June 2000 Volume 81 Number 6 "serving the protectors"
Police Credit Union

Financial Difficulties

redit has become an essential part of our economy and affects many people in the community. Most of us borrow money to purchase our home, and often borrow further to obtain other items such as cars, furniture and electrical appliances. Credit can be very accessible and people can be over-reliant on it, which can often cause problems.

Often it is not the funding of one loan but the gradual build-up of credit over a period that will lead to a problem and cause financial difficulty. People may have used credit cards or personal loans to find money for any shortfall. This alone will not usually be enough to cause a problem, but when coupled with the loss of a job or an unexpected bill it may be the final blow. There are two ways of rectifying such a situation: increase your income or reduce your expenses. The solution to avoiding or rectifying financial difficulty could be as simple as a budget.

The first step in the right direction is to make a list of all your debts and how much you have to pay each month. Then prepare a budget and list every time on which you spend money. The next step is to make a list of things that you can do without; list everything that is not essential. What is left over should be a list of things that are essential. Calculate how much money is required to cover these items. Whatever money is remaining is what will be available to cover payments on outstanding debts.

The second way to rectify financial difficulty is to increase your income. Establish if and how you can earn more. It may be possible to work overtime or get a second job. Alternatively, a family member may be able to obtain some casual or part-time employment, or even do some babysitting, ironing or gardening for friends.

When confronted with financial difficulty, people will cope in different ways, and some will deal with the situation better than others. Depending upon the severity of financial difficulty being experienced, creditors may need to be contacted. If contact is required it should be made as soon as possible. Creditors will usually be flexible and respond favorably when approached by debtors experiencing difficulty in maintaining their commitments and will endeavour to assist in some way. Options that may be available are reductions in repayments, whether temporary or permanent, or the deferring of repayments.

A consolidation loan may be another solution. The result of this will be one payment to one creditor and will usually result in lower overall repayments and often a lower interest rate. If this option is taken it will usually result in lower overall repayments and often a lower rate of interest. If this option is taken it will be a permanent solution if you have changed your habits. If credit facilities that were paid out with the debt consolidation are used again then you will soon be in a similar or worse situation. Therefore this option should only be used if you do not intend to extend your credit further.

There are ways to safeguard against the effects of financial difficulty. One of these is loan repayment insurance, which covers loan repayments in time of unemployment, sickness and illness. Loan repayment insurance is only available when a loan is advanced and can often be included in the amount borrowed.

Having to deal with financial difficulty is something that everybody would rather avoid but this is not always possible. How successful you are in coping with it will often depend upon how you approach and deal with the situation. Taking the correct approach can make a difficult situation so much easier.

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