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By Credit Expert


Friday, July 3, 2009.


Redundancy may be a worry for many people right now but it’s not necessarily the main cause of our financial woes. Rising bills and one-off payment shocks, such as having to replace a car, can be much more damaging, according to research from the Council of Mortgage Lenders (CML). It showed that higher food and fuel costs had the biggest negative effect on our finances last year.

If you can’t work out where your money goes, this checklist should help you to identify the true cause – or causes – of your cash flow crisis. Once you know what the problem is, you can take steps to deal with it.


You spend first and think about it later

Even small purchases soon add up and if you’ve racked up credit card bills or an overdraft, you need to change your ways. Find new hobbies – try taking up a sport, spending time with your friends or joining a club or society. When you do go shopping, try consciously asking yourself, “Do I really need this?” Only flash the plastic if the answer is a resounding, “Yes”.


You don’t know what you owe
Credit card debts aren’t free, even if you pay the minimum every month. Nor is that car loan you took out three years ago or even your mobile phone contract. What you need is an overview of the credit you’ve taken out and you’ll find it in your credit report, the personal history of your credit accounts and repayment record. You can see your Experian credit report for free with a 30-day trial of CreditExpert – it will give you a clear picture of what you owe and how you’re managing.


Your credit history means you’re paying extra

You could be paying higher than average interest if you’ve missed payments or walked out on a loan, credit card or mortgage as this could make lenders nervous that you’ll let them down, too, and a simple clerical error on your credit report could have the same effect. Either way, you’re likely to find it more difficult to get credit and to pay a higher rate of interest than someone with a good credit history. You should check your credit report regularly to be sure that it is accurate and up to date. If you find anything you disagree with, contact the relevant lender and ask for it to be amended.


The rising cost of living has caught you out

The CML study showed that about a quarter of British households are struggling to pay their basic bills. If the cost of living has hit you hard, you need to find ways of cutting back without missing out. Try budget supermarkets or food value/essentials ranges, use price comparison sites to find the best deals on gas, electricity, insurance and other necessities and dump those little treats that cost so much over time, like the daily latte or the regular take-aways. Small adjustments can help to balance your budget, painlessly.


Your payment priorities are wrong

You need to identify which debts cost you most in interest or fees and target them first. For example, you might want to pay off a credit card before clearing a loan. It could also be worthwhile to consolidate several debts into a cheaper loan or to see if you can get an extension to your overdraft at a reasonable rate. Get professional advice if you need help – try Citizen’s Advice at www.adviceguide.org.uk or ask your bank manager.


You don’t have an emergency fund

Payments shocks, such as needing a new fridge or washing machine, could push you into debt if you don’t have an emergency fund set aside. If you have a good credit history, you may qualify for a period of interest free credit to tide you over but everyone should try to save a little every month, just in case – that way, you won’t have to take an expensive deal out of desperation.


You’ve had financial problems in the past

It’s easy to think it won’t matter if you skip a repayment occasionally – but it does. Lenders check your credit report when you apply to them so that they can see if you’ve been a responsible borrower in the past. If they find evidence that you’re unreliable, you could get turned down or qualify only for expensive deals. A missed repayment stays on your credit report for at least three years, while gong bankrupt or taking out an IVA are on the record for at least six years. If special circumstances, such as an illness, explain past problems, you can add a note of explanation.


Your ex is haunting you

You may have split up years ago but if you shared a mortgage, bank account, credit card or loan, their credit history could still be affecting yours. Your credit report has a section that lists the people with whom you share a financial connection. They are known as your financial associates and lenders may check their credit report as well as yours, because their position could affect your ability to honour your debts. Remember to close joint accounts after you separate and tell the credit bureaux that you are no longer linked.


Your ID has been stolen

Identity fraud is one of the fastest-growing crimes of the 21st century and takes place when criminals manage to get hold of enough personal data to impersonate you, borrow money in your name, empty your accounts and max out your credit. On average, it takes more than a year to discover you’ve been targeted, according to Experian’s dedicated Victims of Fraud team – in the meantime, you could be denied the credit you need to get by. Regular checks on your credit report allow you to spot suspicious applications and transactions and mean you can prevent problems from escalating.


Your pay or hours have been cut

You may be frightened of losing your job but it’s more likely that your pay or hours will be cut. If it happens, don’t carry on as usual – pull out your bills and revisit your credit report to see what your fixed costs are, then draw up a realistic budget. If you’re worried you can’t meet repayments, talk to your lenders and explain the situation. They may be able to reschedule your debts so you pay less each month or arrange a temporary payment holiday while you look for new sources of income.


You haven’t taken control of your finances

Cash flow problems are all relative – you may really have enough money but haven’t taken control of it, with the result that it slips through your fingers. A sensible budget that allows for some treats and monthly checks on your bank and card statements will show you clearly where your money is going and remind you to stay on top of it. Remember to check your credit report with CreditExpert – you can get advice on how to take control of your credit rating as a part of a 30-day free trial.

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