significant amount of money. Although it might take a little longer to get access to the funds you need, you may end up paying less in interest as well as having a clearly defined repayment schedule which will help you when it comes to budgeting and forecasting your household finances.

Interest rates

Credit cards – Many credit cards are offered with what appear to be very attractive interest rates. While 0% offers dried up in the immediate aftermath of the financial crisis, these are starting to make a comeback with a number of the larger banks offering zero rate credit cards. But don’t be in any doubt – these headline figures hide a much more complex picture: 0% APRs are often only offered on balance transfers (so you’ll need to have an existing balance on another card to take advantage of these rates) and there are usually administration fees - which can be as high as £100.

The low interest rates are usually only offered for a specific period – normally six months but sometimes for as long as 18. After the introductory period is up, your card balance will h switch to a variable APR with many cards having very high interest rates – sometimes in excess of 30%.

Cash loans – With a cash loan you will generally know exactly how much you’ll be repaying in interest over the term of the loan. That makes planning your household finances and budgeting accordingly much simpler. Many cash loans have a fixed APR, meaning that your repayments will not change throughout the course of the loan and many of them have lower interest rates than those charged on credit cards which are out of the introductory 0% period.

Access to cash

Credit cards – If you have a household emergency – be it a fire, the failure of an essential piece of equipment or the discovery of some sort of structural problem – the chances are that you are going to need somebody else to carry out the work for you. Few, if any, tradesman accept credit cards – they are going to want paying either by cheque or in cash.

You can get cash out on a credit card but you’ll find that you rack up large charges – or “cash advance fees” – in the process. The credit card company will also charge you a separate interest rate on a cash advance meaning that you won’t get a 0% offer on it. And you will be limited to the amount you can withdraw each day meaning that if you need a large amount quickly, a credit card may make this rather difficult.

Some credit cards come with something called credit card cheques. But don’t be fooled – these are not like the cheques you use with a current account. You’ll be charged a cash advance fee and higher interest rate on them meaning that you could rack up large fees if you need to write one for a significant amount.

Cash loans – With a cash loan, you’ll know how much you want to borrow and will be able to negotiate an interest rate on that amount. Once you’re approved, the money will usually be paid into your bank account within days or hours and you’ll be free to use it as you wish. That means that you’ll be able to write a cheque for the work you need carrying out without worrying about cash advance fees or other administration charges.

Consolidation

Credit cards – Using credit cards may be easy but unless you are very disciplined, you can end up racking up large amounts on more than one of them when you start spending beyond your means. That may be OK when times are good or when you are paying low interest rates on some or all of them, but it gets harder when you’ve maxed out several cards and find yourself paying hundreds of pounds in interest charges every month just to stand still.

With credit cards, once you’ve used up all the introductory offers you can get and your credit rating starts to suffer, you’ll find that you are more likely to have an application for a new card declined. When this happens, you won’t be able to transfer your balances on existing cards onto a new one and you will be stuck with high interest rates on more than one card.

Cash loans – If you’ve got a number of debts and are paying more in interest than you would like, you might like to consider a cash loan to consolidate your debts. It will allow you to pay off some or all of your balances and reduce your repayments with a single monthly amount. You will also have a fixed term for repaying it meaning you can plan accordingly.

Article provided by Mike James, an independent content writer in the financial sector – working with a selection of companies including technology-led finance broker Solution Loans, who were consulted over the information contained in this piece.