If you’re having a hard time making ends meet and it’s causing you concern financially, you might feel tempted to apply for a loan to cover your expenses. However, before pressing ahead, remember that a loan isn’t always the ideal solution to your money problems.
Debt management is a national issue that needs addressing. The average total debt per household in the UK is £54,952. There were 22,503 individual insolvencies in England and Wales just between the months of April and June 2016, with 3,537 of them being bankruptcies and 12,225 of them being Individual Voluntary Arrangements (IVAs).
Individual insolvencies have increased for the fourth consecutive quarter. With this information at hand, we can see that debt is undoubtedly a huge concern for many of us in the UK, and yet not many of us openly discuss our debt management solutions or the implications that our financial choices have on our health, our credit scores and our future.
Before taking out a loan, consider the following points which will help you make the important decision of whether or not a loan is right for you at this moment in time.
Are you borrowing from Peter to pay Paul?
Taking out one loan to pay off another is rarely a good financial idea, but it is still a very common occurrence. More than half of the people taking out a personal loan are doing so to repay debt of some sort.
This is a form of debt consolidation, and is attractive to many as the individual only has one bill to pay per month. However, if you are already in debt, it is unwise to take out more credit, as spending behaviour rarely changes. People still use their credit cards, meaning their debt continues to mount. If this is the case for you, it won’t be long before your debt spirals out of control and you are left with a situation that feels insurmountable.
Do you have a plan to repay the money?
Taking out loans may have become normalised in the UK, but it is still a serious financial undertaking and a great responsibility. Interest means that you usually end up paying back more than you borrowed. If you are unable to make your monthly repayments, then the amount you stand to repay will increase as time goes by and, before you know it, you might be looking to debt management options such as DMPs or IVAs to resolve your problems.
Before you take out a loan, consider whether you will be able to reliably meet the monthly repayments. If you are, then your credit rating won’t suffer. Conversely, lenders will be disinclined to lend to you in the future if you show yourself to be unreliable. Assess your incomings, debts and outgoings and determine whether or not this loan is financially viable.
Have you applied for a number of loans recently?
When deciding whether or not you are a good candidate for a loan, the lender in question will refer to your credit report. The report will show your lender how many loan applications you have made over the past six years. If you have made multiple applications over a short period of time, this will indicate to your creditors that you are desperate, making you an unappealing prospect. It will also suggest to your lenders that you, more than likely, have been rejected from many other creditors, which is another bad sign.
To resolve this situation, apply for loans sparingly. Space them out and only apply for one if they are strictly necessary. Some banks even have websites you can use that will give you an indication as to whether or not you are likely to be accepted for credit. This means that you don’t have to formally apply, and your search will therefore not be shown on your credit report.
Do you really need this loan?
Consider whether or not this loan is entirely necessary. If you are planning on buying a car to get from home to work, then this could be a good investment — but have you compared the cost to taking public transport instead? If you are taking out a loan to go on holiday, then regardless of how tempting it might be, you should probably refrain from approaching a lender. Everyone needs to treat themselves every now and then, but don’t do it at the expense of your credit rating.
Where to go for advice and assistance
If you are suffering from debt that you can’t climb your way out of, then it is best to see a debt management professional. Insolvency Practitioners (IPs) have access to modern debt management software that will take into account your financial situation and put together repayment plans based on what is realistic for you.
You don’t need to cope alone and you don’t need to take out another loan to resolve your situation. There are advice agencies open to you if you are continually looking for short or long-term goals to keep afloat. Consider contacting the Citizen’s Advice Bureau, the Money Advice Service or the Government Debt Advice site. Remember that debt can seriously affect your mental wellbeing. Rather than dealing with everything alone, find a professional who will be more than happy to give you all the help you need to turn your life around.