Managing Family Finances: Credit Solutions for United Kingdom Residents
In the UK, the cost of almost everything is rising. Everything seems to be getting out of hand, whether it is living expenses, educational expenses, energy price hikes, transportation charges, or household budgets. These burdening expenses are making it difficult for even a small family to hold up with life and society.
This year, money and UK are not getting along. Inflation is the major cause of the financial strain people are going through. According to the Office for National Statistics (ONS), the CPI inflation rate in the UK reached a 40-year high of 9% in April 2024.
What does it mean for an average family living in the UK? Everyday essentials like groceries and utilities will become more expensive, and families will have less room in their finances.
How are they going to manage their finances? As per our research, around 6 million families are currently depending on credit solutions to meet their ends, and we would say if you are able to handle it carefully, then such solutions are the best.
Credit solutions can be a helpful tool when used responsibly. What is included in such solutions? It includes products like loans and credit cards that provide a financial cushion for emergency expenses, repaying debts, home improvements, etc.
If you think you can practice responsible crediting, then why not go for one of the most suitable credit solutions for yourself?
The Credit Solutions For Family Finances In The UK
If you have a clear understanding of your family’s financial situation, it will be easier for you to choose a suitable credit solution. To decide on which credit solution to choose, you need to know about the various credit options available and how they can fit within your family's financial plan.
1 - Secured Loans
Secured loans offer a way to borrow a larger sum of money (typically ranging from £1,000 to £25,000) with a lower interest rate compared to unsecured loans. This is because you use an asset you own, like your car or house, as collateral. If you fail to repay the loan, the lender can repossess the asset to recoup their losses.
The Benefits:
● Lower interest rates compared to unsecured loans
● A larger borrowing amount is available
The Drawbacks:
● Risk of losing your collateral if you can't repay the loan
● Stricter eligibility requirements based on your credit score and the value of your collateral
2 - Unsecured Loans
Unlike secured loans, unsecured loans don't require collateral. This makes them easier to obtain, but lenders typically charge higher interest rates to compensate for the increased risk. Unsecured loan amounts are generally smaller than secured loans (ranging from £1,000 to £10,000).
The Benefits:
● Easier to qualify for than secured loans
● No risk of losing an asset
The Drawbacks:
● Higher interest rates compared to secured loans
● Smaller borrowing amounts are available
3 - Credit Cards
Credit cards provide a revolving line of credit, allowing you to borrow money up to a pre-set limit and repay it monthly. You only pay interest on the amount you borrow and repay it in full by the due date to avoid interest charges. Credit cards can be convenient for everyday purchases and building your credit score if used responsibly.
When you use a credit card, you're essentially borrowing money from the issuer. Interest rates on credit cards can vary significantly, typically ranging from around 10% to 30% APR (Annual Percentage Rate).
You need to choose a card with a competitive interest rate and understand how interest accrues on unpaid balances.
Credit cards can be lethal for anyone. They offer convenience and potential rewards programs, but irresponsible use leads to high-interest debt. Only spend what you can realistically afford to repay each month to avoid falling into a debt trap.
4 - Overdrafts
Overdrafts are a form of short-term borrowing linked to your current account. They allow you to spend more than the balance you have in your account up to a pre-agreed limit. Overdrafts can be helpful for covering unexpected expenses, but they come with hefty fees.
Overdraft charges can include daily fees and unauthorized overdraft fees. These fees can quickly add up, making overdrafts an expensive way to borrow money.
Relying heavily on overdrafts can lead to a cycle of debt. It's best to use them sparingly and only for emergencies, as the fees can quickly erode your finances.
5 - Comparing Options
Before committing to any credit solution, comparing interest rates, fees, and features offered by different lenders is important. CashCompare is a valuable tool for UK residents. It allows you to compare various credit cards, loans, and overdrafts from multiple lenders in one place, helping you find the best deal based on your needs and financial situation.
6 - Government Support (Optional)
The UK government offers various support programs for low-income families who are struggling financially. These programs can include income-based benefits, help with housing costs, and debt advice services. You have to explore these options through government websites or contact your local Citizens Advice Bureau for further information.
How To Choose The Right Credit Solution For Your Family?
First of all, selecting the right credit solution for your family hinges on a thorough understanding of your unique financial situation and needs. Don't be tempted by a one-size-fits-all approach.
Consider the specific reason for needing credit. Are you looking to consolidate existing debt, finance a home improvement project, or cover an unexpected expense? This will determine the loan amount you require.
Next, think about the nitty-gritty of interest rates and repayment terms. Lower interest rates translate to lower overall borrowing costs, making secured loans generally more attractive for larger borrowing needs. Contrarily, for smaller, short-term needs, an unsecured loan with a shorter repayment period might be suitable.
Now comes the affordability part. Before committing to any credit product, ensure the monthly payments comfortably fit within your existing budget. Factor in your fixed and variable expenses, leaving enough room for essential outgoings and savings goals.
Finally, consider your eligibility. Lenders have specific requirements regarding credit score and income level. Checking your credit score beforehand can help you narrow down options that align with your financial profile.
Remember, utilizing CashCompare helps you to compare not only interest rates but also eligibility criteria and features across various lenders. This comprehensive comparison ensures you find the most suitable and affordable credit solution for your family's specific circumstances.
Final Thoughts
After all, you have to begin your credit journey by considering your family's financial standing in the UK’s rising inflation. According to the Money Advice Service, the average household in the UK spends around 34% of its income on housing, 13% on food, 12% on transport, and 9% on recreation and culture. You must familiarize yourself with these average figures, adjust them to reflect your family's spending patterns, and acknowledge the potential impact of debt on your family finances.
