Will Brexit be a Disaster for Borrowers?

There is a lot of concern about the UK leaving the EU and what impact that might have on household finance. Borrowing can be a particular worry because if borrowing gets more expensive then it may become unmanageable for many and this means that they could get into a lot of financial trouble. There are a lot of possible scenarios as no one is sure of what the impact could possibly be but it is worth considering a few possibilities and thinking about how to protect yourself against these.

Interest rates go up

Interest rates are set by the Bank of England and they put these up when they feel that inflation is going up too much. Inflation is a measure of how much prices are rising and the bank of England feel that prices should rise at about 2% in order to keep the economy growing at a stable rate. Therefore if it rises more quickly then they will increase the interest rates in order to limit how much money people have to spend. This limits them because they will not only be paying more interest on loans and therefore have less available to spend on other things but encourages people to save as they will be getting a good return on their savings. Then spending should reduce a little and the inflation not rise too much. It is hard to predict what might happen but if we have to pay import duties on more things then it is possible that prices will go up.

Of course, people who have a lot of debt could really struggle financially if rates go up so it is wise to be prepared by making sure that your costs are the lowest that they can be and that if you can, you put some money aside in case things get more difficult later. Compare prices on everything you buy, only buy necessary items and get into the habit of spending wisely so that you can continue this if the rates do go up.

Borrowing is more difficult

It is possible that if there is uncertainty in the economy that banks will be more cautious about lending. They may not want to take too many risks and so it may get harder to borrow money. This could be difficult if you want to get a mortgage, for example. Making sure that your credit record is as good as possible and saving up a good deposit should help you and even if borrowing is not harder, it will still help you and ensure that you are more likely to be accepted for a mortgage and get a good rate.

Interest rates go down

There is the possibility that inflation may go down and then interest rate will also go down in order to cause the growth to go up. In this case it will mean that borrowers will have to pay less in interest and this could mean that they end up with more money to spend on other things. This will of course depend on whether their lender decides to lower their interest rate to follow the drop in base rates as well as whether they are on a fixed rate, which will not change or a variable rate.

Borrowing is easier

It could be possible that borrowing becomes easier. Once the period of uncertainty passes, then it could be that banks want to start to lend more money and it could therefore be easier for anyone to get a loan. Whether the rate of borrowing is favourable though will depend on the interest rates.

Conclusion

It is therefore very difficult to know what impact Brexit will have on borrowing. There are all sorts of possibilities and so it is best to be prepared for the worst. If you have loans, then prepare for rates going up just in case. If rates go down then you will have nothing to fear but if rates go up then you will need more money to pay for things and so it will be important to make sure that you have a plan for this.

The prospect of being able to borrow more or less easily could also be an issue. If you think that you might want to borrow, perhaps getting a mortgage to buy a home or some other type of borrowing then you will need to be prepared if borrowing is going to be harder. Do what you can to make sure that you have a good credit record and that it is accurate. Then make sure that you are not spending more money than you need to so that if possible, you can save some or at least not borrow more than you need. Then you will be prepared should borrowing be tricky or rates be higher.

If borrowing becomes easier then you also need to be prepared. You need to be sure that you are not going to be tempted to borrow more money then you should just because it is easier. This will mean that you will need to be prepared to have good self-discipline so that you do not borrow just because you can but only borrow if you really ned to. Otherwise you could end up getting it all sorts of debt and find that you struggle to make the repayments.

Should Students Have Credit Cards?

Student debt is something that seems to be talked about a lot at the moment. Since swapping from student grants to loans, there have been lots of concerns about student debt and therefore students and probably more likely parents, could be worried a lot more about student debt than they were before. There are many concerns that have been raised and taking on extra debt, such as a credit card could add to it. It is worth addressing some of these worries though.

Debt will lead to more debt

Many people have concerns that having debt will mean that student just have a lifetime of debt. They feel that if they start the workforce in debt it will normalise debt for them and they will have constant debt through their lives. This is not necessarily the case though. There are many students that are worried about their student debt, want to get it paid off and do not have any other debt. There are also many others who have a mortgage debt, for example but no other type of debt. One debt does not necessarily lead to another.

Credit cards will lead to uncontrolled spending

A credit card is a form of debt which is different to many other types because it is always there. Once you have the card then it is possible to borrow money whenever you need it and there is no pressure to repay more than a minimal amount. There is therefore the opportunity to spend a lot of money using the credit card and then only repay the minimum amount and accumulate a lot of debt or to pay back the card and then spend on it all over again. There will of course be some people that will spend a lot of money on the card and only repay the minimum and build up debt. However, this does not have to be the case and may not be the case for everyone. Each individual is different and they may just use the credit card to give them security when shopping online or to buy things more conveniently.

Debts could get unmanageable

It is worth understanding that student debt will never get unmanageable. The debt is repaid in small instalments which are taken out in the tax code of the graduate and only once they start earning above a specific amount of money. It is designed so that it is affordable and it is even written off after thirty years which means that it may never be fully repaid if earnings are low on average over this time. This means that the only debt that could be unmanageable is the credit card debt. This is something that will be down the individual and some will struggle with it and some will not. It is worth any worried parents talking to their children about good debt management with regards to credit cards and this should help them to understand how to use them wisely.

Students wont afford debt repayments and credit card repayments

It could be a concern for some parents that their children will not be able to afford to repay the student debt and the credit card debt. As explained earlier student loans are repaid in a tax code only when earnings are high enough to cover these costs and so this should not be a problem. Credit cards also have a flexible repayment system. A minimum balance has to be repaid which is usually just the interest and a little extra and so it tends to be manageable by most people. Then it is up to the borrower as to how much of the remaining balance they pay off. It is cheaper if they pay it off sooner, but if they repay small chunks when they can afford it then they should be able to manage both debts easily.

Parents will end up Saddling the bill

There may be parents that are worried that they could end up having to help their children get out of debt after university. This should not be a worry though as the children are responsible for their own debt and it is not up to parents to repay it for them and legally there is no obligation to do it. Obviously some parents feel that they have a need to help out their children financially and so may think that they will need to do this with regards to any credit card debt that they build up. This is up to the parent, but it could be better for them to directly lend or give them money instead of them having a credit card as then the interest on the card will not have to be paid. This will all depend on the parent, the child and their relationship.