Archive 2018

Teaching Your Kids about Money

Teaching Your Kids about Money

To manage the finances Youngsters cannot be expected to suddenly adapt such habit. Not to be picked up along the way it is a type of skill that must be learned actively.

Through overhearing conversations while the parents are stressed over bills at that time if kids only get to learn about money then towards the home finance the attitude of kids may not be very healthy.

Usually limited to a couple of lessons, some part of financial education will now be included by most schools. We already know that money management might not be that successful if it is about sitting down to lecture for the kids. For you to try here are the best strategies.

 

Help them in opening a bank account

If you want your kids to start taking their financial education very seriously then give them some control over their money. From as young as 11 children can open a bank account, to make them realize that money does matters it can be a great way to demonstrate and give them that responsibility.

On their behalf, you don’t simply do everything so just make sure about it. Into a great learning moment, you can turn this milestone by discussing what it means to have an own account by together going through the paperwork.

 

Show opportunity cost

Tell them that, “You won’t have the money to buy that pair of shoes if you buy this video game”. By understanding the possible outcomes at the growing age your kids should be able to weigh decisions.

Exploring money management apps

There are many apps for money management.  In terms of money to help your kid get better, there are plenty of fun ways means there is a wide range of financial education apps. To grips with numbers, for helping the youngest kids there is a game based iOS app such as little digits.

To make pocket money mimic adult banking there are a couple of excellent apps designed for older kids. There is a prepared debit card in which you can load money as well as it is a handy banking app known as  Gohenry which is the gold standard and that can be loaded into a mobile phone of your older child.

Just like a regular debit card, the card can be used and to set aside some savings it is possible. Compared to a regular bank you will have a lot more control being a parent or guardian. Being an alternative with nearly the same functions and rather than Visa the app called Osper works in conjunction with MasterCard.

Out there you will also find some great resources. LifeSkills and Barclays are particularly teen and kid friendly and in a teen and kid-friendly way, it shares the resources.

 

Let Kids make some financial decisions

For some of their own financial decisions to let the teenagers start taking control it is a good idea for teenagers. To hand over the responsibility of paying bills is not the thing we are suggesting, but there is a real motivation to get cash smart only if they are having control of their own budget.

While teenagers ask for something rather than ad-hoc payments, in order to fit their needs teenagers have to plan a budget, so it is sensible to give them a fixed and regular amount of pocket money.

To manage your money there are a lot of different ways. So the same prescriptive rules should be given to all children is not our suggestion. But to set them up for a successful financial future the great way is by knowing the basics of how to budget as well as save.

 

Understanding Mortgage Broker

Understanding Mortgage Broker

For securing fund you may not be familiar with the many options while you are buying your first home. It can also be a huge undertaking while taking out a mortgage.

Researching lenders after spending several days or weeks, it is in your best interest by deciding to hire a mortgage broker. As many people do not understand exactly how brokers get paid and what they do, so to hire a broker most of the people are hesitant.

 

Payment

When using a mortgage broker you may be worried or concerned about large fees. In some cases, their payment won’t even come from the client. From charging too much and by keeping them from adding extra fees, as well there are some laws in place. 1-2% of the total amount borrowed is what they will usually receive. The amount must come from either the borrower or the lender and it must be disclosed upfront.

Amount to be paid over the time, it is often added into the loan if the borrower is meant to pay the fees. Hence with the mortgage interest rate, this amount does not interfere. For bringing in the business lender often pay them.

 

Role of Mortgage Broker

A lender is not an independent mortgage broker.  Between you and several lenders, they work as a liaison. In order to get your financial documents, a broker helps you so that your chances of qualifying for a loan are more.

To work with your income, current debt, and credit history a broker might choose a suitable lender. Throughout the entire process, you will only deal with the broker whenever you are ready to take out a mortgage.

At the same time, you might be communicating with several lenders while applying for loans on your own.

mortgage brokers uk

Should you rely on other’s opinion?

To find out whether he/she is a good broker it is good at taking your friend’s advice if they have a good experience and also they have already used a mortgage broker. What works for your friends may not work for you as everyone has their own requirements. So make sure that you get what you want from the broker.

 

Difference

Whenever you are working with a broker there will be several differences occurring. When you are attempting for a loan on your own, you might require much time for approval but if you are taking help from a broker then the approval time for a loan could be much sooner.

About the lending habits of various banks usually, a broker has more knowledge than the individuals.  By using a broker you could end up with a much better interest rate and to fit better within your budget your monthly payments could also be negotiated.

A broker will be the best option while finding a new dream home and need to get a quick approval. To various lenders having no positive results, you may find yourself applying individually.

When you do not have someone in helping to find a correct match then the process can take months or weeks. As it sounds a mortgage broker is not that mysterious, they can help you in saving money and time. And also your loan may get approved much faster as their role is pretty straightforward.

Which banks are more likely to approve you is very well known by the broker. By narrowing down your options they can also overlook your paperwork. In trying to get the best interest rates, they will always look out for the best interest of yours.

Yet being simple the payment is often the main concern. During your first consultation, the payment expectations should be well explained by your broker and this may be your lender’s responsibility or your responsibility.

On the road to home ownership to help you in getting started, try speaking with a broker.

 

Interest-Free Budgeting Loans- Everything You Need To Know

Interest-Free Budgeting Loans- Everything You Need To Know

The UK government is handing out a lot of benefits to citizens who’re either unemployed or on a very low income. Despite Universal Credit, you may still fall short of money to make ends meet. If this is so, you can now access interest-free budgeting loans. This is some extra money on top of your existing benefits that you can use to pay for essential day-to-day commodities. A budgeting advance is somewhat different, in that it’s a higher amount of Universal Credit (UC) helpful in paying for certain expenses. Budgeting loans are interest-free and from Social Funds.

 

What Are Budgeting Loans?

Budgeting loans are like a saviour in disguise for UK citizens on a low income or out of work. They’re like a normal loan and need to be paid back, but without any interest on it. Applicable to England, Scotland, Wales and Northern Ireland, you can use the money to pay for a wide range of goods and services such as:

  • Household equipment and furniture
  • Daily wear like clothing and footwear
  • Advance rent payment or expenses on moving house
  • Travelling expenses
  • Things that can help you get or start a job
  • Making improvements, maintaining and securing your home
  • Maternity and funeral expenses
  • To repay debts taken out in the previous months

 

More help for Maternity:
You might be able to gain a £500 SureStart maternity grant. While you don’t pay this back, you’ll have to repay budgeting loans if you borrow them for pregnancy-related costs like hospitalization and neonatal childcare. Eligibility depends on whether you’re expecting your first child or already have children.

 

More help for Funeral:
If you’re on benefits and have to pay funeral expenses for a family member or close friend, try applying for a Funeral Payment.

More help for Emergencies:
In the presence of a scheme in your area, you can apply for Local Welfare Assistance in the face of an emergency. These are discretionary and there are chances you might not get them as not every council has them. This isn’t the case with budgeting loans. You can use the vouchers for small essentials like food, clothing and fuel, as well as for big ones like a bed, cooker or fridge.

 

Can I Get Budgeting Loans?

One of the basic eligibility criteria for getting budgeting loans is that you should already be receiving state benefits in some form or the other. These loans are available if you currently claim any of the following:

  • Income Support
  • Pension Credit
  • Income-based Jobseeker’s Allowance
  • Income-related Employment and Support Allowance

Other terms and conditions are: at least 26 consecutive weeks or with a break of no more than 28 days should have passed since you started claiming the above benefits. Your chances of securing much-sought-after budgeting loans can also be affected by:

  • Your circumstances
  • How much savings you have above £1,000 (£2,000 if you’re 63 and above)
  • Any existing budgeting loan you owe
  • Whether you can afford to pay back the loan

budgeting loans

How Much Money Can I Get As Budgeting Loans?

Budgeting loans start from a minimum amount of £100. There are three rates applicable depending on the level of support you are in need of. Typically, higher amounts are available to parents with children rather than singles or couples. Take a look at the maximum borrowing limits:

  • £348 if you’re unmarried
  • £464 if you live with your spouse/ civil partner
  • £812 for one/two parents with kids

Remember that you won’t get a loan amount you can’t afford to pay back.

 

How Do I Apply For Budgeting Loans?

Applying for budgeting loans is very easy. You can do either of the following:

 

What Documents Do I Need To Claim Budgeting Loans?

For claiming budgeting loans, having a national insurance number is a must. You’ll also have to say about who your dependents (partner or children) and existing savings and debts.

 

How Soon Will I Get Budgeting Loans?

On the date the DWP receives your application, it is treated as if it was made on that date. In case your budgeting loans application had some information missing and you provided the details accordingly, there won’t be a delay in processing. It usually takes around 5 to 6 weeks for a claim to be processed.

 

How Will I Be Paid Budgeting Loans?

If you have a Bank, Building Society or Post Office account on your name, the money will go directly into this account. If you’re unable to open or manage any of these accounts, a simple payment will happen.

 

How Do I Repay Budgeting Loans?

A cherry on the cake is that budgeting loans carry zero interest, so you’ll just the amount you borrowed. You agree to make loan repayments within two years. Note that the repayments come out of your benefits. So if benefits suddenly stop, you might have to look for another means for paying budgeting loans back. If you still can’t manage loan repayments, request the office that sanctioned your loan for a change in repayment plans. Don’t get yourself deeper into debt while paying back budgeting loans.

 

How Do I Challenge A Budgeting Loan Decision Which Isn’t In My Favour?

If a decision made against your budgeting loans application doesn’t turn out in your favour, you can always write to the Jobcentre Plus within 28 days requesting a review. However, you should explain why you think you qualify for this interest-free loan. If you’re not satisfied with the review, ask the office of the Independent Case Examiner to review within 21 days. Thinking of help from a financial advisor for challenging a decision? Go online and locate one in your area.

 

Is A Budgeting Advance Different From Budgeting Loans?

A Budgeting Advance is the equivalent of a budgeting loan for those who claim Universal Credit. Here too, you must satisfy the eligibility criteria:

  • Should be receiving UC from six months- unless you’re using this money to look for work or keep the current job
  • Earned less than £2,600 if you’re single and £3,600 if you’re a couple in the span of last six months
  • Not owe another Budgeting Advance

Budgeting advance payments are deducted from your UC and may go on till 12 months.

 

Budgeting Loans- Summary

  • They’re interest-free loans that can assist in purchasing daily essentials like food, clothing, and fuel.
  • You need to repay them but without interest within 2 years.
  • To be eligible, you need to be claiming any of Pension Credit, Income Support, JSA or ESA.
  • Your financial circumstances, savings, existing budgeting loans and affordability are looked at.
  • You can get a form at the local Jobcentre or download and print the online form.
  • Your national insurance number is required.
  • It would take upto 6 weeks to get budgeting loans in your bank, building society or post office account.

 

Life Insurance For Mums- Show Your Love And Care

Life Insurance For Mums- Show Your Love And Care

Becoming a mum is probably the best that can happen to a woman. Mums, in the UK and of course everywhere, fuss over their children. They also fear how their children would get on if they weren’t there even for a single day. With life insurance for mums, this anxiety is diminished to a great extent. Money can never alleviate the loss of a mother for your child, but it can- at the least- provide enough money for paying off the mortgage and the important milestones in their lives. As we found out that a child loses a parent every 22 minutes in the UK, we should make you aware of the life policies available for mothers.

 

Life Insurance For Mums- Mums-To-Be

As you prepare yourself to welcome the baby into your life, you’ll come face-to-face with the dangers awaiting both you and your child. Pregnancy is a time when medical conditions are contracted easily, unpleasant as it may sound, even leading to death. Without life insurance for mums, your baby would have to face emotional and financial instability from day one. It’s best to look at life insurance for mums right from the time you conceive. This life policy works no different than a life policy for a parent. You state what you want to protect, for how long and your personal details. If your pregnancy is progressing smoothly and there are no complications, life insurance for mums cover can start immediately. The insurer may consider your current weight while calculating premiums.

 

Life Insurance For Mums- Young Mums

Now, that you’re a young mum, you must surely know about the mortality risk you face. It’s possible to provide financial security for your child in case the worst happens. As a general rule, younger and healthier mothers get the benefit of low premiums, because of the reduced risk an insurer faces. So it’s not too late to look for life insurance for mums. For example, a 25-year-old mum can secure life insurance for mums for as low as £6 per month.

 

Life Insurance For Mums- Stay-at-Home Mums

It’s a common misconception that stay-at-home mums don’t need life cover as they don’t earn a monthly salary. However, if you were to keep a helper to do all the odd jobs you did like cooking, washing, taking care of kids and more, she’d charge thousands of pounds. For stay-at-home mums, it’s wise to think of your child and apply for life insurance for mums. If you were to pass away, your spouse would have to pay for an expensive nanny or reduce their working hours. A joint life insurance for mums covers the father too, but it pays out only on the first death.

 

Life Insurance For Mums- Working Mums

It’s only women who can successfully manage both the household and their career. Working mums often have to leave their baby with grandparents or pay for a nanny. Your death would devastate the family emotionally and financially as your income contributes to the household to a large extent. Life insurance for mums can help cover the mortgage and other living costs with the lump sum payout. While looking at a life policy, consider how much you earn and how much is needed to maintain your family’s lifestyle.

Life Insurance For Mums- Single Mums

It’s actually a challenge to be a single mother and care for your baby all by yourself. It’s likely that you work and are the sole breadwinner for your child. If you were to pass away, your family would have to move out and perhaps also alter their standard of living. Life insurance for mums allows you to prevent this by issuing a lump sum that can clear mortgage, provide a steady income or serve as an inheritance. Wait, as a single mum, life insurance for mums needn’t be costly. If you compare correctly and choose the best deal, you’ll find that it comes real cheap.

 

What Are The Different Types of Life Insurance For Mums Policies?

Your choice of a life policy would largely depend on what you wish to protect. Is it your house or your child’s schooling and day-to-day care? The most common types of life insurance for mums are:

  • Decreasing Term Life Insurance:
    Mums who wish to protect their home and mortgage usually go for decreasing life insurance for mums. The premiums here go on reducing over the term of the policy, and so does the payout amount. It’s practical because the cover declines as the mortgage you owe also gets paid off.
  • Level Term Life Insurance:
    Level term life insurance for mums is yet another option you can think about. In this, the value of the cover remains fixed and can be used to clear repayment/interest-only mortgage or meet day-to-day expenses or leave an inheritance.
  • Family Income Benefit (FIB):
    Your child might not be able to rightly invest the lump sum from your life insurance for mums policy if the time came. So, a Family Income Benefit (FIB) issues the payout in many small monthly payments. This takes care of living costs and your child can continue his/her life without worrying about finances.

 

How Much Life Insurance For Mums Cover Do You Think I Need?

While we can’t say for sure as every mum’s financial circumstances are unique, you should give a thought to why you want life insurance for mums, your current outgoings and family’s lifestyle. You should choose a life policy that can cover all of these and still leave some money behind. Do consider the existing costs as well as new ones that might arise on your passing away.

Existing expenses:

  • Regular monthly payments of rent and mortgage
  • Outgoing on food, clothing and leisure activities
  • Bills for electricity, gas, water and council tax

 

New expenses:

  • Legal and funeral costs
  • Reduced working hours cause a reduction in income
  • Extra childcare

Also account for the effect of inflation on your payout, particularly if your children are still young.

 

For How Long Should I Take Life Insurance For Mums?

Again, if you want your family to be free from the worry of paying mortgage, you should opt for a life insurance for mums policy mirroring your mortgage deal. Alternatively, if your children are young, you can keep your cover going until they’re financially independent, for example, after they complete university and get a job.

 

Life Insurance For Mums- Summary

  • Life insurance for mums safeguards your child financially if you pass away unexpectedly
  • Your child can have their own home and maintain their standard of living
  • The best policy provides adequate cover at a price that suits your pocket
  • Decreasing and level term life insurance for mums has a lump sum payout
  • Family income benefit pays a monthly income
  • Younger mums get the cheapest cover
  • Stay-at-home mums shouldn’t ignore life insurance
  • You can change your policy terms if you have more children after taking out life insurance for mums
  • Women pay the same premium as men due to EU’s gender neutral ruling
  • Write your policy in trust to avoid paying Inheritance Tax and speed up the payout
  • Terminal and critical illness cover is available as an add-on

Taking A Second Mortgage On Your Home

Taking A Second Mortgage On Your Home

You must have taken a mortgage to finance a house or property in the UK you want to live in or rent out. You should have also started repaying this long term loan and built up a fair share of equity. There are many reasons why homeowners might need some extra money and at such times, the question arises whether to remortgage and save or take on a second mortgage without giving up the first. Both are preferred by thousands of UK homeowners to suit their circumstances. We tell you about how taking an additional loan on your property works and whether it’s the right choice for you.

 

What Is A Second Mortgage?

Many people use a second mortgage in place of remortgage to raise money for various purposes. It’s a secured loan of £1,000 and above taken against the equity you have in your home. Equity is the difference between the total value of the property minus the mortgage you owe on it. Now, it makes no difference whether you live in the said house or have leased it for a monthly rental income. However, you should be the owner of the house. You’ll have to repay two mortgage loans every month if you opt for a second mortgage, as it doesn’t replace the original one like in remortgage.

 

Why Do People Think of a Second Mortgage?

People who want quick access to money and don’t or can’t wait to save up usually think of a second mortgage. Other reasons include:

  • Self-employed people struggling to get any form of unsecured borrowing
  • Their credit rating has gone down since their first mortgage. They want to pay interest only for the amount they borrow and not the whole mortgage
  • If their mortgage has a high early repayment charge, it’s better to keep it and simply go for a second mortgage
  • They want to raise money for improvements or modifications to their interiors
  • They’re looking at consolidating their debts
  • A family member is seriously ill and there’s no money to pay for hospital

 

Can I Get A Second Mortgage?

Due to stringent UK rules, lenders must compulsorily conduct the same affordability check and ‘stress test’ they do for first charge residential mortgage borrowers. Every second mortgage lender has to comply with the laws governing mortgage advice, responsible lending and sealing with payment difficulties. If you’re searching for second mortgage loans, be prepared to show evidence that you can repay the loan.

Useful tips for applying for a second mortgage:

  • Ideally, reduce your spending and cut down on bills from the previous three months
  • Prepare solid proof that your income can cover two current mortgage repayments
  • Compare various second mortgage deals for the best one
  • Try to repay your first mortgage early if no early repayment charges apply

 

How Much Can I Borrow With A Second Mortgage On My Property?

Whatever reason you might have for borrowing, how much you can borrow very much depends on the equity you have in your home. For example, if your house is valued today at £200,000 and you have £100,000 of mortgage left on it, your equity comes to £100,000. That’s the maximum sum a loan provider would be willing to lend. That is, you can borrow from 75%-100% of the equity. A word of caution – ask yourself if you’re confident you can manage repayments else you might end up losing the roof over your head.

second mortgage

What If I Move House?

In case you have to sell your home, you’ll have to first pay off the second mortgage or transfer it to a new mortgage loan.

 

Do High Interest Rates Apply On A Second Mortgage?

Second mortgages usually have higher interest rates. So, you need to consider this before taking on a second debt against your home. If you think a second mortgage isn’t the best choice given your circumstances, you could reduce the borrowing amount, remortgage with lower interest rates or not go for a second home loan altogether.

 

Can I Use The Money From A Second Mortgage For My Business?

A business is a different ball game and before using your loan for starting a new venture, these questions may help:

  • How much will it cost me to set up a new business?
  • Do I have a market for my business idea?
  • What percentage of profits am I likely to make in the long run?
  • Will I need to hire staff e.g. an accountant, bookkeeper or legal advisor?
  • Can I afford to manage my business expenses along with two separate mortgages?

Pondering upon these questions will give you the answer.

 

What Are The Advantages of a Second Mortgage?

A second mortgage is beneficial because:

  • It’s not linked to your first mortgage, so your house isn’t directly at risk
  • If affordable, it can turn out to be cheaper than a secured loan

 

What Are The Disadvantages of a Second Mortgage?

Opting for a second mortgage may be risky as:

  • It requires you to store up a second deposit
  • It’s expensive to pay for two mortgages concurrently
  • You aren’t free from strict affordability checks
  • If you can’t repay second mortgage, you might have to sell your property

 

What Is A Binding Offer Made by A Second Mortgage Lender?

When a lender makes a second mortgage offer, they’ll give you a document called a European Standardised Information Sheet (ESIS). This sheet contains:

  • A reflection or ‘cooling off’ period
  • Terms of the offer
  • A few details of your loan application
  • Loan features including fees, APRC and changes to monthly repayments if interest rates change

You’ll get a week’s time to think about the offer. Some would also give you a little more time to decide. During this period, the terms of the offer are binding on the lender, except if your personal details are found to be false. If you’re sure you want to take things ahead, communicate it to the lender as soon as possible. Else, you could use this time to compare other deals and lenders.

 

Why Should I Take Advice Before Settling For A Second Mortgage Deal?

It’s always good to get advice from a qualified financial advisor about the best offers for your needs. They act within the framework of the FCA while dealing with you.

  • You can approach your existing mortgage lender and ask them about a second loan
  • Shop around and do a comparison of lenders’ APRC, duration of loan and total amount repayable.
  • Know the exact mortgage terms, interest rates, fees and early exit charges.

 

Debt Consolidation Loans- Manage Your Debts Effectively

Debt Consolidation Loans- Manage Your Debts Effectively

An individual takes many small types of credit over his working years. Each loan requires you to make monthly repayments with interest getting charged on it. They just go on mounting and debt management becomes a struggle in itself. Not only that, your mind is racing in ten different directions as you try to save money after paying off the creditors. However, there’s an easy way out. If you’ve got multiple debts, you should consider applying for debt consolidation loans.

 

What Are Debt Consolidation Loans?

This is a special type of loan that allows you to clear your existing debts in one shot. Basically, loan consolidation is grouping all your debts. Debt consolidation loans allow you to borrow an amount high enough to pay existing debts in full. Later, you’ll have just one loan and one monthly payment to manage. This type of debt management reduces pressure from creditors as well as saves a substantial amount of money. Remember that lenders give out debt consolidation loans for a longer period of time and at low interest rates, so you may not be totally free from debt for a few years.

 

What Are The Types Of Debt Consolidation Loans?

There are two main types of debt consolidation loans available in the UK lending market.

Unsecured Debt Consolidation Loans:
These are unsecured loans that can be used to clear any credit you’ve borrowed and are paying interest on. People mostly use unsecured debt consolidation loans to repay debts like payday loans and short-term loans. As they aren’t secured with collateral like your home or any other asset, interest payments could be quite high.

Secured Debt Consolidation Loans:
In contrast to the above, secured debt consolidation loans are given against the security of an asset like your home. A lender will assess how much outstanding debt the applicant has and the risks they pose. If you owe a lot or have a poor credit history, you may only be considered for secured loans. This ensures that the lender doesn’t lose their money. You should get free debt advice consultation before going for this product as you may lose your home for small loans you’ve taken.

Low Interest Debt Consolidation Loans:
Look out for low-interest loans that help you consolidate debts. If you’re currently paying high interest rates, debt consolidation loans that cost less save you a lot of pounds in the long run.

 

How Do Debt Consolidation Loans For Bad Credit Work?

As lenders don’t emphasize on a credit check for such types of loans, most borrowers are those with bad credit. Debt consolidation loans help people undo the ill-effects of poor credit management and gain greater control over their debts. As the borrower always knows how much he owes, scope is there for improvement in their credit score. But, this is a slow and steady process that works only if the borrower consistently makes repayments.

 

How Do Debt Consolidation Loans Affect Credit Scores?

People firstly think of this option as they have a bad credit score. And if you fail to keep with debt consolidation repayments, your score will only fall further. Also, applying for many such loans within a short timeframe shows lenders that you’re overly reliant on credit. This would only make it more tough to access credit in future.

 

When Should I Go For A Debt Consolidation Loan?

You should go for a debt consolidation loan only if:

  • Your savings aren’t being wiped out by fees and charges
  • You can afford to pay it back
  • You’re using it to cut down on spending and bring your finances back on track
  • You end with lesser total amount and interest payable than before

 

When Is Debt Consolidation A Bad Idea?

Consolidating your debts with a fresh loan makes no sense when:

  • You can’t afford the debt consolidation loan repayments
  • It isn’t possible to clear all debts with this loan
  • You pay more than before (due to higher monthly repayment or longer term agreement)
  • What you need is debt help and not a new debt- a debt negotiator can talk to creditors and arrange a repayment plan

 

What Are The Benefits of Debt Consolidation Loans?

The benefits you can get with these loans are:

  • Reduce your rate of interest:
    Store cards, credit cards and personal loans carry very high rates of interest. Debt consolidation loans help consolidate all your debts at a very low interest.
  • Reduction in monthly repayment:
    Earlier, you had to pay both principal and interest every month on a wide number of loans. Now, you pay just one loan, so there’s a reduction in monthly repayment.
  • Improvement in credit score:
    Taking out a debt consolidation loan itself shows that you’re becoming mindful about your debts. If you pay back this loan in full consistently, there will surely be an improvement in your credit score.
  • Deal with lesser number of creditors:
    As you pay off all your creditors, you deal with just one lender henceforth.

 

What Are The Drawbacks of Debt Consolidation Loans?

Debt consolidation loans also have some drawbacks. These are:

  • Further Reduction in Credit Rating:
    If you fail to pay back debt consolidation loans on time, your credit rating may further deteriorate.
  • Secured Against Your Home:
    With a secured loan, you risk losing your home.
  • Temptation to Spend on Credit Cards:
    You may be again tempted to buy that lovely dress in the shop window with your credit card.
  • Rise in Interest Rates:
    No lender would guarantee that interest rates for their debt consolidation loan won’t rise. This increases the time it takes to clear this debt.
  • Affordability of Repayments:
    You should be able to afford the repayments.

 

What Fees & Charges Apply?

Beware of paying unnecessary fees and charges to lenders.

  • Read the fine print and understand fees before you sign up.
  • Early repayment charges on existing loans may eat up your savings.
  • Avoid paying a fee to a company to arrange a loan for you.

 

Alternatives

Life always has a set of different alternatives available. Instead of debt consolidation loans, you can think of:

  • Balance transfer card
  • IVA
  • Bankruptcy
  • Debt Relief Order

 

A Handy Guide to Inheritance Tax in UK

A Handy Guide to Inheritance Tax in UK

Although only a small percentage of people in the UK have estates large enough to incur Inheritance Tax (IHT), it’s important to consider it at the time of making your will. When passed on to the next generation, your children might have to pay as much as 40% of the estate value to the government. You see how useful it is to understand Inheritance Tax, how to find out how much you’ll need to pay and when, and some effective ways of tax planning to reduce this.

 

What is Inheritance Tax?

An individual’s estate includes all their property, possessions and money they’ve accumulated in their lifetime and left to their children and grandchildren. When someone inherits an estate of high enough worth, they must pay Inheritance Tax to the government.

 

How Much Inheritance Tax Needs to Be Paid?

No Inheritance Tax applies to your estate if:

  • It is below the IHT threshold of £325,000, or
  • You leave everything to your spouse/ civil partner, or
  • You don’t have survivors and leave your estate to charity

Now, this Inheritance Tax threshold of £325,000 is also the Nil Rate Band (NRB). That is if your estate values below this, no tax is applicable. Then, the part of the estate that’s above this limit is liable for 40% IHT. Let’s look at an example. Suppose your estate is worth £600,000 and your IHT threshold is £325,000. You have to pay 40% on the remaining amount of £275,000 which comes to £110,000. The NRB is set to remain the same at £325,000 till 2021.

 

What’s the Residence Nil Rate Band?

The Residence Nil Rate Band (RNRB) is also known as home allowance. You can use this home allowance in addition to the Inheritance Tax threshold to reduce the tax. It works such that you should pass on your home or a share in it to your children or grandchildren. Included in this are step-children, adopted as well as foster children but not siblings, nephews and nieces. Providing these conditions are met, RNRB gives you an allowance of £125,000 currently and upto £175,000 by 2020/21. Here’s a table showing how much Resident Nil Rate Band and combined allowances are going to increase in the coming years.

Years RNRB (in £) NRB (in £) Combined allowances
2018/19 125,000 325,000 450,000
2019/20 150,000 325,000 475,000
2020/21 175,000 325,000 500,000

 

Home allowance tapers gradually if the overall estate value exceeds £2 million.

 

How Does An Executor Value An Estate?

The executor takes two simple figures to arrive at the value of your estate.

  • How much your assets are worth at the time of your death
  • Any debts and liabilities you may have had are deducted

You should preserve this valuation as HMRC may ask records even 20 years after Inheritance Tax payment. What is inclusive in assets and liabilities?

Assets-

  • Bank account balance
  • Land and property
  • Jewellery
  • Automobiles
  • Shares
  • Payout from life insurance policy
  • Jointly owned assets
  • Gifts given in seven previous years before the person died
  • Gifts given even further back in the past if the recipient is still benefitting from it. Also known as ‘gifts with reservations of benefit’.

Debts & Liabilities-

  • Household bills
  • Mortgage
  • Credit card debt
  • Gambling debts
  • Funeral expenses

inheritance tax

Who Pays Inheritance Tax?

If you’ve already made a will at the time of your passing away, the executor named in the will arranges to pay Inheritance Tax (IHT) on the estate. If there’s no will, the administrator of the estate will do this. Inheritance Tax is usually paid with the use of funds from the estate, but if the estate has no cash, assets may have to be sold off to raise money. To avoid this, some people make arrangements beforehand to cover the bill with a life insurance policy. Once debts and tax to the government is clear, the executor/administrator can distribute the estate to the beneficiaries in the way mentioned in your will.

 

By When Should My Beneficiaries Pay Inheritance Tax?

Generally speaking, Inheritance Tax becomes payable within the first six months after a person’s death. If your beneficiaries don’t pay tax within this timeframe, Her Majesty’s Revenue and Customs (HMRC) will start charging interest. Your executor can pay tax on property in instalments over a period of ten years but the outstanding amount will still accrue interest.

If the executor has to sell the asset before all IHT on it has been paid, they should make sure that all instalments (and interest) have been paid religiously upto that point. A great way your executor can avoid interest on late payment is paying some part of Inheritance Tax within the first six months even if the estate is under valuation. If the executor or administrator pays IHT from their own money, they can claim it back from the estate. You’ll get a refund from HMRC if IHT has been overpaid.

 

What Are Some of the Gifts and Exemptions on Inheritance Tax?

You can give out a part of your estate as a gift to claim an exemption on Inheritance Tax payment. Some wedding gifts and agricultural property are exempt from IHT. Also important is that the gift is given more than seven years prior to the giver’s death. Else, it could incur tax. Three major factors influence how much IHT you’ll have to pay- value of the gift, when you gave it and to whom.

 

How Can I Reduce Inheritance Tax?

Tax planning might be tricky but there are ways to get around it. You can reduce the amount of Inheritance Tax by doing the following:

  • Leaving your estate to charity organizations
  • Writing your assets in trust for your heirs
  • Stating your spouse/ civil partner as beneficiary
  • Paying into a pension rather than a savings account
  • Giving away upto £3,000 a year in gifts regularly

 

How Can I Use Life Insurance To Pay Off Inheritance Tax?

Inheritance Tax is quite a lot- 40% of what you inherit goes to the tax authorities. So, many wise people take out a life insurance policy to cover the cost of Inheritance Tax. This helps prevent your family from selling off your house to pay IHT. It also protects the gifts you’ve given your family and friends over the last seven years from tax. In short, you get peace of mind that you’re not burdening your loved ones with a hefty bill when you leave them.

 

How does it work?

  • You first take a life insurance policy.
  • Don’t forget to set it up in trust, else it would be counted as part of your estate and liable for Inheritance Tax.
  • When you die, the policy will pay out to your trust which can be used to pay IHT in full or part.

Estate and tax planning is complicated, so you should seek professional advice in order to make the right decision.

 

What Other Taxes Would My Heirs Have To Pay In Addition To Inheritance Tax?

Depending on what your heirs inherit, they may also incur

  • Income Tax- If they receive a regular income from their assets (share dividends or rent from leased property)
  • Capital Gains Tax- If they sold an inherited asset for more value than it was when they inherited it

 

Being a Young Carer- Benefits & Tax Credits

Being a Young Carer- Benefits & Tax Credits

Life may have forced you to attain maturity early and take care of somebody in your family. You’re a young carer if you’re under 18 years of age and help to care for a parent or sibling with a disability, illness, drug/alcohol problem or mental health issue. Often, it requires you not only to tend to the person’s daily needs like bathing and dressing but also to do chores around the house like cooking, cleaning and washing up. Along with this, you must be giving the person emotional support too. Did you know that millions of pounds of carers’ benefits are unclaimed by young carers? Let’s know more about this kind of financial support…

 

Carer’s Allowance

As a young carer, you can claim Carer’s Allowance of £64.60 per week in 2018-19. If you live in Scotland, you’re eligible for a supplementary payment of £221 every year. This happens in two instalments. However, you’ll have to fulfil certain conditions first:

  • Spend at least 35 hours/week giving support to a person requiring care
  • Aged 16 and above
  • Don’t study full-time or for more than 21 hours a week
  • Earn £116 or lesser (after taxes, care cost benefits at work and 50% of your payment into pension)

Carer’s Allowance is taxable for a young carer and may affect other benefits you’re getting. It may also affect the benefits a person who needs care gets namely Attendance Allowance, Disability Living Allowance and Personal Independence Payment. You can’t get this allowance if you’re claiming State Pension or contribution-based Employment and Support Allowance (ESA).

 

Carer’s Credit

Being a young carer, you don’t make any contributions because you’re caring for a disabled or sick relative. So, the government provides Carer’s Credit as a National Insurance credit towards your State Pension.

Conditions to claim:

  • Your age is 16 or more
  • You aren’t yet eligible for State Pension
  • You can’t claim Carer’s Allowance
  • At least spend 20 hours of care a week
  • The person you care for receives one or all of the following benefits- Attendance Allowance, Disability Living Allowance or Personal Independence Payment. Even if he/she doesn’t get these benefits, you can still claim by filling out a Care Certificate.

 

Carer Premium

Another financial support for a young carer like you is Carer Premium. This is an addition if you already get:

  • Income Support
  • Housing Benefit
  • Universal Credit (UC)
  • Council Tax Support
  • Income-based Jobseeker’s Allowance (JSA)
  • Income-based Employment & Support Allowance (ESA)

You can enquire about Carer Premium at your nearest Jobcentre Plus or Jobs and Benefits office.

 

Pension Credit

Pension Credit is available for a young carer if they’ve reached their State Pension age. It has two parts- Guarantee Credit and Savings Credit. Savings Credit is only paid if your partner or you reached the age of State Pension before the 6th of April, 2016. The amount of Pension Credit you’ll get would depend on how much you earn, your savings and your marital status. If you receive Pension Credit, you can claim the extra amount for carers as a plus, if you claim Carer’s Allowance or have an underlying entitlement to it.

Other Benefits

In addition to Carer’s Allowance, you can also claim additional benefits because you’re a young carer. These include:

Income Support

This is a non-taxable sum available to those on a low income and below State Pension age.

ESA

It’s possible that you have your own health problems inspite of being a young carer and having responsibilities. In this case, you might be eligible for income-related Employment & Support Allowance. This affects Carer’s Allowance, however.

JSA

If you’re a young carer and a jobseeker too, you’ll be eligible for Jobseeker’s Allowance. It’s taxable and means-tested.

Tax Credit

Suppose you don’t earn enough to keep body and soul together, you can top up your income with Working Tax Credit. It’s non-taxable and means-tested.

Housing Benefit

This benefit helps pay all or part of your rent if you earn a low income.

Universal Credit

Universal Credit (UC) is a new type of financial support from the government for UK citizens who are either unemployed or on a low income. It’s going to replace existing benefits like Income Support, ESA, JSA, Housing Benefit and tax credits.

 

Other Schemes

Motability Scheme

If the person you care for has limited mobility as a result of disability or disease, they can get support under this scheme. It can provide a car, wheelchair or a powered scooter.

Blue Badge Parking

A young carer may take their relative outside by car. With blue badge parking, drivers accompanying passengers with mobility issues can access more convenient parking spaces such as disabled parking bays. They are also permitted to park their vehicle on single or double lines for upto 3 hours.

Disabled Persons Railcard

This is yet another benefit by the National Railway network for disabled persons and a young carer with them. They can claim a discount of 1/3rd off rail tickets. This card would cost £20 a year and £54 for three years. They’re available at the staffed ticket office and even online.

Cinema Exhibitors’ Association Card

A young carer can get themselves a free ticket when they take the person they care for to the cinema. All national cinema chains accept it. You can apply online.

Other Discounts

Although they’re not advertised, a young carer always gets free or discounted tickets at museums, leisure centres and National trust sites for their services. Just ask your local authorities what extra support is available.

 

Summary- Financial support for a Young Carer

  • Carer’s Allowance
  • Carer’s Credit
  • Carer Premium
  • Pension Credit
  • Income Support
  • ESA
  • JSA
  • Tax Credit
  • Housing Benefit
  • Universal Credit
  • Motability Scheme
  • Blue Badge Parking
  • Disabled Persons Railcard
  • Cinema Exhibitors’ Association Card
  • Other Discounts

Battling Negative Equity in Property

Battling Negative Equity in Property

Negative equity and mortgage are often used in conjunction with each other. But, what does negative equity mean for mortgage borrowers? How does it affect moving house or remortgaging? Find out how you can battle it and sources of available help.

 

What is Negative Equity?

First, it would help to understand what equity in a property is. It’s the total ownership you have in the property in terms of money. A perfect case is when the value of your house/flat/property is less than the mortgage secured on it. Therefore, you wouldn’t be able to even borrow small amounts on the basis of equity. For example, if your house had a purchase price of £200,000, the mortgage was for £180,000 and it’ll now sell for £150,000, you’re in negative equity. But, if the value of the property is £190,000, you wouldn’t be in reduced equity. Almost half of the millions of UK properties are suffering from this and some areas like Northern Ireland are more affected. There, every two out of five properties bought after 2005 have a sale price less than the mortgage on it.

 

How Do I Find Out If I’m in Negative Equity?

As it involves money, you may be swinging in and out of negative equity. You must find out your equity status. An effective way to keep check is:

  • Ring up your mortgage lender and ask how much mortgage you still owe on your property, i.e. how much you’ve already cleared.
  • Get a local estate agent or a surveyor (who might charge for this) to value your home. They will estimate an approximate sale value for the house taking into account recent housing market trends.
  • Compare both values of the mortgage and sale value. If your house value is less than mortgage, you’re in negative equity.

 

What Are The Problems I Might Face With Negative Equity?

A few problems may arise with negative equity to make times tough. Let’s have a look at some of them:

  • Selling your home:
    It would be very difficult if you wanted to sell your home immediately due to some or the other reason like you’re moving abroad or simply want some money. The sale proceeds will be much lesser than your mortgage, so you’ll need to have savings to pay off the mortgage. Else, it’s almost impossible to move with less equity.
  • Remortgaging:
    Remortgaging (switching to a cheaper or fixed-rate deal when the promotion period ends) can also become a challenge. Most lenders don’t let such homeowners remortgage when the existing deal ends. Instead, they move on to the lender’s SVR which is quite high.

 

How Can I Move House Even With Negative Equity?

As we saw above, moving house when you have less equity is an uphill task but not altogether impossible. Generally, several factors will affect how smoothly you’ll be able to move such as:

  • The amount of negative equity
  • Value of the property you want to shift to
  • Whether you’re making regular payments on your existing mortgage
  • How much deposit you can afford for the new property

You should talk to your lender for any help they can give you. A handful of UK lenders offer ‘negative equity mortgage’. That means, you can shift the negative equity in your previous house to your new house but you’ll still have to scrape up a deposit.

 negative equity

What Are the Pros & Cons of Negative Equity Mortgages?

These equity mortgages have more cons than pros. However, you can give it a try if there’s no option left.

Pros:

  • You’ll be able to move without paying negative equity on your mortgage. This is especially beneficial if you have to compulsorily move for work or family reasons.

Cons:

  • Early repayment charges may apply on the existing mortgage
  • Extra fees and charges, not to mention higher interest rates on a new mortgage deal
  • Not easily available

 

How Can I Rent Out My House With Negative Equity?

You could think of renting out your house even if you’re suffering from negative equity, although this would mean keeping your existing mortgage and paying a higher interest rate.

 

How Can I Reduce My Negative Equity?

You can surely reduce your negative equity with a few clever tips and tricks. One of them is to overpay your mortgage. But before that, check whether your mortgage lender is okay with overpayments and whether there’s an early repayment charge. Next, calculate how much you can afford to pay on-the-top every month or even as a lump sum. You can use a mortgage calculator available online or with lenders/brokers for this. This will give a rough idea about the difference your extra payments are going to make.

 

How Do I Prepare For An Interest Rate Hike When I Have Negative Equity?

No need to fear! Interest rates have maintained their base rate level of 0.5% since spring ’09. Yet, if they rise in future, it would become essential to assess whether you can still afford mortgage payments. It’s all the more important if you have negative equity as you’re at more risk of your home being repossessed.

 

Help! I’m struggling to pay my mortgage!

Talk to your lender and take advice from any of the debt advice charities below.

England & Wales: https://www.citizensadvice.org.uk/about-us/how-we-provide-advice/advice/Get-advice/

Scotland: https://www.citizensadvice.org.uk/scotland/

Northern Ireland: http://www.housingrights.org.uk/

 

Basics of Redundancy Pay in the UK

Basics of Redundancy Pay in the UK

Every employee ever has had a fear of suddenly losing his/her job. A job guarantees financial security and peace of mind. You can fearlessly take on debts knowing that you’ll have an income to manage the repayments. But, positive things don’t always happen in life. If you’re a UK citizen and have been working with a particular employer or company for more than two years now, you can claim redundancy money if you get the pink slip. The minimum amount by law is the ‘statutory redundancy pay’. What is it and how does it work? Read further to know more…

 

How Do I Know Whether I’m Eligible For Redundancy Pay?

If you’ve been working at the same firm for 24 months or more and your boss suddenly removes you from work, you have the right to claim redundancy pay.

 

What’s The Difference Between Statutory and Contractual Redundancy Pay?

The basic difference lies in the fact that while statutory redundancy pay is the legal minimum, contractual redundancy pay depends on individual work contracts. Remember that your employer cannot pay you less than the amount specified as statutory pay. Also, if your contract says so, they may have to pay you more. This means that you effectively receive a bigger payout or lump sum even though you have worked for less than two years. However if your contract or staff handbook has no mention of redundancy anywhere, assume you’ll get the minimum salary prescribed by law to help cope with the sudden income loss. Check for ‘contractual pay’ in your contract.

 

How Much Redundancy Pay Will I Get?

The amount you’re supposed to receive as redundancy pay from your employer depends on the following three factors:

  • How long you’ve been working there
  • What your age was during your service
  • Your current salary- upto £508/ week maximum in 2018-19 (£500 in Northern Ireland)

Unfortunately, even pay for job loss in the UK has a cap over which it cannot go. This is £15,240 for 2018-19 and it’s even lower (£14,700) if you’re living and working in Northern Ireland. So, this is the limit upto which you can get redundancy pay even if your salary is higher or length of service was longer. As for length of service, only complete and continuous years of service count. Let’s take a look at the table below.

Your age Redundancy Pay
Under 22 Half week’s pay for every one year of service
22 – 40 A week’s pay for every one year of service
Over 41 A week and a half’s pay for every one year of service

 

 redundancy pay

An example of its calculation

Smith (now aged 35) worked part-time as night receptionist for an e-commerce firm for 10 years earning £300 a week. He got the slip yesterday. His redundancy pay calculation is as follows:

Ten weeks’ pay for the 10 years he worked aged 25 to 35 = £3,000

 

What Is Pay In Lieu Of Notice?

There’s no way your employer can just take you off work without giving a notice beforehand. You must get a statutory minimum notice period of 1 week upto 2 years of service and 1 additional week’s notice if you’ve worked for more than 2 years. The maximum notice period is 12 weeks. You should check your employment contract if there might be an even longer notice period.

During your notice period, you can expect to keep working but you may sometimes be allowed to leave earlier or immediately. A form of redundancy pay you’ll get is pay in lieu of notice (PILON). This is the compensation provided by the employer for early termination of your contract.

How is PILON taxed?

The law has changed for PILON from 6 April, 2018. All PILON payments- whether contractual or non-contractual- are now subject to income tax and National Insurance deductions. What this means for terminated employees: PILON pay is taxable in the same way whether you worked during the notice period or not. Termination payments that are over and above PILONs still get the benefit of £30,000 NIC and tax exemption.

 

Why Should I Demand Holiday Pay To Be Included With My Redundancy Pay?

Naturally, UK employees have paid leaves. If you have any holidays you haven’t taken, you should claim holiday pay for it or take those holidays before you leave. Don’t forget holiday pay!

 

What Is the £30,000 Tax-free Redundancy Pay?

Your redundancy pay is likely to be a mix of a compensation amount for your job loss and other amounts. The first £30,000 of this is tax-free, regardless of whether it’s statutory redundancy pay or contractual redundancy pay. You won’t pay National Insurance on it. But any pay you get for the work done such as PILON is taxable as pay.

 

What If My Employer Goes Bankrupt?

In case your employer goes bust, they wouldn’t be able to pay you your statutory redundancy pay or holiday pay. You’ll have to claim it from the State directly. This can be easily done by filing an RP1 form available at the Redundancy Payments Service.

 

My employer’s creating problems- What Can I Do?

First of all, it’s best to have a chat with your employer without escalating things. You can freely have a discussion if you’re getting a lower-than-expected redundancy pay or you’re unhappy with the treatment being given to you. If this doesn’t work, you can take things to the trade union rep. If your firm doesn’t have one, why not complain using the employer’s grievance procedure? A higher authority offering free and impartial advice is the Acas (the Advisory, Conciliation and Arbitration Service) and the Labour Relations Agency.

 

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