‘Finance’ is something that we all live everyday. It’s the real hard cash in our bank, it’s the ‘promise’ of money on our credit cards; it’s the counting out of pennies at the end of the month, and that welcome rush of income on payday. It’s not a remote topic for experts only, which is why I’ve answered some of the every day fundamental ‘money questions’ I have come across more than once, that I think will help everyone.
I have a credit card debt I’m still paying off, should I do a balance transfer?
Generally speaking, I would say yes. A balance transfer is a great way to keep track of your debt, as it puts it all in one place. Additionally, depending on the card you’re transferring your debt to, it can also buy you more ‘free interest’ months over which you can pay back your debt without having to pay extra on interest rates.
Am I a failure if I decide that to take a job that pays me less?
Absolutely not. Success is not measured in £’s earned, but in satisfaction gained. If you are happier doing a specific job that generates less income, then you should prioritise your outgoings in order to ensure you can live within your means and do the job that makes you happiest.
What matters more; how much credit you have available to you, or how you pay off your debt?
Mostly, loan and credit card companies are looking at your history with credit. If you’ve been with one company for a long time and have always paid off your debts, then that is what is most crucial. Whilst having a lot of available credit is a good indicator that you a trustworthy lendee, they will definitely be zeroing in on the length of time you’ve spent with your current lender and how consistently you make your payments.
What is compound interest?
It’s a pain, that’s what it is.
Let’s start with the basics of ‘normal interest’. This is the amount of money you pay on a loan. (ex. £100 loan with 10% interest will give you £110 total that you have to pay back).
Compound interest, however, is interest that is calculated on each ‘new’ sum, as opposed to just the original amount you borrowed. Taking the above example, 10% interest on the original sum of £100 gives you £110. Compound interest means that the next time 10% interest is added to that loan it’s 10% of £110, not the original £100. This happens each time new interest is added, meaning that the amount you have pay builds, the longer you leave the loan unpaid.
Do I need a credit card to get a mortgage?
Not necessarily. However, mortgage lenders are looking for a history of reliability and consistency when it comes to your finances. They are, after all, looking to loan you hundreds of thousands of pounds; they need to know they’re likely to get it back. This means that anything that demonstrates your credit history; such as loans, credit cards, house bills, and overdrafts, are all useful tools for you to show them that you are a solid mortgage candidate.
What happens if I miss my credit card payment?
The world doesn’t end, most importantly. If it’s an accident then pay as soon as possible. You will probably have to swallow the late fee and just pay it. But it’s a good lesson for the next time. Being a few days late on only one payment won’t affect your credit history in any meaningful way so don’t panic about this.
If you don’t currently have a credit card but are thinking of getting one, check out our Credit Card 101 piece that gives you some advice on what steps to take before getting your first card.
Explain to me again why I should care about rising interest rates?
Because, essentially, the more expensive it is for the banks to borrow money, the more expensive it will be for you to borrow money. This video clip is based on the American system but it does a great job on clarifying what it really means for you when the interest rate rises.