Since the credit crunch, it has become much harder for a borrower to be accepted for the loan they require, even if they have a good credit rating. Whether it is for a personal unsecured loan for just a small amount, a credit card or a larger secured loan or home owner loan, the majority of lenders now take a much stricter view when it comes to their loan underwriting criteria.

A person’s credit history is looked at in much more detail than it used to be when they apply for a new loan or other form of credit and as well as this, a lender is likely to consider the applicants employment status, job security and affordability of the new loan before it is approved.

Don’t get me wrong, there is still a good choice of cheap loan deals on the market, for all types of loans, but to obtain the best loan rates, a potential borrower needs to have a clean record and a good credit rating.

There are several things which can make a difference to a loan application, which could determine what interest rate the applicant will be charged on their loan, or even if they are likely to be accepted for the new loan at all and many of these factors are under the total control of the borrower.

Many people stay on top of their financial situation on a regular basis, ensuring that all their loan commitments and repayments are made on time and that their credit file is in order and kept up to date. However, others do not take the same level of care, yet still expect to get the best loan rates and deals which are available.

Here are a few tips and recommendations which could help improve a person’s credit rating, or even go some way to repairing it if they have had poor credit and loan arrears in the past:

First of all, a potential borrower should ensure that all their existing credit arrangements are up to date and they have no loan arrears or missed repayments. This not only includes personal loans and credit card repayments, but also includes things like council tax and utility bill repayments, as these can also show up on a credit file, particularly if the account is in arrears and the company has taken recovery action against the person.

 This information is held on a person’s credit file, which is readily available from any of the major three credit rating agencies in the UK, which are Experian, Equifax and Call Credit. For a small fee, a person is able to obtain a full and detailed credit history for themselves, which will show how their various accounts and loans have been managed, as well as giving them an overall credit rating.

Practically all lenders will use the information held on a credit file to assess a person’s credit worthiness, so it is a good idea to ensure that this information is kept up to date. Although the information held on an individual’s file is usually fairly accurate, it is still possible for errors to occur, or the file not being updated where necessary.

An example of this could be where a person has had loan arrears in the past and possibly a County Court Judgement (CCJ) as a result of this. This information will show up on that person’s credit file, detailing the arrears, the amount of the CCJ, who it was in the favour of and the court where it was issued.

However, if the borrower had then paid up the loan arrears and cleared the CCJ, obtaining a certificate of satisfaction, they should check their credit file to ensure this information has been updated, as this can often be missed. If this is the case, they should contact the credit reference agency with the details and this oversight can then be rectified.

Similarly, if a person’s name or address is not correct on their file, this could also have an impact on their ability to obtain a personal loan or other credit.

Having an up to date credit file is one of the most important factors in getting a cheap loan deal, but there are also other factors which can influence the decision. Many lenders will use the electoral role to check a loan applicant’s address details are correct. If they are not registered, or appear at another address, this will also lower their credit score and reduce their chances of getting a loan.

In many cases, people want to shop around for the best deal on a cheap loan and as a result of this, think they are doing the right thing by making a loan application to a number of lenders all at the same time to see who comes back with the best loan deal.

Whilst it is a good idea to shop around for a good loan deal, every loan or credit application will incur another credit check on the individual and each score which is carried out will leave a mark and lower that person’s overall credit rating, so it is therefore important to not apply for lots of credit all at the same time, even if you don’t intend to take all of it out.

So if you are thinking about taking out a new personal loan or other form of credit, carry out these few simple checks before you do so and it could make a difference to the amount of loan you are able to get as well as the interest rate which you are charged on it.

If there are problems with previous loan arrears, or incorrect information on you file, sort these out as soon as possible. It may take a few months to improve your credit rating, but by staying on top of these details, as well as your various loan repayments and commitments, you should start to see things moving in the right direction.

Managing all the repayments of their various personal loans and other debts can be hard work on a regular monthly basis, ensuring that all the loan repayments are made on time and that there is enough money each month to cover such loan repayments as well as the other household bills.

With the economic situation in the UK becoming tougher at present, with the likelihood that things could get even worse in the near future, many individuals, particularly those with large personal loan balances and other debts, are looking to restructure their loans and finances in order to reduce their monthly outgoings and free up some spare cash for other requirements.

There are a number of options for debt consolidation loans and the best loan option often depends on the particular circumstances of the individual who is applying for the loan, as well as the type of loans and other debts they may have.

Tenants have fewer debt consolidation loan options than someone who owns their own house, even if that person has an outstanding home owner loan or mortgage on it, but it is still possible for a tenant to take out an unsecured loan as a debt consolidation loan.

The advantages of an unsecured loan for debt consolidation purposes are that they are fairly quick easy to arrange and are available to anyone with a good credit rating who can afford the loan repayments each month. There is also a wide choice of unsecured loan providers offering relatively competitive cheap loan deals, particularly for loans in the range of £7,500 to £15,000.

Unsecured loans are also reasonably flexible, with a choice of loan term and repayment options and the ability to make overpayments or pay the loan off in full, in many cases without any additional penalty charges.

The disadvantages of an unsecured loan are that they do tend to be more expensive than many other forms of secured loan and borrowing, as there is a greater risk to the lender in the event of the borrower defaulting on the loan. Also, someone with a less than perfect credit rating may find it more difficult to obtain an unsecured loan than they would a secured loan.

 The maximum term on an unsecured loan is usually much shorter than the secured loan equivalent, which means that the loan is repaid over a shorter period, pushing up the monthly loan repayments.

A home owner however, has many more loan options when it comes to a debt consolidation loan. As well as being able to take out an unsecured loan, a home owner who has a reasonable amount of equity in their home, has the option of things like a secured loan, or even to switch their home owner loan to a new provider with a re mortgage.

In the past, a re-mortgage was invariably the cheapest loan option for someone looking to raise additional capital. Prior to the credit crunch, there was a huge choice of re-mortgage home owner loan deals at cheap loan rates, many of which also offered free valuations, legal fees and high loan to values.

However, in recent times lenders have become more cautious and have restricted loan to value levels as well as many of the loan deals available to home owners. Someone who took out a lifetime tracker loan prior to the credit crunch, or is currently on their lender’s standard variable rate for their loan, could now be paying a ridiculously low rate of interest on their loan, which they would lose if they were to re-mortgage.

This can often make a re-mortgage as a debt consolidation loan an unfeasible option, due to the fact that, although the new mortgage rate would be cheaper than those for the loans and debts being consolidated, it could be significantly higher than the existing home owner loan, thereby making the overall monthly repayment more than the original debts added together.

The other disadvantage of a re-mortgage as a debt consolidation loan, is that in most cases the new term of the loan is much longer than those of the original loan debts and therefore the overall cost of the debt will increase, due to interest being charged on the loan for a longer period, even though the monthly repayments are likely to be much cheaper than paying for all the loans and other debts separately.

This leaves the option of a secured loan. Secured loans have always been a popular type of debt consolidation loan, due to their relatively low cost and flexibility. There are a number of cheap loan deals available on secured loans at the moment and these could be particularly attractive for someone who currently has a cheap loan rate on their home owner loan rate or mortgage.

A secured loan rate is usually much cheaper than those of unsecured loans and other such debts and is therefore often ideal for use as a debt consolidation loan. Flexible terms also mean that a borrower can extend the term of their original debts, in order to make the loan repayments cheaper, without having to take the loan over a 25 year term, as they might have to with a re-mortgage.

The disadvantage of a secured loan is that the borrower must have sufficient equity in their home, over and above any outstanding home owner loan. Interest rates on secured loans are usually higher than the typical home owner loan deal, due to the fact that they take a second charge over the property behind the main loan and are therefore considered to be a higher risk.

Other things to consider when looking for a debt consolidation loan, are the type of debts which are to be repaid with the loan. Whilst it may be a good idea to pay off a credit card which charges a high rate of interest on which the borrower is not reducing the capital, it is unlikely to be a good idea to pay off a cheap loan with only a short term remaining with a debt consolidation loan, for example.

Refinancing your various loans and other debts can potentially save a borrower thousands of pounds over the loan term, but if it is done wrong, then it could also end up costing the borrower thousands of pounds extra in additional interest payments.

If you are unsure of which is the best loan option for your needs, seek professional advice from an independent financial adviser or loan broker, who will be able to give suitable advice on the best course of action for your particular needs.

However, many of these loan applicants are then very surprised when the lender tells them that they have been rejected for the loan, or have had special terms imposed, which has increased the overall cost of the loan, in many cases by a significant margin.

The reason for this is usually that the applicant’s credit score is lower than they think it should be and the new lender’s decision on whether or not to offer a loan or impose a loading on the interest rate to compensate for the higher risk, is based on the information they receive via the applicant’s credit report.

There are a number of things which can adversely affect a person’s credit score and therefore reduce their ability to be accepted for a new personal loan at ordinary rates, let alone be able to get some of the best cheap loan deals on the market at the moment. Whilst some of these factors will be fairly obvious to many individuals, some others may not be quite as apparent.

Firstly, before anyone applies for a new loan or other form of credit, such as a credit card, they should check their credit rating with one of the major credit reference agencies. This can be obtained online from companies such as Experian or Equifax and will give details of any outstanding loans and credit agreements, as well as a history of payments, including loan arrears and defaults, along with any recent credit checks which have been made against the applicant.

It is worth checking the credit report in great detail, as although they are usually accurate, in some cases they could hold inaccurate or out of date information. For example, a report may show an outstanding balance on a personal loan or credit card which has actually been paid of early.

If any inaccuracies do exist, it is possible to have this information corrected by contacting the loan provider and the credit reference agency and having the information updated to give an accurate reflection of the current situation with the loan.

Clearly, things like outstanding loan arrears or defaults on a loan will have a detrimental effect on a person’s credit score, as will County Court Judgements (CCJ’s), Individual Voluntary Arrangements (IVA’s), or bankruptcies and these will certainly impact on a person’s ability to get a new loan and will probably cause them to be rejected altogether by most mainstream lenders and loan companies.

However, other factors will also affect whether someone will be accepted for a loan at cheap loan rates. Missed, or late payments on a loan or credit card will certainly have an adverse effect on someone’s credit rating, even if these payments have been fully brought up to date by the time of the new loan application.

If a borrower thinks that they may be about to miss a loan or card repayment, or fall behind on their loan repayments, they should contact their lender before this happens, as it may be possible to restructure the loan or make an arrangement with the lender, which could prevent them from getting a black mark on their credit score.

Every time a person applies for a new loan or credit facility, a credit score is carried out by the lender and each time this I done it will leave a mark on the applicant’s credit file. Although one or two of these “footprints” are not a major issue, if someone has a lot of these within a short space of time, particularly if these are all for the same type of credit, such as a personal loan, then it will certainly lower that person’s score and could possibly make the difference between getting the loan they want or being rejected.

The more personal loans and credit cards someone has will also affect their credit score, although someone who has never had a personal loan, credit card or other form of credit could have a particularly low credit score, as they have never had a track record of regular repayments on loans, which proves that they are able to manage their repayments.  

Whilst it is a good thing for a high credit score to have some outstanding form of credit, too much credit on loans and cards is also detrimental, particularly if someone is regularly up to their limit on their credit card balances. This shows a debt utilisation of 100 per cent and is likely to set alarm bells ringing to a new potential lender.

Having a long and consistent credit file is also important. Therefore, someone who changes their loans or credit cards to cheaper providers on a regular basis could be damaging their credit rating by doing so, a no one creditor shows a long term track record.

It may seem strange, but closing down an old credit card account which has not been used for a long time, can have an adverse effect on a person’s rating. Not only does this end a long and consistent track record with one loan or credit provider, but it also has an effect on that person’s debt utilisation figure. If a person has an unused credit card with a limit of £5,000 for example, this is credit which is still available to them and lowers the overall percentage of their total credit utilisation.

The final thing which can reduce a person’s credit score is the variety of credit they have. It is better to have different types of credit outstanding, such as a home owner loan, a personal loan, credit card and overdraft, rather than just have one type of credit, for example, everything on unsecured personal loans, as this does not give as much variety of information to a potential new lender.

To improve your credit score, you should take into account all the above factors as well as ensuring that you are fully up to date with all your various existing credit arrangements and any missed payments or loan arrears are cleared in full and void making too many new applications for credit in a short space of time.

Once again, many people have used personal loans and other forms of credit to help them to pay for the cost of Christmas and it is now, in January, that the credit card bills start to land on the doormat and the first repayment of that new personal loan start going out of the bank, leaving a big hole in the household finances.

With many people not having enough money to see them through to their next pay day, it can be tempting to take out even more loans and credit to help bridge the gap until the next salary cheque arrives, either by using a credit card, extending the overdraft facility, or even applying for a pay day loan to make ends meet.

Clearly, this is about the worst thing someone can do if they already have large loan and credit card debts, but a large number of individuals across the country will leap at the chance of some short term cash in their hand, without fully considering the consequences of the long term problems which could be caused by taking out another personal loan or other form of credit.

According to new research from the price comparison website, U Switch.com, somewhere in the region of 40 per cent of the adult population in the UK are likely to be worse off over the course of the next twelve months, than they were throughout 2011. Less than one third (27 per cent) of individuals can expect their financial situation to remain the same or improve in the coming months.

The main reason for this is due to the rising cost of living, which has been made even worse by particularly high inflation in recent times. This, coupled with a loss of overtime and bonuses, along with increasing unemployment across the country as a whole is likely to make household finances tougher than they already are, even without taking into account the rising levels of personal loan and credit card debt which many people are taking on.

With many people seeing a reduction in their regular disposable income this year, whilst at the same time taking on more personal loan and credit card debt, it is hardly surprising that somewhere in the region of 75 per cent of the UK population are worried about their financial outlook for the next twelve months.

Many financial experts are predicting a dramatic increase in the level and amount of new loan arrears cases, as people are unable to service their loans and other debts and as borrowers default on their loans, this in turn is likely to lead to an increase in house repossessions through home owner loan defaults.

For those who can manage to do so, clearing their personal loans and other debts is likely to be one of the main priorities for the coming year, with 42 per cent of people saying they intend to pay off their loans and credit cards. In fact, debt repayment was the top New Year’s resolution this year, ahead of fitness and losing weight.

The latest figures from the Bank of England have revealed that consumers in the UK took on around £400 million worth of unsecured debt through personal loans and credit cards throughout the month of November alone last year. As well as this loan debt, the Post Office has published figures which show that around 40 per cent of consumers will be depending on credit cards or pay day loans during the month of January.

In total, around 12 million people across the country are likely to see their finances in a negative position during January, with many wondering what they can do about the problem.

Although it may be tempting, the most important thing to do is to not take on any more loans or use a credit card to make ends meet. The first thing to do is to look at existing finances in order to see where savings may be made.

Many people waste a large amount of money every month on things like club and gym memberships they do not use, through to excessive shopping at the supermarket which ends up being thrown away because it goes past its best before date. Cutting back on what you actually spend each month can make a huge difference to the household finances.

The next thing to do is to look at your existing loans and credit arrangements to find a cheaper alternative. There are many cheap loan deals on offer from lenders at the moment, particularly in the £7,500 to £15,000 loan range-the typical debt consolidation loan amount.

 By taking out a debt consolidation loan and clearing more expensive unsecured loans, it is possible to save a large amount of money each month, which could then be used to either pay the regular household bill, or clear any remaining debts.

 Similarly, expensive credit card balances could be switched to a cheaper card, using one of the many zero per cent or low interest balance transfer deals, allowing the monthly repayments to be used to repay the actual debt, rather than just the expensive interest charges.

It is important to remember however, that the original loan and card debts have not gone away in this situation, they have only been moved to a cheaper alternative and borrowers should not become complacent about their debts and take out additional loans and cards, a this will lead them straight back into a down hill spiral of debt.

For those who have already fallen into loan arrears, or defaulted on their debts, it may not be possible to take out a debt consolidation loan, or balance transfer card. In this situation, borrowers should take action as soon as they realise they have a problem.

In the first instance they should contact their lender to try and arrange a solution to their problems, which could include rescheduling a loan, or reducing interest for a fixed period until the situation is sorted out.

If this fails, or for anyone who is unsure of how to go about sorting out their loans and other finances, they should seek professional help as soon as possible, either from a financial adviser, debt management company, or one of the many debt charities across the country, such as the Citizen’s Advice Bureau, or the Consumer Credit Counselling Service.

This left many borrowers in a position where they were unable to keep up with their monthly home owner loan repayments, thereby leading to the inevitable situation of falling into loan arrears and facing the prospect of having their property repossessed.

It was determined that one of the biggest causes of this and the banking crisis which followed, was due to years of irresponsible lending by banks and building societies and people taking out loans which they simply could not afford and had no realistic way of being able to repay.

As a result of this, the financial regulator, the Financial Services Authority (FSA) launched a full investigation into the home owner loan and mortgage market, with a view to introducing new rules and regulations for the loan industry as a whole, which would prevent such a financial disaster happening again in the future.

The investigation has been called the Mortgage Market Review (MMR) and has involved financial experts, lenders and key figures and trade bodies from the loan industry, as well as the FSA, who have all had input into the new proposals.

After several draft proposals for the new loan industry rules, the final proposal for the MMR have finally been published by the regulator this week (Monday 19th December) and has proposed new rules which should put a stop to irresponsible lending practices in the future and ensure that a borrower is able to realistically afford the loan which they are taking out, thereby avoiding loan arrears and repossessions in the future.

The FSA have based the new proposals for home owner loan and mortgage rules on the principle of good mortgage underwriting, which places the onus on banks and building societies, as well as loan brokers and financial advisers, to ensure that their customers are in a viable financial position to be able to afford the loan they take out over the long term, as far as is possible.

The key factor to the MMR, is to check the affordability of any loan before it is approved. This will involve in depth checks on a potential borrower’s income and outgoings, in order to ensure that they can manage the loan repayments, even if interest rates rise, thereby causing the loan repayments to increase.

The affordability assessment will ensure that borrowers will be able to repay their loan in full, without relying on the value of their property increasing to a level where they can use the equity to repay the initial loan.

The assessment will also assume that interest rates will increase at some point in the future and that the borrower will still be able to manage the loan repayments when this happens.

In the original proposals from the FSA, it was suggested that there should be a complete ban placed on interest only loans, as this was a sure sign that the borrower was unable to afford the loan on a full repayment basis and was therefore depending on the value of the property increasing over the term of the loan.

Following pressure from the loan industry, this has now been changed. Interest only loans will now be allowed under the new rules, however, they will be assessed for affordability on the basis of a repayment mortgage loan, unless the borrower is able to prove that they will have the necessary financial resources in place to be able to repay the loan by the end of the term.

One of the key factors from the original draft proposals which has remained in the final plan, is that a lender will have to verify the income of the borrower before the loan is approved and see proof of income in the form of wage slips and P60’s for employed people and three years accounts for those who are self employed.

This effectively places a complete ban on self certification loans and mortgages, whereby a potential borrower is able to give a statement of their earnings to the lender without having to provide any proof of the figures.

The ban on self certification loans comes as no surprise, as these have been abused in the past by individuals artificially inflating their incomes to unrealistic levels in order to get the loan they require, which has then led, in many cases, to the borrower not being able to afford the loan and eventually having their home repossessed.

In the past, many people have used the equity in their home to re mortgage their property as a debt consolidation loan in order to repay more expensive debts, such as personal unsecured loans and credit card debts.

Whilst this will still be allowed in the future, it will be considered a high risk loan, as unsecured loan debts will be secured on the property with the loan usually being paid for considerably longer than the original debts.

In the future, anyone using a mortgage as a debt consolidation loan will have to seek professional financial advice to ensure that they fully understand the implication of securing a loan on their property and the risks that this entails.

There are concerns that the new rules will prevent many people from ever being able to get a mortgage or home owner loan again, although lenders will have the ability to offer loans to existing customers at their discretion, even though they fail the affordability tests.

Despite this, many people who would have previously been accepted for a large home owner loan will now be rejected due to the new affordability rules and whilst this may seem harsh and unfair to some potential borrowers, we have to remember that the whole point of the exercise is to protect loan customers and prevent events like the credit crunch from happening again.

The final proposals from the FSA have now been published for approval and the final rules will eventually be published by the summer of next year, although they are unlikely to come into full effect until 2013 at the earliest.

Cheap loans an easily available credit in the years prior to the credit crunch has meant that many people borrowed large amounts of money on personal loans, home owner loans and other forms of credit, without worrying too much about it, but with the recent turn of events in the UK economy, many of these individuals are now struggling with their loan debts.

The latest figures to be published by the Insolvency Service in the UK have shown that the total number of people finding difficulty with their loans and other debts has fallen slightly by the third quarter of this year, leading to fewer cases of insolvency and bad loan debt.

The number of personal insolvencies in the UK had fallen to 30,219 by the end of the third quarter this year, which shows a reduction of 11 per cent on the same period twelve months previously.

Although the number of debt relief orders (DRO’s) an Individual Voluntary Arrangements (IVA’s) has increased slightly in the last three months, the number of bankruptcies has fallen significantly to 9,567 by the end of September, compared with 11,113 at the end of the previous quarter.

One thing which has changed in the area of loan debt and insolvency, is the type of person who is now being affected by bad loan debts. Whereas it used to generally be the lower social classes who suffered from bad loan debts and financial difficulty, this problem now seems to be affecting all social classes.

A study of the latest insolvency figures by the debt management company, The Debt Advisor, has revealed that in many cases it is now the more “well to do” individuals who are suffering from bad loan debts, as well as the lower social classes.

With personal debt levels on things like personal loans and credit cards at an all time high level in the UK at the moment, regardless of social class, the effects of rising unemployment and high inflation are having an impact across everybody in the UK and The Debt Advisor is seeing an increase in the number of middle class individuals coming to them for help.

Prior to the credit crunch, this group of people were spending large amounts of money, much of it being taken on credit in the form of cheap loans which were easy to access. But a weak economy, coupled with high inflation, reduced wages and potential negative equity on their home owner loan, has left many in this group in the position where they simply an not afford to repay their loan debts.

Bev Budsworth of the Debt Advisor said “Levels of personal insolvencies are not as high as last year but we are still seeing over 330 people a day being declared insolvent or bankrupt. The real change that we are seeing is the demographics of the people that are finding themselves with levels of serious loan debt-we are seeing a strong increase in the “impoverished middle classes” coming to us for help as the situation becomes more and more desperate.”

Many of the people who are now seeking help with their loans and other debts have previously been in the position where they have easily been able to manage their loan repayments on a regular basis, simply from their monthly disposable income, but changes in their personal circumstances, such as a job loss, has left them struggling to pay their loans, thereby missing repayments and building up high levels of loan arrears.

To compound this situation, many of these people also have children who are now of a working age, but are unable to find themselves a job. Whereas in the past, many of these children would be bringing in an additional wage into the household, they are now an additional burden on family finances which are already stretched and are pushing many parents beyond breaking point into unmanageable loan debt.    

The Debt Advisor has seen people taking ever more desperate steps to try and keep their heads above water financially, with many resorting to taking out personal loans to help fund their lifestyle, or using a credit card to make their home owner loan or mortgage repayment, with others being forced to take out a pay day loan or even use illegal loan sharks to get a loan.

Recent figures from the loan debt charity Credit Action found that the total level of personal debt in the UK on loans and credit cards currently stands at around £1,451 billion, which equates to every adult in the UK owing an average figure of £30,000, including home owner loan debt. This figure works out at 122 per cent of the average earnings in the UK.

The average household loan debt in the UK currently stands at around £56,000 including home owner loans and mortgages, but the Office for Budget Responsibility (OBR) has predicted that household debt will increase to around £2,126 billion by the end of 2015, which works out at every household in the UK having an average loan debt of nearly £82,000.

Bev Budsworth commented “Understandably, people are watching the pennies and the economic uncertainty and record high inflation is forcing them not to spend unless it’s absolutely necessary. Unfortunately, this is only going to make the slow down worse. What we really need is more money flowing through  the economy if we are to turn ourselves around.”

This year has been particularly tough for many families in the UK, with inflation growing at an alarming rate, coupled with high food and fuel costs, whilst wages have remained stubbornly static, or even decreased.

Despite all the recent doom and gloom, most families still like to push the boat out when it comes to Christmas time and in far too many cases, the expense gets forgotten about and people spend money on credit cards and loans, with little regard as to what is likely to happen in January and to how they will be able to make the additional debt repayments.

A large percentage of the population are likely to use some form of credit to pay for their Christmas festivities, whether this is in the form of credit or store cards, a personal loan or even an expensive short term loan from a doorstep lender, or a pay day loan, for example.

A recent survey form the high street bank HSBC, has found that somewhere in the region of 21 per cent of the UK population will use credit cards to pay for Christmas. A further 13 per cent are likely to dip into their overdraft facility, whilst 3 per cent will take out a personal loan and a further 2 per cent will opt for a pay day loan.

Whilst this may seem like a good short term solution to a problem, many people will take out a loan in desperation, in order to have some spending money now, without giving much thought as to how this loan debt is likely to be repaid in the New Year.

The HSBC survey found that the average person is likely to spend an additional £560 on their Christmas celebrations this year and whilst his may not seem like much to some people, for others, it could be just enough to tip them over the edge into financial hardship, bad debt and loan arrears.

So, if someone is struggling to make ends meet financially and is wondering how on earth they are going to survive Christmas without taking out new loans which they can’t afford, what can they do to try and soften the financial blow?

The first thing to do is to plan a budget and wok out exactly how much spare cash there is to pay for things. Once this has been worked out, a list of Christmas presents for people should be made up, bearing in mind the amount of budget there is to work with.
When going out shopping for presents, stick to the original planned list and try not to get carried away with impulse purchases, this is a great way to spend over your budget and shops are very good at preying on shoppers’ weaknesses in this area.

By starting Christmas shopping early, the total cost of the festivities may be spread over several weeks, or even a few months, which could help to ease a person’s budget significantly, as the cost could be spread over several pay day periods.

Even with the best budget plans in the world, some individuals will still end up using credit to pay for Christmas, either through credit cards or a personal loan. If this is the case, then potential borrowers should be careful about how much credit they take and how they are going to repay their loan debts.

Shopping around for a new credit card or a cheap loan, could end up saving a small fortune in interest payments over the term of the loan and individuals should not fell as though they have to use their existing credit card or go to their usual high street bank for a new personal loan, as these may not necessarily be the cheapest option on the market.

For credit card customers, there are several cheap credit cards which offer low interest rates, or even an interest free introductory period, many of which will also allow a balance transfer from more expensive cards, thereby lowering monthly outgoings in the New Year.

Similarly, for someone with several small personal loans with relatively high interest rates, a debt consolidation loan could be a realistic solution, offering a cheap loan alternative to expensive loan debts, as well as providing some extra cash to help cover the cost of the festive period.

If someone is planning to take a personal loan out to cover the cost of Christmas, they should be very careful to ensure that adequate plans and funding are in place to meet the loan repayments once they commence in the New Year.

Whilst it may be tempting to take a loan out over a longer term in order to reduce the monthly repayment amounts, this could lead to long term loan debt problems, as people who take a Christmas loan out this  year, are likely to do the same next year and the year after. It is therefore important to try and repay any Christmas debts within the next twelve months, so that the situation is not made even worse in twelve months time.

Of course the best solution for someone who finds themselves in the situation of looking for a Christmas loan every year, is to plan and prepare for next Christmas as soon as they get to January.

By disciplining themselves into putting away a small amount of cash on a regular monthly basis into a suitable savings account, the cost of Christmas can already be covered by the time they reach next December and the need to take out yet another personal loan can be avoided altogether.
 

For many people, this is just an occasional occurrence which can be easily rectified, but for others, it may happen on a regular basis, which can often prompt individuals to take out a personal loan in order to see them through to the end of the month, or for the purpose of a debt consolidation loan, to repay more expensive loans and credit cards.

Taking out a personal loan in this manner can be a panic reaction to solving a financial problem and far from actually providing a realistic solution, another loan debt can actually make the situation worse within a couple of months or so, eventually leading to bad credit and loan arrears if left unmanaged.

The best way of avoiding the situation of being left short of cash before the end of the month and ending up with spiralling personal loan debt, possibly through expensive forms of credit such as doorstep loans or pay day loans, is to set a financial budget each month and be disciplined enough to stick to it.

This may seem all well and good and if it was so easy to manage finances, no one would ever be in debt or need a personal loan again. But with high inflation pushing up the cost of living all the time and low wage increases at the moment, it can be extremely difficult to manage the everyday bills and expenditure, let alone the unexpected bill, such as a car repair bill, for example.

No one ever said that it was easy to manage their monthly finances, particularly if they already have a number of personal loans and credit card bills to deal with, but by following a few simple rules and setting up a realistic budget, it is quite possible to avoid falling into a worse situation with finances and loan debt.

The first thing to do is to make a list of all your outgoings throughout the month. Include all your personal loans, home owner loan and credit cards as well as your regular monthly or quarterly bills, such as utilities and phone bill. You should make a note of how much you spend on food and clothing each month and how much you spend on luxuries like going out.

When making this list, you should be realistic and honest with yourself. If you underestimate, or play down how much you spend on certain items each month, you are only fooling yourself and your eventual budget plan will fail within the first couple of months.

Once it is completed, you may be surprised at just how many outgoings you have each month and it may well be possible to make instant savings by cutting out a few unnecessary items.

You should then prioritise your bills. Utility bills and home owner loan repayments must take top priority, along with things like insurance premiums, followed by unsecured loan and credit card repayments, although it could be possible to save money on most of these items simply by shopping around for a better deal, or taking out a debt consolidation loan at a cheap loan rate.

Other cutbacks can be made on non essential items such a gym and club membership, as well as things like eating out, or simply stopping off for a cup of coffee in a café whilst out shopping. Although most people do not want to give up such luxuries and treats, this can create huge savings and make a big difference to their budget. For example, the average person spends around £452 every year just in coffee shops!

One of the biggest monthly spends is often in the supermarket and this can be an area where huge savings are made. Many individuals never take a shopping list to the supermarket, or if they do, they usually buy additional items which were never on the original list.

By planning your menu in advance for the week and then making a list of what you need and actually sticking to it when you get to the supermarket, you could potentially save hundreds of pounds every year and avoid wasting and throwing away food which has gone past its best before date. By simply doing this, it may not even be necessary to switch from the particular brands which you prefer, even if they are more expensive.

Once all the cutbacks have been made, you should then keep track of your expenditure. Keep a notebook and jot down your income and outgoings as they happen. Note down your income each month and immediately deduct any bills which you know will be going out over the course of the month, such as home owner loan, utility bills and personal loans and credit card repayments.

The remaining balance is your disposable income for the month and this should be broken down into a weekly amount so that you know just how much you are able to spend before your next pay day. Once again, you should keep a note of every bit of expenditure you make, and keep a running total and remaining balance for the month.

It is also important to try and budget for some savings each month and put this money into a separate account so that it doesn’t get spent accidentally. This can be used for emergency purposes, so that when the car breaks down, or the washing machine blows up, there is money available, rather than having to take out another personal loan in order to find the money.

It may seem hard to do, particularly for the first couple of months or so, but by sticking to a budget plan properly, you may well find that you son have disposable income left over each month, which can be used to fund savings, pay for treats and luxuries once again, or overpay on your personal loans and reduce credit card balances much quicker. 

One of the most important factors for anyone who is looking for a new loan of any kind, is the cost of the loan, for both the monthly repayments and the overall cost of the loan and most borrowers, particularly those with a clean credit history are interested in how they are able to save money on their loan.

The first thing a potential borrower tends to look at when choosing which personal loan to take out is the interest rate which will be charged on the loan and whilst this is usually a good indication as to whether someone is getting a cheap loan deal or not, there are other factors to consider, which could affect the cost of the loan.

Many loan providers will advertise a particularly cheap headline loan rate in their literature and although some borrowers may qualify for this interest rate, this is usually based on an individual’s credit score and when they actually apply for the loan, they could end up paying a higher rate than the one which was advertised.

When comparing loan rates, potential borrower should always look at the Annualised Percentage Rate (APR) of the loan, rather than any flat rates shown, as this will give a true reflection of the actual cost of the loan, taking into account any charges and fees, for example.

Apart from checking the interest rate on a loan, the borrower should also check to see if there are any fees and charges associated with the loan, whether these are paid up front, or added to the loan balance on completion. Whilst adding fees may seem like a god idea to save money initially, interest will be charged on any fees which have been added to the loan, which could add a large amount to the overall sum which is repayable over the term of the loan.

Similarly, the term of a loan can make a huge difference to the total amount payable by the end of the loan term. Although the monthly repayments maybe significantly lower if the loan is taken out over a longer term, interest will be charged on the balance for a much longer period, which could eventually cost the borrower hundreds or even thousands of pounds in additional interest.

Generally, the shorter the term of the loan is, the lower the overall cost will be, although the monthly repayments could be too expensive to be affordable and usually a compromise has to be found.

Loan illustrations are based on the terms of the loan remaining the same throughout the term and do not take into account any changes throughout the term. If a borrower thinks that their personal circumstances may change and they may wish to repay the loan early, the should check to see if the loan they are choosing allows this and if there are any penalties attached for early repayment.

 Similarly, if a borrower’s financial position takes turn for the worse, they need to know if their loan will allow them to alter the repayment amount, extend the term, or take a payment holiday, for example. Taking such a course of action will almost certainly add some cost to the loan in additional interest payments, but they should also not if there are any additional fees or charges as well as the interest.

In the past, many loan companies would include things like Payment Protection Insurance (PPI) with their loan, often including it without the borrower’s knowledge, or saying that the loan may be declined if this type of protection cover is not taken out.

PPI can of course add a significant amount to the monthly repayment on a loan and does not have to be taken out. Recent mis selling scandals and investigations by financial regulators has led to a complete ban on the sale of PPI at the same time as any kind of loan is taken out and is now therefore less of a concern when it comes to taking out a loan.

Although it does add to the overall cost of the loan, some kind of protection policy is advisable to cover the borrower in the event where they are unable to meet the monthly loan repayment amount, but by shopping around they should be able to find suitable and cheap cover. This however, should be factored into the overall loan costs.

Some loan companies will offer the option of having the funds transferred to a particular bank account as soon as the loan has been approved, but there is often an additional fee for making this arrangement. It is usually unlikely that the borrower will need the funds so urgently and therefore this is often a fee which is pointless.

When considering taking out a new loan of any kind, a borrower should not rush into making a decision which they might regret later on. They should take time to consider just how much they need to borrow, how much they can afford each month and if there are any alternative options which could mean they do not need a loan at all.

Once it has been established that a loan is required, the potential borrower should take time to shop round the market place to find the best loan to suit their personal circumstance and requirements. This has become much easier these days with the introduction of many price comparison sites which can help to sort out the best cheap loan deals.

If someone is in any doubt, or unsure about what might be their best loan option, they should contact a loan broker or financial adviser who can help them make the right decision.

Finally, any borrower should take care to compare their different loan options and read and check all the small print before committing to any particular loan deal, however good it may seem.

With personal debt levels on personal loans and credit cards increasing for many individuals, in many cases due to using loans and credit cards to pay for regular household bills, a growing number of consumers in the UK are finding it increasingly difficult to manage their money and are finding themselves in a down hill spiral of loan and credit card debt.

With the cost of living increasing at an alarming rate at the moment and the average wage remaining static, or in many cases actually decreasing, there is growing financial pressure on household and family budgets which is leaving little or no disposable income left over.

In some cases, the amount of monthly loan and bill commitments is actually greater than the net income which is coming in to the household and the high interest charges being applied to borrowing on personal loans and credit cards, which are often being used to bridge this financial gap, is only making the situation worse for these families.

Many people who find themselves in this predicament, often end up panicking about which bills and loans they should pay first and rather than applying some kind of logic to the situation, they end up paying the least important bill, or loan repayment, instead of the essential bills or important loans, simply because the provide sent a strongly worded letter at the right time.

So, how should someone who finds themselves in this situation prioritise their various bills and loan commitments in such a way that they are able to make the best of a bad situation and at the very least, keep the roof above their heads?

It is not only personal loan and credit card commitments which should be taken into account, but the everyday household bills, such as gas and electricity, which need to be paid in order for the service to be maintained.

If someone is struggling to pay their various monthly bill and loans, in the first instance they should contact the various provides of their loans and services and inform them of their difficulties. The loan companies or utility providers in question may be able to come up with a suitable solution to the problem, simply by rescheduling a personal loan, or altering the tariff of charges on a utility service.

If this course of action does not resolve the issues at hand, or doesn’t go far enough to free up sufficient disposable income, then it is important to prioritise the various bills and loan repayments, to ensure that the important things are paid for before those which are not quite as essential.

The first thing to do is to make a list of every bill and loan or credit card commitment which is being paid, whether this is by direct debit, or by manual payments over the counter. This list may highlight some areas where instant savings can be made, simply by cancelling contracts within the terms of the agreements.

For example, a person’s mobile phone bill, or gym membership, may seem to be essential to them, but in reality, these must take second place to things such as home owner loan or mortgage repayments and gas and electric bills…it is not possible to charge up your mobile phone if your electricity supply has been cut off!

Once luxury and non essential items have been cut from the budget, if things are still not adding up, then it is time to place the remaining bills and loans in order of importance, which is where many people struggle. The biggest bill or loan repayment is not necessarily the most important one to be paid.

At the top of the list must be the essential items, such as gas, electric as these are able to cut off your supply if arrears build up. Although water suppliers can not cut your supply, they can still take legal action to recover any debt owed.

When it comes to loan repayments, those loans which are secured on the home must be the high priority repayments. These would include home owner loans and mortgages which take a first legal charge over the property, as well as any additional secured loans.

Although they take a second charge after the main home owner loan, secured loan providers can still take action to repossess the property if loan repayments are missed, or arrears build up leading to a default on the loan. In fact more properties are repossessed through secured loan defaults, than for mortgage or home owner loan defaults.

For non home owners, rental payments are just as important as home owner loan repayments are for home owners. Failure to keep up with rental payments can lead to eviction from the home and a damaged credit rating, which could prevent them from being able to get another rental property to live in.

For non secured debts, such as credit cards and unsecured loans it is still extremely important to keep up the repayments in order to avoid damage to a person’s credit rating, but these must take second place to the more important commitments stated above, even if the repayment on an unsecured loan is more than that on the home owner loan, for example.

Borrowers should not just simply stop paying unsecured loans and credit card bills, but should always contact the loan provider to inform them that they are facing financial difficulty, in which case the lender may be able to offer help and advice to save the borrower from loan arrears and a bad credit rating.

For those individuals who are still finding it difficult to manage their finances, a debt management plan could be the solution. The plan manager makes an arrangement with the borrowers various loans and other creditors and makes reduced repayments to each lender based on the priority of the loan debt. The borrower then makes one monthly payment to the debt management company, who then distributes the funds accordingly.

Debt management plans can end up being very expensive and leaving borrowers in a financially worse off position than they were originally and it is therefore essential to deal with a reputable company, preferably a member of the Debt Management Standards Association (DEMSA) and be aware of all the charges and fees involved in such a plan.

There are various professionals and charities which are able to offer help and advice with regard to loans and debt issues. Financial advisers, loan brokers, insolvency practitioners and charities such as the Citizens Advice and the Consumer Credit Counselling Service (CCCS) can all offer help and advice and these should be consulted to ensure that the right course of action is being taken.