How to Make a Start on Paying Back Debt

If you are in debt, then you may really wish that you could start to pay it back. However, if you have a lot it can be really daunting or you may feel that you just do not have enough spare money to start paying it back. There are ways that you will be able to do it though.

You will need to start by finding out all of the debt that you have and seeing where it all is. This can be the most difficult part as you may not want to think about this and look into paying it back. However, it will be a really big step forward if you can do it. You do not even have to add it all up if you do not want to, just put together a list of the places that you owe money to. The next step is to find out how much you owe to each and find out how much you are paying in fees, charges and interest. It is worth choosing whether you want to repay the smallest one first, which could feel good as you will start illuminating those debts right away or whether you would rather pay off the most expensive one, which will be the most cost effective method.

Look at the means of borrowing that you have used and investigate whether it would be cheaper for you to use some other method. For example if you owe money on payday loans, logbook loans or overdrafts, then these are likely to be very expensive. It could be better to get a loan to pay them off, if you can get one, but make sure that you compare the costs and the interest rates including the overall cost.

If you have some savings then use these to pay off some of the money owed. You may not like to be without savings, but it is far cheaper to pay off the loan and then borrow more should you need it, rather than having money to fall back on earning no interest in a savings account while you are paying fees and interest for having loans.

Next you need to stop buying more than you can afford. This is also something that will not be easy, but if you can reduce your spending then you will not accumulate more debt. Hopefully you will be able to reduce it so much you will have spare money to pay off some of the debts. Think about every purchase really carefully and decide whether you can afford it or not and whether it is necessary. Think about the money that you could save if you do not buy that item and how much more quickly those debts will be gone. This may seem pretty annoying, but you will get used to it and as the debt reduces it will feel good to spend less and repay them. It is also worth seeing if you can reduce your regular bills such as phone, electricity, rent etc by moving to somewhere cheaper, reducing your usage or switching provider. There are a lot of small changes that can be made that will make a big difference.

You may be able to earn more money as well which could help. Getting a better paid job, a pay rise, an evening or weekend job, starting a business, selling things will all help to increase your income and give you more money available to pay back your debts with. It may not be easy to do these things or to find the time, but every small thing that you do will help you work towards paying off the debt, taking lots of small steps will all add up. Even if you just make a little change each month that results in you paying out less or earning more you will be closer to paying off the debt.

It is wise to make sure that people around you know that you are paying off debts as well. You may not want to tell everyone that you have debts but you could always just say that you are trying to save money, which effectively you are as you want extra to pay the debt. This will mean that they should not put so much pressure on you to spend money when you are with them, perhaps on nights out or meals or things like that. If there are some that you can trust you can explain all of the details and hopefully they will be able to support you and they might even have some ideas to help you. Of course, you may rather keep it to yourself and that is fine too, you need to do what is right for you.

The more steps that you take towards paying back your debt, the easier it will be. You will start to reduce it slowly but the more that you work at it, the quicker it will reduce as you will be paying less in fees and so will have more money available to pay back the debt.

Have loans become more necessary?

Americans have been taking out loans of one form or another even more in recent years. This trend is visible in the record high amount of car financing that has been provided by lenders in the year of 2016, crossing the one trillion dollars mark for the first time in history. The average household debt relating to credit card payments has also risen to a new high of £16,048 in the same year. According to a research study conducted by Pew last year, about 12 million Americans have taken out Payday loans to finance their needs, majority of this has been spent on everyday expenses like rent, groceries, bills among other necessities. The age group, according to financial analysts, that takes out the most loans is between the ages of 24 and 40 years old. About 83% of adults in this age group have a credit card and the same group makes up the majority of Payday loan borrowers.

Some analysts have pinned this increasing trend of lending to better economic stability in the industry, others have attributed it to rising inflation, while still others say that increasingly Americans are being lured to the luxuries of life. These opinions will be explored and evidence from studies applied to them to gauge if one, or even all of them are true and to what extent.

National Economic Stability:

Ever since the recession of 2008 began showing signs of recovery in around 2012, the rate of credit taken out by borrowers on their credit cards has been steadily on the rise. Data released by the Federal Reserve for Outstanding Revolving Debt, the amount of revolving debt in 2012 was £846 billion. This amount has risen to £952 billion in the year of 2016. Revolving debt is unsecured debt and is essentially a reoccurring credit line extended to borrowers that has to be paid off at regular intervals.

These figures show and increasing amount of loans taken out by the American public in recent years, however, as shown in the Quarterly Report on Household Debt and Credit of the Federal Reserve Bank of New York, the average credit card holder has a better credit rating compared to that of 2007. This is a strong indicator that even though more credit is being extended by lenders, borrowers have an increased capacity of paying off their loans.

Inflation as a Reason for Increase in Borrowing:

Although inflation has been cited by several analysts as a reason why the amount of lending has been on the increase, data from the U.S. Bureau of Labor Statistics has shown that since 2012, inflation has been declining. As a matter of fact, taking the figures form the data, the inflation is about half that of what it was in 2012. The inflation rate in the U.S. is an indicator of the prices that consumers have to pay for any products or services, which not only includes the producer’s price, but also any associated taxes.

Even though the wage growth is at the same level as it was in 2012, it defies reason to believe that the miniature current inflation rate would be a significant factor in the increasing amount of loans taken out by consumers.

Lure of Luxury:

Financial analysts generally agree that the modern consumer’s lure towards a more luxurious life has a major impact on the levels of loans being provided by lending companies. However, while these analysts might agree on this point, they dispute the extent of its impact. Some market observers say that in this environment of stability of the recent economic recovery, borrowers like to experience the finer aspects of life. The surge in car finance loans being approved for more expensive cars is a good confirmation of this opinion. As a matter of fact, the average borrower now lends £31,831 for new cars and £16,800 for used cars, an increase of more than 3% compared to 2015.

This increase in taking out loans for cars, however, does not mean there is a significant increase in the wealth people possess. According to one financial analytical company, buyers are simply extending the duration of their financing contracts to bring down the premium costs. This would result in easier individual repayments over a longer period of time. Now the average car financing contract can last up to six years or more, and this trend seems to be on the incline.

Although buying more expensive cars is an indicator of a more luxurious life style adaptation by the average consumer, other factors also indicate that an increasing amount of borrowers are taking out loans for improving their general life experiences. According to a survey conducted by Pew in 2015, about 10% of all Payday borrowers took out a quick loan for luxury, non- essential spending like vacations, presents, decorations or simply for entertainment purposes.

Reasons for an Increasing Number of People Taking out Car Loans

The number of people taking out loans to pay for purchasing cars has been dramatically rising over the past few years. According to an automotive financing company, after the economic recession the car industry is seeing a resurgence of customers wanting to buy cars. Figures reveal nearly 75 million Americans have a current car loan account which amounts to a historically high £1.01 trillion as of 2016. This number of people financing their auto purchase contracts is nearly 5 million higher than the same period the year before. A resurgence in customer trust in the economy is an obvious motive for the rapidly increasing auto financing market, however, this a growth of this magnitude hasn’t been observed in many other spheres. An analysis of several reasons of this expansion will be broken down in categories below.

Cheap Petrol:

With the price of fuel for cars at one of the lowest levels in recent history, it makes for obvious sense why Americans are not as concerned about running costs for their vehicles as compared to several years ago. According to the Fuel Institute, the majority of cars sold before the drop in global oil prices were light vehicles and small cars. Heavier cars didn’t make the bulk of the vehicles sold in the U.S. till 2014. By this time, SUVs and Crossovers made up the largest share of vehicles sold in the country. However, their increase in sales didn’t come at the expense of smaller cars. The number of smaller cars like hatchbacks and small saloons maintained their market share whereas the number of heavier vehicles sold gained momentum. This expansion of the market size formed the majority of the increase in cars sold recently.

It is therefore obvious that due to the attached running cost of a car dropping, the number of vehicles prospective car buyers had financed had conversely increased. A market analyst from an online car financing company explained this trend by saying that since a car buyer can maintain their personal transport at a cheaper level due to the drop in gas prices, they are less hesitant to take out a finance for a vehicle. Their line of thinking is likely that the cost to benefit ratio has tipped in their favour with the fact that they can more than likely buy a gallon of gas for about £2.

Low Interest Rates:

Although the interest rates for car financing have gone up in the past couple of years by a sliver, it is still in a historically low range. At just about 4.7% interest rate, it becomes very attractive for car buyers to take out a loan to finance their vehicle. As the U.S. Prime Rate maintains its low rating at 3.5%, car financers are more than willing to accept requests from buyers for extending them credit.

In order to drive down premiums further, car financers are increasingly offering repayments over a longer period of time. For example statistics have shown that compared to a few years ago, when the average car finance stretched over five years, now one-third of new car auto loans last at least six years. With the availability of easy credit and finance options spread over a longer period of time, it makes sense that buyers would be tempted to take out loans to buy a car.
The interest rate being offered on used cars can be lower than that of a new one, explains a credit score analytical company. With the current brisk momentum of car sales in the country, it means that there are more cars on the road. It also means that there are more later model, low mileage cars up for sale. Opting for a finance on a used car can save a borrower several thousand dollars over the course of their loan period.

More Expensive Vehicles:

When a customer has financial stability, they are more than likely to make purchases that are luxury based. They might go on a cruise or opt to buy a new car. Whatever the choice, it is the current economic environment in the U.S. As the recession becomes a memory of distant past, people are feeling more secure in the financial decisions they make, which means they keep a lookout for more expensive luxuries. This can be seen in the increase in sales of large vehicles like SUVs and Crossovers. The car manufacturers have also become aware of this financial security and are offering their customers more gadgets and in- car entertainment systems. With longer and lower financing options becoming the norm, customers feel confident in their ability to repay their loans and chose more luxury while making a car purchase.

Delinquencies in repayment of finance contracts have recently remained flat showing that while customers are borrowing more, they are also tying themselves in for longer periods of time, while ensuring that they can make their payments.