Cash Flow Management

Kevicho

Ive been itching to post something on the forum over the past few days, which would be a little different from the usual rubbish i post, so i thought id post a few ideas, philosophies etc on money management, especially what is increasing becoming obvious, that its irrelevant how much you are worth, the most important thing is to have a good cash flow.

Now a lot of people recently have been bemoaning the fact that lenders are so irresposponsible, lending people so much and the cant afford to pay it.
First of alll, usually banks will lend up to a percentage of the income that, that person earns, therefore someone with a 40K mortgage will have the opportunity to rack up a lot more debt that someone on 10K, why, becuase they will be able to make much higher monthly payments.

Now consider the situation, someone takes home 1000 pounds a month, lets say that non debt expenses account/fun money accounts for £600, thats council tax, insurance, whatever else, and they have six debts, which are maxed, and the minimal monthly payments is £380.

Now this person is obviously in trouble, for one thing they have no spare money at the end of each month, so no savings, also they are not able to overpay any of the debts, so snowballing becomes a much longer process, which after a while that person will become demoralised and probably give up.

Now for the banks/cc companies this is the ideal person, pretty much for the rest of their lives they will be paying a huge chunk of there income to service debt, usually refilling the credit cards, when the balance is decreased, even being given some more credit, which may tip the balance into negative cashflow, probably remortgaging to free up some equity.

This is probably the situation for lots of people on here, especially newcommers.

Your main enemy is lack of cashflow.

One debt is very easy to pay off, because we are not servicing the other debts so with a little effort over a couple of months we can bombard that debt with overpayments, this also means that compound interest doesnt have time to accumlate.

As we can see from this, lending money up to the limit of that persons cashflow means that all the creditors will be getting monthly repayments, ad infinitum, but because of interest that repayment span will be stretched out.
That means that every month, probably for the rest of your life, you will be paying monthly minimum payments, and you will be basically a contributor to your creditors for life, in fact you will be working for your creditors, not yourselves.

Now there are ways out of this mess.

The first thing you need to do is stop spending!
Cut up your cards, but them in a tin of water and freeze them, whatever it takes to stop using them.

To do this you will have to find out where the money is going, what your debts are, interest rates etc, keep a diary, find out your interest rates, examing your shopping bill, find out wether you actually need the seven types of insurance and PPI you are paying for.
From this you will find money to be able to overpay one debt, this will be the one that has the highest interest level.

There is information on this site regarding snowballing, but i have been developing a website with useful info and this is one of the pages that is finished, so if you would like a look, then pm me, ill send you a link.

Another good thing to do is using any savings you have, to help pay off debt, again focus this on the highest interest debt.

Also sell any non essential items, ebay/carboot etc, that cash boost if it can clear a debt or two will give the snowball a good push

And once this debt dissapears, you will free up some more cashflow, and become what the banks hate.

Someone who can clear off debts quicker and earn them less interest!

Id just also like to point out one more think, keep positive.

This isnt easy but remember you are now in the process of digging yourself out of the hole.

Toomuchdebt

Interesting post-just one point-you said banks usually lend to a percentage of the income-why then would banks give someone on benefits credit limits of £9000?

Storm

Kevicho wrote:

Now for the banks/cc companies this is the ideal person, pretty much for the rest of their lives they will be paying a huge chunk of there income to service debt, usually refilling the credit cards, when the balance is decreased, even being given some more credit, which may tip the balance into negative cashflow, probably remortgaging to free up some equity.

How true! The banks don't really want loads of customers who pay off their credit cards every month without acruing(sp!) any interest, cos they're not making much money off them (except the 1.5% fee they charge the retailers)

At the end of the day I think we all need to remember that the banks are there to make money out of us - most people will compare rates & deals on mortgages automatically, but when it comes to CCs & loans I think a lot of us tend to go with the ones we know (or have seen advertised!) They're not financial advisors (and the branches that offer one will only advise on their own products anyway!) so why believe them when they say this loan or that CC will sort out our financial troubles?

Bells&Whistles

Thanks for posting that, made for a v interesting read !!

Mort

Kevicho wrote:

The first thing you need to do is stop spending!
Cut up your cards, but them in a tin of water and freeze them, whatever it takes to stop using them.

Excellent advice and not rocket science either - shame I never thought about this option years ago :mad:

Following the lighbulb moment and coming clean to family gave all CCs and SCs to the mother in law. Been doing cold turkey on the card front since May.

southernscouser

Kevicho wrote:

Ive been itching to post something on the forum over the past few days, which would be a little different from the usual rubbish i post,

So what stopped you?

:beer:

Bogof_Babe

Presumably banks do want customers who are in credit - otherwise how do you account for ING Direct, which is purely a savings vehicle and still manages to do very well for itself?