In these days of a worsening economy and increasing job layoffs, sliding down the slippery slope to bad credit is no longer only associated with careless, undisciplined spenders.  Careful, conscientious people are caught in situations they never choose which have led them to bad credit. We don’t have to look far to see the casualties of bad credit and those who are labelled as such, often feel mentally paralysed.

The Theft of Your Options

Perhaps the most confining aspect of bad credit is its stifling ability to rob one of life’s most precious commodities: options.  Why are options so critical?  Because without them, you are driven by the whims of others:  others’ schedules, programmes, interest rates, jobs, cars and on and on it goes.

Veggie Burger or Juicy Steak

An option can, for example, give you the choice between a healthy veggie burger and a scrumptious, juicy, thick steak.  For the health conscious, the choice may be easy.  For the carnivore reading my words, walking away from the scrumptious steak is tantamount to a mortal sin.  But the option to choose gives you power; power to rule over what you want and need in daily life.

Pull Up!

The downward spiral of bad credit does remove many options and although life’s emergencies or less than optimal financial choices may have slapped the “bad credit” label on you, although costly, it doesn’t mean financial death.  Quite the opposite – the vast majority of us have families and responsibilities to take care of and have no wish to fail in doing so.  It’s time to rise above the muck and wake up to your options, one of which may be a bad credit short term loan.

Experts Praise Options

The discipline of assessing your financial position is crucial to recovery with bad credit.  Experts recommend honest, careful listing of all your debts, large and small.  The step of making a budget cannot be overlooked as you list your income and how you spend your monies each month, both of which give you a realistic picture of next steps you can take in your plan to move ahead.

Now fast forward five years – every decision you make today will either put you in a better or worse financial situation then.  The option of leveraging cash today with what is sometimes called a bad credit payday loan may give you some breathing room financially for a short term in order to move forward tomorrow.

Freedom of Choice

Back to the veggie burger and steak illustration, which would YOU choose?  Say you were assigned one while your neighbour in the table next to you got his or her choice – feeling a bit cheated?

The truth is that, with your finances, you absolutely must be in control of your choices.  These choices include discipline, hard work, seeking out counsel if needed.  You may need the option of immediate cash to give you financial options in the near future.  Your bad credit doesn’t need to keep you from a short term loan.  You can use these monies for any purpose you desire, they are generally given with instant approval and with payday right around the corner, you can pay them right away.

Always read carefully the terms of any loan and experts caution against using short term bad credit payday loans to continue bad spending habits.

Gift of Time

The ability to pause and examine your options and best next financial steps require time to think; time to assess what your challenges are and how you will face them head on.  Now your less than perfect credit doesn’t call the shots, you do.  Your choice of tools in gaining more time may be best served with a short term loan before your next payday.  Here’s to your options!

Freelance writer Sarah Fox sees options as key to freedom in all of life.  She notes that bad credit payday loans are gaining increasing attention as option-based planning gains popularity.

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How much will you pay in interest this year?  Few borrowers realise the implications of compound interest on their debt when they sign on the dotted line.  While a few percentage points may seem like a trivial technicality, the interest on your loan is compounding every day– and so is your debt.

Simple versus Compound Interest Calculations

Simple interest accrues only on your principal, which is the actual amount that you have borrowed from a lender, be it via a credit card or a home loan.  In simple interest calculations, your interest rate is percentage of the principal on your debt.  An APR, or Annual Interest Rate, of 15% on a principal of $100 would accrue $15 of interest charges over the life of the loan in a simple interest calculation.

Compound interest involves a continual recalculation of the amount that you owe the lender.  For the $100 that you charged on a credit card with an APR of 15%, your daily interest rate will be approximately 0.041%.  This is because the amount of interest will compound, or be recalculated, based on your balance each day.  On Day 1, you will accrue $0.41 in interest charges, bringing your new balance to $100.41.  On Day 2, your interest will be calculated based on a balance of $100.41 and you will accrue an additional 42 cents of debt, bringing your new amount owed to $100.83.  This will continue each day until the balance is paid in full.

While most credit card companies and similar lenders offer a grace period in which the borrower may pay the balance in full to avoid any interest charges, making only the minimum required payment means that the remaining balance will begin to accrue interest immediately.

The Exponential Growth of Your Debt

Almost all lenders use compound interest calculations when you borrow money.  This has profound implications on your debt.  While the initial 41 cents of interest on your $100 charge seems innocuous enough, over the course of a year your debt will grow exponentially.  If you make a minimum payment of $10 each month, it will take you 11 months to pay down your debt, costing a total of $107.50.  Now consider if you miss a payment and have late penalties applied to your account, causing you to take months longer to pay the balance in full.  It isn’t hard to see why several thousand dollars or more of debt would quickly become an insurmountable burden.

In November 2012, the average credit card debt per borrower in the US was almost $5,000.  Student loan debt for undergraduates was a staggering $27,000 after leaving college, with professional students owing over $79,000.  Compound interest rates will cause the debts to soar even higher, with many borrowers ultimately paying tens of thousands of dollars more than their principal.

Stop the Climb!  Solutions to Help You Get Out of Debt

The key to limiting the growth of your debt is controlling the interest compounding on your debt. Debt consolidation loans offer a means to do just that.  By consolidating all of your debt into one loan, you will pay interest on only one loan.  More of your monthly payment will pay off the principal, allowing you to pay down your debt more quickly.

A debt consolidation loan is not a magic bullet.  A realistic budget and the discipline to stick to it are crucial parts of any debt elimination plan.  But they do offer a way to slow the exponential growth caused by compound interest, allowing you to regain control of your finances.  Getting out of debt is a difficult undertaking; debt consolidation can simplify the process.

Katie Latchford is a freelance writer who has a keen interest in financial matters such as how to ease your financial situation by applying for a debt consolidation loan to help you to manage your debt more effectively.

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When you begin the search for a good UK credit card, you are likely to encounter a vast amount of information. A lot of this information can be conflicting, as well as confusing, and you might feel that you will never be able to root out the best credit card deal to suit your circumstances.

The way to find the best credit card for you is to cut through all the waffle and jargon and simply focus on what you need from a credit card. Once you know this, you can narrow down your options so that there are only a small number of deals to compare and to choose from.

What type of credit card is best for you?

To get the best credit card deal, you need to understand your spending patterns and to have a good grip on your finances. This will help you find a card that you can afford and that suits your needs. Here are a few examples of credit card types along with who they are best suited to:

• Credit cards with low interest rates (low APRs) – these may attract your attention, but they are not for everyone. These are best if you want a card to use only occasionally and that you can afford to pay off in full each month. If you want a credit card for a specific purpose, this is not the option for you.

• 0% balance transfer credit cards – these cards, which give you 0% for a limited period (i.e. 12 months) are designed for people who already have debt and who will be able to pay off that debt by the expiry of the 0% period. They allow you to transfer the balance (debt) to the 0% card so that you get a better deal and can more easily manage your debts.

• Cash back credit cards offer you money back on everyday purchases on everyday purchases, which is very beneficial but only worth it if you can your balance off in full (or very nearly) every month.

• Low-rate life of balance credit cards – similarly to balance transfer offers, these cards allow you to switch existing debt over to a new card. The difference is that these cards give you a guarantee that the interest rate on the debt won’t increase as long as you can make minimum payments each month. These cards are best for people who can’t afford to completely clear their debts before 0% offer periods run out (usually within 12-18 months).

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When selecting the right loan for your situation, it’s necessary to look at a range of different factors; these range from the types of loans that are generally available, through to the importance of understanding interest rates and your how much your credit score determines what you can borrow. It’s also important to think about what the loan is for, and what options there are if you have bad credit.

Types of Loans

Loans can be divided into several broad categories, which include secured and unsecured loans. A secured loan is generally taken out against something valuable that you own, whether that be a piece of property, a car, or jewellery. The lender can choose to repossess an asset or sell it in order to pay off the loan. Secured loans do produce low interest rates and longer contract terms than unsecured loans, but with a higher risk of losing valuable assets.

Unsecured loans, then, represent forms of credit that don’t use assets, but are instead valued through their rates of interest – this might include a personal loan from a bank, a credit card, or an emergency or payday loan – these loans are worth considering if you need money quickly, and if you can take out a loan off the back of a positive credit score.

Interest Rates and Your Credit Score

How much you can stand to borrow and repay on a loan will depend on interest rates and your credit score. The base rate of interest is set by the Bank of England in the UK, and is currently at 0.5 per cent – most lenders will charge above this for loans, although mortgages can be taken out to match the base rate. In terms of an average loan, you can might pay 5.2 per cent on a £3,000 payment, with 1 year to repay – this 5.2 per cent interest will mean you repay around £230 a month to cover the loan.

Credit card interest rates are also variable, and can go from very low introductory offers to about 18.9 per cent and higher in interest charges per year. Payday loans, which are easy to apply for, but come with the understanding that you make a full repayment with interest at the end of a month, can charge up to 1400 per cent in interest for their quick lending.

The kind of interest rate you have to pay will primarily depend on your credit score, which is worked out through your past borrowing history, as well as through your employment and address history. A negative credit score can result from defaulting on loans, and from consistent periods of time away from work; this can make it difficult to get credit, and can mean that you have to work to rebuild your score with credit agencies such as Equifax, Callcredit, and Experian.

What the Loan is For

Whatever loan you need, remember to consider how much risk you’re willing to enter into – what is the purpose of the loan, and can you realistically expect to make repayments with interest within a given contract? Also, think about what kind of collateral, or assets, that you can afford to gamble with. If you do have bad credit, it’s similarly worth considering approaches that lower your personal risk – getting a loan with a guarantor can be useful, as they agree to make payments on your behalf if you are having problems. Borrowing against the equity in your home can also represent a calculated risk if you need to raise a significant amount of money in a short period of time.

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In spite of the tight credit market that we all hear about via the news, there are still many loan options available for borrowers with bad credit. The challenge is to find the loan that makes sense for your needs. Repayment options, interest rates, collateral required, and loan amount needed all impact a borrower’s decision about which loan to choose.

• Peer-to-Peer Lending – Peer-to-peer lending services act as a broker of sorts, connecting lenders with borrowers. While the borrower’s credit score is considered, bad credit is not usually a deal-breaker, since the loans are generally smaller. Lenders spread the risk among a large number of borrowers as a way of protecting themselves. Some of the loans are for as little as $50.

Borrowers apply online. It is free to apply. Questions about the amount requested, reason for the loan, credit score, and existing debt are answered online. If approved, the lender deposits funds using an Automated Clearing House(ACH), check, wire or with PayPal.
One of the best things about this type of loan is that the rates tend to be lower than other loans for borrowers with bad credit. What keeps the rates low is that lenders bid on the loans they want to fund. This process drives the interest rate down.

• Cash Advance Loans – This type of loan works for borrowers with bad credit since there is no credit check. The loan amounts tend to be for small amounts. As is often the case with high-risk loans, high interest rates are charged to cover the high risk incurred by the lender.

• Title Loans – Title loans offer another option for borrowers with bad credit. People who own cars outright can pledge their car as collateral for some quick cash. Due to the very high rates charged for this type of loan, this should be a last resort loan when all other possible resources have been exhausted. Usury laws do not apply to this type of loan, so it is not uncommon for the Annual Percentage Rate (APR) to be as high as 250 percent.

• Permanent Life Insurance Loans – Many life insurance policies have cash value. These types of policies can be borrowed against. This may be the easiest and best loan to obtain for borrowers that own this type of insurance policy. A check is often cut on the spot if you drop by the office. Credit scores are not a factor. Policyholders should read the Policy Loan Provision in their insurance paperwork to find out the details. The interest rate and repayment information is stated in that Provision.

• The 401(k) Loan – For borrowers lucky enough to have a 401(k), this can be one of the best sources for cash. Since you are essentially borrowing your own money, they do not check your credit.

This loan is often even cheaper than a bank loan. Strict regulations dictate that this loan be repaid in five years or less.

• Pawn Loans – Pawn loans are quick and convenient. A borrower can pledge personal property for a fast cash loan. As long as the debt is paid according to the terms of the agreement, then the collateral is returned to the borrower.

Jack Sperrow is a widely recognized financial blogger that writes regularly at http://www.loanshark.co.  The website advocates against illegal lenders by allowing borrowers to report lenders and financial scams.  Read more about Jack on his Google+

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