Many of us will suffer financial difficulty, money problems or hardship at one stage or another in our lives. Whether it’s overuse of credit, too many bills arriving at once, ill-health, losing a job, or an unusual turn of events, the reality is a financial crisis can happen to anyone.
By: Hitesh Khan/
Research into the financial habits of working adults found that a large number of us are struggling due to money problems:
- one in five admit to having no particular budgeting strategy;
- one in four say they make impulse purchases outside their normal budget;
- one in five make a large number of shopping trips that cost more than intended;
- one in eleven have no money set aside if several bills were to arrive at once, and would need to strike up a payment plan with one or more of the companies concerned to pay off the debt; and
- one in six are forced to spend on unexpected bills during any given month eg. motor vehicle repairs, breakages and urgent replacement of household goods.
These sorts of money problems are spread throughout the community. Financial problems are found in all types of households, irrespective of people’s age, sex, marital status, occupation or income. It’s not just a problem for the unemployed!
A large proportion of us are simply unprepared to handle money problems and the financial crisis which follows. Some don’t have the skills to manage their money prudently. Others ignore the warning signs and fall into a debt trap. Whatever the causes, the consequences can be devastating.
So how can one better manage a financial crisis? As a first step, you must be enabled to take control of your finances and be better prepared for the unexpected. You also need to know who you can turn to for help in sorting out your money problems.
As many people say, prevention is better than the cure.
This is where having a life insurance policy comes in handy. If you have a life insurance policy, you will be able to take money out of your it. This is especially useful if you don’t have an emergency fund or other investments you can withdraw cash from. Plus, you don’t have to pass a credit check or demonstrate proof of income to qualify. Insurers do charge interest on a life insurance loan. However, you can often see much better rates than what you’d pay for a bank loan. The rates will be even better than if you took out a cash advance from a credit card.
However, if you are already finding it difficult to cope with day to day financial pressures, you should consult Credit Counsellors who are trained to help you resolve current money problems and put you back in control of your finances.
10 steps that you can take to avoid falling into a debt trap include:
- Draw up a budget – which has savings goals and spending priorities – and stick to it. Have an emergency fund equal to three months income.
- Avoid impulse purchases and frequent trips to the shops – put things on lay-by if you must have them.
- Use your own money to pay for goods and services as much as possible eg. cheques or debit cards are convenient ways of accessing your funds.
- Pay the balance on your credit card balance off each month.
- If you regularly carry a credit card balance over from one month to the next, make sure the interest rate on the card is reasonable.
- Reduce the number of credit cards you have.
- If you have several loans including lots of credit card debt, consider consolidating the loan balances into one personal loan – this will give you the opportunity to clear the debt, with one set of repayments, over a fixed period of time.
- If you are experiencing money problems, talk to your creditors straight away. You may feel awkward and embarrassed, but it is important to let your creditors know what is happening. Most creditors will be pleased you have called to inform them about the situation. When they haven’t heard from you, they will think the worst. Avoiding creditors only puts them off side. Before you talk to them, sit down and work out what you are going to say. Take the time to think about what money you have coming in and what money you are spending. Prepare a money plan so you can make an offer to your creditors that is realistic and within your means.
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