Someone told me yesterday that it appears as if I just randomly pluck ideas out of the air and leave people going err where's this one come from??? So, thought it wise to try and give a little context to the banking comments I've been making recently on twitter.
Credit is not bad, unmanaged credit terrifies me, no credit means you get trapped, a poor credit rating these days means that some aspect of your life are halted. To explain - these days most of our financial dealings are recorded and stored on credit reference agencies, miss a mortgage payment = black mark, pay your credit cards each month = good mark and so on. Not that tricky to follow their logic - unless you find yourself out of your depth as so many folk do sadly. Not always through buying expensive holidays but just through normal life choices.
you have £1,000 coming in each month
your credit bill is £150 per month
normally you pay this, but you can't pay much more
then ..... the washing machine breaks so you need a new one
this is where the crunch comes:
you don't have enough spare each month so you put it on credit
your credit bill goes up, and to pay it you need to cut back on something else
next month the car needs new brakes ..... see above scenario and you can see how quickly the debt problem can escalate very easily without a holiday or new fancy telly to show for it. All you did was replace an essential item (the washing machine) and fix your car (needed to get to work).
I actually speak from very real experience on this matter, several years ago my then husband got into real difficulties and stopped paying the mortage without me knowing. The first I knew of it was the estate agent querying why the locks had been changed and then over time unravelled a whole heap of inter-linked debt issues. So the issue of debt and poor credit has had a real impact on my life, it took years to un-link myself and re-build a credit history of my own because without one you are pretty much sunk these days.
Solution: we should each have our own credit limit based on our ability to repay it, whether this be £1,000, £10,000 or £100,000 the figure is not the important bit. The important bit is that when you combine all the credit you have from store cards, car loans, credit cards etc the total spend available should not exceed your personal limit. So, if your personal limit is £20,000 you can have 1 card at £20,000 or 20 at £1,000 but the records should be linked so that you cannot exceed it.
Better solution: we join and start credit unions! These are fantastic ideas, you pay in a fixed amount each week or month and it can be as little as £1 and then you borrow against what you have saved. But, and this is the clever bit - you always pay that £1 and some of it pays your loan and some of it goes into your savings. So you can borrow and save at the same time, simple yet effective banking :)
And then this is the really clever bit, there are hundreds and thousands of small businesses that manage their money effectively and don't want the overdraft or loan facility so if we set up a small business credit union we could actually keep the cash flowing so that none of ever get stung by stupidly high charges that appear out of left field because the Chairman needed to pay for gross neglicence on the part of their brokers that took a gamble that failed. Most of us curse our business bank statements, get fed of being in a queue to someone abroad that doesn't get the question we ask and generally put up with rubbish service because we have to have a business bank account to legally trade.
Personally, think it's about time we took our own destiny back and create our own bank or credit union and will keep plugging away with the questions and the ideas till we can help each other. Business, and small business is tough enough these days so let's start helping ourselves!