Consequences of Poor Financial Management

Consequences of Poor Financial Management

The easy part is getting financial institutions to lend you money the hard part is paying it back.

People who cant manage their money;

1) End up losing goods

2) Being sued

3) Declared bankrupt.

Bankrupt- A person who is unable to meet all of their debts.

The three consequences of poor financial management;

1) Financial Consequences

2) Legal Consequences

3) Social Consequences

Financial Consequences

Repossession

Repossession- Means to take back something. It is often the goods you bought on credit if repayments have not been made.

Additional costs you might also have to pay back the lender the difference between what they sell the goods for and the amount of debt, as well as what it costs the lender to repossess the item.

Garnished

Garnished- When a certain amount of money is taken out of the borrower’s wages, until the full amount of the loan is paid back.

Credit Cards

1) Tempting to use to pay for a something.

People often see a credit limit as a target to reach rather than keeping at a minimum.

2)Influential marketing campaigns.

People often get persuaded to sign up for a credit card on impulse.

Generally, there are two ways people repay their credit cards

1) Revolver

2) Transactor

Characteristics of a Revolver

- Makes repayments on their credit cards each month and on time

- Repays only the Minimum amount each month

Credit Card- Suitable credit card would be a card that has a low interest rate.

Characteristics of a Transactor

- Pays the complete balance off their card each month not matter what the balance.

Credit Card- Suitable credit card would be one that has a long interest free period, for example a card that gives people 55 days interest free to pay off the balance of their card before they are charged interest.

Main Traps With Credit Cards

1) Buying what you want whenever you want and not properly planning your purchases.

2) An inability to pay debt back by the due date, this means that you are charged interest on the balance.

3) Paying for any additional charges, such as transaction fees.

4)Thinking that you are wealthier that you actually are in reality.

Avoiding The Consequences Of Poor Financial Management

Consolidating Your Loans

For some people who have many different types of loans, such as mortgages and credit cards, the best way to avoid missing payments and managing their debts is to consolidate their loans.

Consolidation- Means to put multiple loans into a single form of debt. All repayments then go into the one form of debt.

Using Credit Sensibly

We must be able to afford goods and services before we purchase them on credit. This means that there must be a good chance that you will be able to pay back the money you owe.

Legal Consequences

Debt- Is the money that you owe.

Debtor- The person who owes the money.

Creditor- The person who is owed the money.

Bankruptcy

They have certain obligations that they must fulfill, failure to meet these obligations will often result in legal action in order to recover the money that you owe.

Consequences of being declared bankrupt- If you are declared bankrupt at an early age, it will make it much harder to get a loan in the future and affect your financial independence later down the track.

Social Consequences

It often causes or contributes to;

- Domestic violence

- Emotional illness

- Family breakdowns

- Suicide

What To Do When You Cant Repay Your Loan

Getting Legal Advice

Lawyer

Financial Counsellor – The Financial Counsellors’ Association of NSW

Organisations- Consumer Legal Centre

Default Notice- A document from a lender stating

that a person has failed to carry out the terms

of the contract.

If you receive a default notice;

1) Pay the money owing

2) Negotiate a change in your repayments

3) Apply for a hardship variation

4)Negotiate a postponement of repossession

5) Refinance the loan

6) Sell your goods and repay the loan

7) Voluntary surrender

8) Apply for bankruptcy

Your Credit History

Credit records are supplied by institutions and businesses

that lend money to organizations known as credit bureaus.

Credit Bureaus- An organization that keeps on file the credit records of customers.

The credit bureau provides credit information to organizations like financial institutions for a fee. Financial institutions therefore do not search for credit information, as the bureau provides the information to help them decide whether they accept or reject a credit application.

What is contained in your credit file?

- Previous overdue accounts which have been settled

- Court judgements or bankruptcy orders

- Records of any previous applications for credit

- Any previous defaults