Tag archive: debt

Personal Finance: Debt vs More Debt – Are Personal Loans A Good Idea?

So you’ve gotten yourself into a bit of a pickle, and you can’t get out of it without some help. Without a lot of financial options, the easiest solution seems to be taking out a personal loan. But are personal loans a good idea? They seem to be a continued chapter of another financial burden. We take a look at the factors and types of personal loans that could be suitable for you:

A Secured Personal Loan

Having assets such as a house or car can be used as security for the loan. Your provider will take these assets into consideration, and possibly offer you a lower personal loan interest rate, as there is less risk to the provider if there is a loan repayment default. In the event of a default or inability to repay the personal loan, your assets can be legally seized by the lender.

In other words, you will need to make an accurate application with your chosen lender to make certain you are not under financial pressure to pay off the personal loan. It could be a good idea to have repayments automatically deducted from your pay or bank account to guarantee they are made on schedule.

An Unsecured Personal Loan

In this scenario, you won’t have any assets to protect the lender, and your personal loan will incur a higher interest rate. Nevertheless, the same rule of thumb applies, and you need to ensure that repayments are affordable and ongoing for the duration of the loan.

It’s a good idea to compare various lending institutions to make sure you get the best possible deal. A dollar saved is a dollar earned and a step closer to becoming financially solvent.

Interest Rates

As with other types of loans, there are several ways of making repayments. The most popular methods are Variable Interest Rates and Fixed Interest Rates.

Variable interest rates are influenced by the final decisions made by the Reserve Bank of Australia. Changes to the Reserve Bank cash rate filters down to the banks and their customers. Taking out a variable rate is the option to make additional repayments on the personal loan without incurring any additional fees – which can be a major perk. On the downside, the nature of variable means that your interest rate can go up or down at any time, and repayments could become unsustainable if finances are tight.

Fixed interest rates can provide you with confidence in knowing that your repayments will remain steady for the entire duration of the loan. The downside is that fixed interest rates are generally higher than the prevailing variable rate at the time of taking out a loan.

Additional repayments on top of your scheduled repayments may also not be allowed with a fixed rate, or will incur a fee. Extra charges in the case of early termination or a change of loan agreement are also the norm for a fixed interest rate loan.

All information sourced from: http://aussiefinanceblog.com.au/personal-finance/should-i-get-a-personal-loan-to-pay-off-debt/

Lifestyle: Are Credit Cards Worth It?

For most cardholders, credit cards can be your ticket to a wide range of great spending opportunities such as shopping, business, and travel. But for others who will often misuse their credit cards, owning a credit card may lead to financial hardship in the long run. Aussie Finance Blog gives us a preview of the perks and disadvantages of owning a credit.

PROS:
Convenience: A credit card will save you the trouble of finding a nearby ATM, and you will need to carry less cash with you.

Statements and records: You can easily keep track of expenditure, receive ongoing bank statements and retain records for tax purposes.

Cash flow: A credit card is a convenient way to obtain a cash advance at a time when you need it most.

Build a good credit rating: Having a history of controlled credit card use will supply banks and other lenders with a good impression of your money handling skills. It will also help negate past bad credit history.


CONS:
Overuse
: Credit cards can make you feel you have an abundance of ready cash. A credit card used inappropriately can result in overspending, leading to repayment difficulties.

Extra paperwork: It’s not uncommon to lose track of spending. You will need to keep receipts in order to check them against bank statements.

Missed payments: If you miss a payment, you may end up paying much more than required for your purchases.

High interest rates: High interest rates can often outweigh benefits. Many purchase savings offered by credit cards are also available elsewhere.

A cycle of debt: Customers sometimes obtain a new credit card to alleviate debt on their present card. This approach leads to a cycle of debt, with increased monthly payments.

Credit card teaser rates: Companies lure customers with attractive introductory interest rates. Although initially helpful, the expiry of the introductory rate is also the start of a new rate which can be much higher and difficult to manage.

Verdict: Are credit cards as bad as they seem? Credit cards are like tools, if you use them correctly and responsibly there won’t be any negative consequences. What do you think about credit cards?