Borrowing sensibly (Continued)

The main types of borrowing products are listed below. Think carefully about which is the most sensible type for your needs.

• Overdrafts  - these are ideal for tiding you over until next month when you know you’ll have the money to pay it back. It’s better to have a planned overdraft agreement with your bank, it’s cheaper and can be repaid at any time and you may avoid unplanned overdraft charges.
• Credit cards - these are a flexible form of borrowing. The interest-free period on purchases can be up to 56 days if you pay your balance off in full so in effect they are helping you to manage your money better. Also, look out for special balance transfers offers with a lower interest rate but remember there may be a balance transfer fee.
• Store cards - can be convenient and may offer discounts, but can be an expensive form of borrowing. Always check to see if you can borrow more cheaply.
• Loans - are for when you need to borrow money that you cannot pay quickly, for example a car. With a fixed rate loan you’ll know exactly how much you’ll need to pay back each month too.
• Hire Purchase - is like a loan from a company or store to help you pay for a big item for a monthly repayment. While you end up paying more in the long-term it does allow you to spread the cost over a certain time period. However, it may be cheaper to talk to your bank about a personal loan.
• Mortgages - are loans secured against your house or flat. This means if you’re unable to pay back the loan, the mortgage company can repossess your home and get their money back.

Important things to remember
The cost of credit can add up if you are not careful, so follow these tips:

• If you apply for credit it’s important that you get the right credit for the right purpose.
• Whichever you choose make sure you pay if off as quickly as you can and don’t over-extend yourself.
• Remember it’s money that’s not yours and has to be paid back, usually with interest, so whatever you buy costs you more in the long-run.
• It's important to keep a budget. See our guide to managing your money. 
• If you don’t need something straight away, why not save for it. It’s cheaper. See our guide to savings advice.
• If you feel your borrowing is getting out of hand and you are in real financial difficulty, get help as soon as possible. See our dealing with debt guide and our Debt remedy tool provided in association with Lloyds TSB the Consumer Credit Counselling Service.

In short, when managing your money take these small steps towards financial peace of mind:

1. Face facts - be honest with yourself about how much you’re currently spending.

2. Make a budget and stick to it - remember it’s all about spending less than you earn.

3. Plan ahead - start saving for the times when you have to pay for something unexpected.

4. Keep good habits - lots of little changes to your lifestyle can add up to big savings.

5. No more worries - sorting out your finances will make you happier and free to do the things you most want to do in life.