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Debt

Should Parents Bail Their Children out of Debt?

It can be very difficult for parents to see their children struggling financially. Parents automatically want to help their children and if they have any problems they will help if they can. However, if they have debt problems, bailing them out may not be the best thing to do.

It could seem very cruel to leave your children to struggle if they get into debt and cannot manage the repayments. As a parent you may feel that you have no option but to help them if they ask you to and make sure that they do not have to pay extra charges or fines, but this could be a mistake for several reasons.

If your child gets used to you bailing them out then they will have no motivation to budget and be careful in the future. They will know that you will be there to help them and so if they overspend the consequences will not be bad because you will be able to help them out. You might enjoy being able to help them and feel that it is your duty but if you are in a situation where you can no longer afford to help or you are no longer around to help, they will really struggle then. If you can help them by teaching them how to budget and spend less and how to earn more they will learn a much more valuable life lesson.

There could also be a problem with jealousy. If one child gets lots of financial help from you and their siblings do not ask for help and therefore do not get any money, they may feel that they are being treated unfairly. They may feel that it is unfair that they are going without and working hard to make sure that they stay out of debt when their sibling is not and that they are being punished for their good behaviour by missing out on money. It may even make them think that it is no longer worth budgeting and they will just ask you for money instead.

No one has an unlimited supply of money and even if you even out the money you are giving one child by giving the others the same, so that there is no jealousy, you could run out of funds. This could lead to problems if there are debts to pay and no one has the money to do so.

This is why teaching your children right from the beginning that they need to be careful with money is so important. Teach them how to be wise with what they are spending, how to budget, compare prices, do not buy too many luxuries and save money each month. They will then have enough money to manage and have a backup just in case there is an emergency and they need some extra money. They should then have no reason to borrow money unless they want to buy something large like a home and should have the principles in place to ensure that they manage the repayments anyway.

It may feel really unfair not helping your children when they need it and saying no when they ask for things. This is something that many parents will find very difficult. However, you need to consider what a life lesson you will be teaching them if you do this and especially if you try to help them in other ways. If you keep giving money then they will never learn to budget or to take responsibility for earning enough money to cover their bills and you will actually be doing more harm than good. Sit down and explain to them why you are refusing and how you want them to learn to manage on their own so that they do not accumulate lots of debt in the future. They may find this difficult to accept and may feel that you are being unfair but hopefully they will consider what you are saying carefully and decide that you are doing the best for them. Obviously you will know how well they can take the news and will know the best way to explain things to them so that they will take it well and have the right attitude in the future.

Debt

When Can Debt be a Good Thing?

There are some of us that fear debt. We feel that it is a terrible thing and that we should never borrow money from anyone. There is even and old phrase ‘never a borrower or a lender be’. However, there are circumstances when debt can actually be a good thing. This may be hard to comprehend for some people as it does tend to come surrounded by such negativity but it can be extremely useful if used carefully.

Some debt can actually help us to improve our lives and have a more positive future. It does have to be dealt with carefully though. Examples of good debt are things like mortgages, student loans and some business loans. Anything that will improve your future could be considered to be a good debt. So if you have a mortgage, you will no longer need to pay rent and a mortgage is often cheaper. You will end up owning a property that is most likely to increase in value and you will either be able to sell it and have the money should you need it or you will have something to pass on when you no longer need it. With a student loan you will be investing in an education which you will then use to get a better paid job, which will help you to have more earning potential and hopefully be happier in your career. You also will only have to make loan repayments when you are earning enough money and it is written off after thirty years if it has not all been repaid. With a business loan, you may find that you need to have some money so that you can grow your business. It might be that you want more stock, bigger premises, better marketing and advertising or something like that, but if it is a wise investment it could lead to the business becoming much more profitable and more than making enough to cover the loan repayments and make more profit.

There are risks with all types of loans, even good ones. There is no guarantee that a house value will go up, that the government will not change the rules on student loans or that a business will do well after an investment of capital. However, if you assess the risks before taking out the loan then you can minimise the chance of things going wring. Think about the future and what you expect to happen and the consequences of this. Of course, no one has a crystal ball, but you should still be able to make some assumptions and have a think about what you think may happen to you, the economy, the markets etc. Looking at what has happened in the past can be a good start to predicting what might happen in the future and you may find articles and books which could help you as well.

It is also really important to think about how you will manage the repayments. Once you borrow money you will be committed to making repayments until the debt is clear and this is something that you will have to budget for. If you are already renting a home, then you will be used to paying out each month and once you take on a mortgage you may find that you will be paying less. Student loan repayments are taken out of your tax code and are means tested so you should be able to afford them without too much worry. A business loan will hopefully be able to be repaid form the business profits, but it may take time even after an injection in cash, for profits to increase and so you will need to be sure that you can cover them. It also may be easy to think that you will manage in the short term, but you need to think about the future as well. If your circumstances change you may find it much more difficult to cope with the repayments. You will need to consider whether you might want to take out insurance to cover you in this situation or whether you feel that you can have enough savings to give yourself an emergency fund.

Mortgages

How to Find the Best Mortgage Deals

If you are looking to take out a mortgage for the first time or to change your mortgage, then you will be wise to look around and see what mortgage deals you can find. You will need to take a look and see what is currently available and what you think will suit you the best. Some people will choose to use a financial advisor to help them, but some people would rather take a look for themselves so that they can make the choice and avoid paying for the advisor.

Although they charge, a financial advisor could be the best person to ask. They have an in depth knowledge of the market and they are not allowed to get commission on recommendations. This means that they have no reason to be biased towards one particular lender over another. They have a good understanding of finance so will be able to explain things to you if you do not understand it yourself and they should be able to find you the best deal for what you need from a mortgage. As they will be able to find you good deals and may even have access to deals that you cannot find, they could end up saving you a significant amount of money which means that their fees will seem insignificant.

Some people choose to use a broker to help them to find finance deals. These are similar to financial advisors but they are free. The reason that they are free is because they get commission on the deals that they recommend. This means that they will recommend the ones that earn them commission. There are some lenders which will not offer commission and that means that they will never look at them when they are trying to find the best deal for you. They can save a lot of time though and they will compare some deals and let you know which is the best price for you.

Some people prefer to use comparison websites. They will let you know who can give you the best interest rate depending on how much you want to borrow and for what term. Although this is a good way of comparing across a selection of lenders it does have its flaws. Firstly, they do not look at all lenders, just a selection and they do not have to list all of them, so some will only list the ones that will pay them the highest commission even if there are others that have better deals for you. There are some lenders that will never appear on them because they want to keep their costs down by not having to pay commission to these sites. The rates may look good, but once a lender does a credit check they may decide that they will not be able to offer you the advertised rate.

You can approach many lenders yourself to get an idea of what they will charge you and then you can do more than using a comparison website. It is probably best to use some comparison websites to reduce the time it takes you to compare but also look at some lenders directly as well and then you can get an idea of how they all compare. It will be very time consuming to compare every single lender and you may find it difficult as there will be lenders that you have never heard of. This is why a financial advisor could be much easier and better as they will be able to tell you a bit about the lenders that you have never heard of and whether they have had any experience of anyone using them.

It is also worth remembering that finding deals is only part of the job. You also need to think about what other factors are important to you in a lender. You will want the right type of mortgage, you need to consider how flexible you want it to be, what the reputation of the lender is like, how good their customer services are, what fees and charges they have and many other things that could be important to you. It will take time and as it is an important decision that will have a big impact on you for a significant period of time you need to take as much time as you can to make it.