Getting carried away over the Christmas period is common with many people spending more than they had expected to. Christmas debts combined with the usual household expenses can make managing finances tough and left unchecked can even lead to a damaged credit file.
An account only needs to be behind by as little as sixty days before a credit provider can list a payment default so you don’t have to ignore a debt for long before it can turn into a real problem.
Once a default is listed it will be recorded on a credit file for five years, even if it’s paid. Negative credit listings can make it very difficult to secure finance. Commencing the New Year without the ability to obtain credit could mean a very unhappy 2015. That new car, holiday or business opportunity could be off the table simply because of some overspending during the festive season.
Stop Credit Defaults
The key to avoiding negative listings such as payment defaults is being honest with yourself about your financial position and taking a proactive rather than a reactive approach.
It never fails to amaze me how few people have a budget. Many people seem to drift from week to week without any real understanding of where their money is going or what their expenses actually are. Without an understanding of your income and expenses it is impossible to know how much you can spend without putting yourself into a difficult position.
When faced with debts that become increasingly hard to keep up with, many turn to borrowing more money in an attempt to keep up with the repayments. Credit cards, often with high rates of interest, are typically people’s first choice. Unfortunately going into debt further often only delays the inevitable and results in owing even more than was originally borrowed.
Faced with this situation, people often go from lender to lender borrowing more and more to try and keep up; this seldom ends well. Eventually you run out of borrowing capacity and find yourself holding debts with no way of paying. This can result in credit defaults and a damaged credit file.
To try and avoid this it’s a great idea to start the New Year with a budget. This doesn’t need to be a time consuming or complex task, simply noting your net income and listing your fixed expenses is a great start and by doing this you will quickly see where your money is going. For some this can be confronting, as expenses are often a lot more than expected. If you do find yourself in a position where your income is not meeting your expenses, at least you will know and knowing how you are spending you money is the first step in improving things.
If people are willing they can often positively affect their out goings. While items such as pay television and gym memberships are nice to have, they can be stopped and by doing so funds can be freed up. Changing a home loan to interest only or getting a flatmate can also have a dramatic effect on outgoings and really help people to get back in control of their finances.
Knowing your true financial position and taking action if you need to could be the difference between keeping a good rating or not being able to obtain finance for years.