Borrowing money the sensible way

After a particularly turbulent year in terms of finances many of us found that we seem to be borrowing more as a result of being short of cash. High living costs such as energy bills, petrol, and food have all impacted on household finances over the past year, and many people have had to dip into savings to get through the year.

However, with Christmas only just over many may now find that their savings are pretty much wiped out, and some will find that they have to turn to borrowing in order to afford some of the things that they need. With the financial situation set to remain rocky for many people this year, those that do intend to borrow need to ensure that they choose the right form of borrowing in order to minimise on borrowing costs.

There are various different types of finance available, and whilst credit conditions are still tight, which means that consumers have less choice, it is still important to try and ensure that you do not pay over the odds for your borrowing.

If you have good credit you can still enjoy a fair amount of choice when it comes to borrowing, and even those with poor credit still have a few options, although borrowing costs for those with damaged credit will most likely be higher. The important thing is that you consider your options carefully based on your circumstances, and you choose a form of borrowing that it not going to involve paying through the nose for the privilege.

If you find that you are borrowing money on a regular basis because your outgoings are so high leaving you with little in the way of disposable income each month then you may need to look at your financial situation rather than borrowing from a variety of sources.

For example, if you already have a fair amount of debt such as credit cards, store cards, and loans, then it may be worth considering taking out a consolidation loan and paying off all of your smaller debts so that you only have one debt and one repayment to deal with each month. This could actually reduce the amount of money that you have to repay each month, which means that you will be left with more money in your pocket and you may not have to rely on borrowing to get by on a month to month basis.

If you do find that you need to borrow money then make sure that you do your research and determine the best route for your needs and circumstances, as the last thing you want to do is pay over the odds on your borrowing.

There are a number of options to choose from when it comes to borrowing, such as credit cards, loans, payday loans, credit unions, or your overdraft, but the fees and charges connected with each type of borrowing can vary quite dramatically, so your choice can make a big difference to the amount that you end up paying.

If you have an overdraft facility and you only need to borrow money over a short period, such as a few weeks, then you may find that your best option is to use your overdraft. However, make sure that you do not go over your limit, as otherwise you will be hit with costly charges and higher interest rates, which can make this a far more expensive means of borrowing. If you do not have an overdraft facility then you can consider a payday loan, but do bear in mind that these come with high rates of interest, which are normally charged in the form of a flat fee per £100 borrowed.

If you need to make a purchase but do not actually need cold hard cash then you may find that a suitable option is a 0% purchase credit card, which is normally available to those with decent credit. With these cards you can make your purchases and then spread the repayments on the balance without being charged any interest providing you repay the balance in full within the specified interest free period. However, avoid making cash withdrawals on your credit card, as this will cost you dearly in terms of fees and interest rates.

Whilst the base interest rate has plummeted over recent months, falling to its lowest level in history at 1.5 percent, the interest rates on many loans are still very high, with industry officials stating that the gap between the base interest rate and the interest rates charged on many loans seems to be widening.

Therefore, if you are considering taking out a loan it is essential to do your research and determine whether a secured or unsecured loan is going to work out cheaper based on whether or not you are a homeowners. If you are not looking for a huge loan you may find that your best option is to go through a local credit union if you can, as the interest rates are far cheaper.