Credit Cards

Should I Extend my Credit Limit on my Credit Card?

Many of us have credit cards and from time to time our lender may decide to offer an extension on the credit limit on the card. You may think that this is a fantastic thing as it means that you will be able to spend more money on the card, but it may not be such a good idea. It is wise to think about the consequences of having this opportunity.

To start with there is a big risk factor. If someone steals your card or gets hold of your credit card details, they could go shopping with your card. The higher your credit limit; the more money they could potentially steal from you. Although most credit card companies offer some protection against this and try to recover the money spent and get it back to you, there is always a risk that they will not be able to do this and you will have to foot the bill.
The second risk is one from the card holder(s). If there is a large credit limit then they will be able to spend more money on it should they want to. This means that they would be able to get into a lot more debt. You may think that you will be safe as you had good self-discipline and you will just keep the extra allowance for emergencies but you could find that you end up spending money just because it is there.

If you clear the whole balance each month then you might think that this will help you out as you will not be piling up the debt or paying interest. However, if you spend more money than you can afford to repay, because your credit limit is so high, then you could be in trouble. You will have to make sure that you keep a close eye on your spending to make sure that this does not happen.

Many people only spend minimum amounts on their credit card and think that having a bigger credit limit will make no difference. However, you never know if you might be tempted to spend a bit more, because you know that you can and then get into trouble paying it back. It is worth considering how you will pay back the extra money before you start spending more on there.

If you only pay back the minimum each month, then you will already be paying back large amounts of money in interest. If you extend your credit limit and spend that money then you will be paying out even more in interest payments and this could be extremely costly. It is easy to ignore these payments going out and think that as the interest is affordable it is all okay. However, if you take the time to calculate how much you have actually paid out in interest payments over the years, you could get quite a shock as to how much you have paid. This is where having an increase to your credit limit could be a big problem as you could end up building your debt up to such a high level that it becomes overwhelming and you wonder whether you will be able to pay it back at all.

Of course, there are some advantages to increasing your credit limit. You may like the convenience of using your credit card during the course of the month and then paying it all off in one go when you get paid. This can be extremely convenient and as prices increase overtime, it could be extremely useful to have an increase in the credit limit so that you can continue using the card as you always have done.

It is worth thinking hard about your credit limit though. A card issuer may just automatically put up the credit limit and if you want to reduce it you can contact them and ask them to do so. You could perhaps ask them not to put it up so high as they have or something like that too. They should be pretty flexible and you should be able to negotiate with them so that your credit limit is at a level that works well for you.


Are There Certain Types of People that Should Avoid Borrowing?

Borrowing is something that most people do from time to time. Whether it is getting overdrawn at the bank, using a credit card, buying a home or a car or getting a personal loan, most people will have borrowed money at some stage. However, should we be wary of borrowing and are there some of us that should never borrow money?

Some people do find the idea of borrowing money extremely stressful. They worry that they have a debt hanging over them, stress about making the repayments and wonder what might happen should they not manage to make a repayment at some point. This sort of worry and stress can be really difficult to cope with. It can have effects on general life, making you feel unhappy and it can even have an impact on your physical health making you more vulnerable to illness. Therefore it is wise to think about how you will feel about being in debt and if you think it will be a source of stress, then it is better to avoid it if you can.

There are some people that get very carried away with spending money. They really enjoy shopping and spending and will just buy things for the sake of it. If these sorts of people borrow money they could end up borrowing more and more so that they can buy as many things as possible. This could lead to a huge debt that could take a very long time to repay. They may even get into a situation where their monthly loan repayments are higher than their salary. Therefore if someone is like this then it is best that they completely avoid most types of debt so that they do not waste the money.

When you borrow money you have to repay it. Most debt requires a monthly repayment amount for a certain term. This means that you need to be sure that you will be able to cover those repayments not just in the short term but for the whole term of the loan. This could be a long time and so you need to think hard about it. Consider how secure your job is, what expenses you may have in the future and whether interest rates are likely to go up. All of these things could have a detrimental effect on your ability to make the repayments.

If you have calculated that you will only just make the repayments on the loan then it is worth thinking hard about whether it is the right thing for you. If Bank of England interest rates go up then it is highly likely that you will find that the interest rate on your loan will go up as well. This could mean that the repayments are then unmanageable and this could potentially be a disaster for you. Missing repayments means that you will have extra charges and will have to pay back even more money before the loan is paid off.

If you already have a lot of debt, then getting an additional loan is probably not a good idea. It is wise to think about how you can pay back what you owe before borrowing even more money. You may find that this extra loan is enough to mean that you can no longer manage the repayments and that you will really struggle as a result.

If you have enough savings to cover the cost of the item you are borrowing money to pay for then you should use these instead. Although it can be difficult to spend savings, as it is hard work to get them, if you do not do so, you will be worse off financially. Therefore anyone with savings should not be borrowing money or at least should use their savings up first.

It can be easy to think that if a lender considers you worthy of having a loan then it is right for you. However, we are all different in our attitudes and our lifestyle and so it is not just want the lender sees that could influence whether the loan is right for you or not. It is something which you should give a lot of thought to because it could have a huge influence on your life.

Student Loans

Will the Government changes in Student Loans be Relevant to me?

Recently the UK government has announced some changes to student loans. These seem to be apolitical action to try to win back student votes but it is worth looking beyond that to see whether they could be relevant to you.
The most recent change is that students will only have to start repaying their loan when they are earning over £25,000 compared to £21,000. There has also been a freezing on fees at the moment. However, the government has said that it will be doing a full review of the student finance system soon so there may be other changes taking place too.

The difficulty with student loans is that they are government led and so that means that changes can occur, unlike with a bank loan when they are legally bound to stick to their own terms and conditions without good warning and changes have to be reasonable. So something that looks great now, may not continue in the future, particularly if the government changes.

The earning threshold change is great news for anyone who is earning or likely to earn within this threshold, they could end up saving a nice chunk of money. Calculations have shown that this change will save a typical student £15,700 over the thirty year repayment term of the loan, but it is hard to know if you are a typical student. It will actually make no difference at all to those earning less than £21,000 and for those very high earners it will mean that although they will still repay their full loan, it will take them longer and so they could end up paying more in interest payments than under the old threshold. However, about three quarters of students do not repay their loans in full and these are the ones that will benefit. So whether this will be beneficial for you will depend on how much you are earning or will be earning in the future.

The fact that University fees are not going to be increased will only affect a few people. It will have a big effect on Universities themselves as they do not have the opportunity of increasing their income per student, although they may be able to make up for this by increasing their intake and their class sizes. With regards to students it will only have an impact on the higher earners that would have paid back the loan in full. They will now have to pay back more, before the loan is fully repaid. Anyone that is not repaying the full loan will pay nothing more than before.

This can be tricky to understand and it is because the word ‘loan’ makes it confusing. Usually with a loan you pay back a fixed amount each month and after the set term it is repaid. A student loan is very different. You pay back a percentage of your salary, once you are earning past the set threshold. Then you only have to make repayments up until thirty years after you have left University and the remaining debt is written off. Many students never repay the debt in full and so any changes to interest rates or tuition fees are irrelevant to them; it would just impact the highest earning students. However, changes to the threshold impacts the lower earners. When the current loan system came in it was promised that the threshold would change with inflation, but the government went back on their word and froze it, which infuriated a lot of people. However, it seems they may now have changed their mind and will be changing the threshold again but it is difficult to know exactly what will happen in the future. They could just be doing it to win political favour as the media seem to think that their poor previous election results were due to students voting against them, but whether this is the reason and was even the reason that they did worse than they expected in the previous election is very hard to know. However, it could mean that student loans will be given priority leading up to the next general election and this could be good news for most students.