To enjoy true financial freedom one needs to master the art of allocating available funds and credit limit for timely investments, savings and assets. One needs to be financially prudent to muster their credit limit in the most lucrative form. However manyatimes, we flounder to repay our loans and accumulate debts.

How debts accumulate?

Right from Graduation days, you run a risk of building bad credit. It is worthwhile to know here that Graduates from the UK are one of the most indebted university pass outs in the world. So you are not alone if you are finding it hard to repay your student loan in the next 10 years. Apart from student loans, a generation of loans follows as you begin the career wagon and there is no fault of yours.

Post student loans, a couple of credit cards, auto loan and small personal loans are likely to be used by a majority of population. A large section of people in the UK pay off their students debts only after they turn 50. In such a scenario, think about those who opt for mortgage or home loan.

Is there a solution?

Raising a loan is not bad for your financial health but not knowing how to manage those debts is. While on one hand consumer credit facilities help you build assets; if not checked in time, the accumulated debt can remove your daily peace and leave you with poor score and irreparable red flags in the credit report.

In order to enjoy financial freedom it is important to break the deadlock created by bad credit health and look for smart ways to improve your score. Let’s discuss some of the popularly used bad credit loans for the purpose and unlock the secret to use these tools to build your credit worth.

Payday loans

Post 2009, with the infusion of FinTech boom, payday loans have been progressively used by bad credit borrowers as bridge loans. In fact 80 percent of payday borrowers resort to online private lenders for easing their cash shortages. According to a report, 50 per cent of these applicants are the repeat borrowers and resort to payday loans multiple times in a year.

Using payday loans is convenient but it only widens the holes in your pocket. Being an expensive alternative to bad credit, the cost of payday loan is high and thus you should not use these loans for more than £500. A typical payday loan of £500 for 20-30 days can cost you £120 interest amount. You should be wary of drawing more burden for your pocket. These are certainly not the solution to bad credit.

Personal loans

If you opt for short term personal loans, the rate of interest would be directly proportional to your past credit history and score. A lot of bad credit unsecured loans could be offered at as high as 99.9 % APR. Borrowers who need short term loans up to £5000 for 5 years generally opt for this category of loan. However with the kinds of profile discussed above, raising an additional loan without a repayment plan could be further detrimental to your credit report.

You need to assess your credit profile and calculate if there is a room for additional loan repayment. Not repaying loan on time, would only contribute to mounting debts.

Secured Loans

As unsecured loans come at high price, if possible, you should opt for secured loan options and save enough on the interest rate. For example: being a homeowner, you can leverage home equity to avail a homeowner loan at low cost. Whether you need urgent funds for home repair, kitchen redo or another unplanned expense, homeowner loans provide you a convenient back up to fund the essential expenses at low cost.

Are additional loans answer to bad debts?

Talking about all these loans, it is clearly evident that borrowing in the UK despite bad credit profile is feasible today. However to enjoy the financial freedom one needs to think of breaking the debt trap. Switching on from one loan to another is not going to rest your soul. The burden to arrange for next instalment would not leave you.

The need of the hour is to look for a loan that could be paid practically to make you debt free one day. You can consider opting for consolidation of your student loans, personal loans and other credit bills in to a cheaper homeowner loan. Refinancing loans and changing your lender is another option. By refinancing your student loan or home loan, you can save enough to fund the new instalments and save surplus at the same time. Many consolidation or refinance loans offer larger loan plans and thus offer smaller instalment benefits. You should thus discuss the available plans with the authorised loan advisors and compare those deals and pick the best alternative available.

Look beyond bad credit loans for financial freedom

To ensure the success of your debt management loan, you need to use a lot of financial discipline. You need to strictly ensure following to say goodbye to bad debts:
1. Have a clearly laid out budget.
2. Put a strict check on outflows. In fact you must delay all purchases for certain period.
3. Stay away from impulsive shopping and stick to shopping lists made in advance.
4. Build a reserve fund.
5. Adopt frugal living and save every day, be it on car fuel, alcohol, fine dining or any other lifestyle change, each can help you come close to your goal.

As you repay the debt, you would build good history and gradually improve your score. To maintain good credit score, you must always use less than 30 % of credit limit available to you. Also, try to have a good mix of secured and unsecured loans. Never raise casual direct queries to lenders as it would bring a hard query and hurt your score. When you contact a broker, they would check your eligibility without raising a hard query. All in all freedom from debt calls for overall change in your outlook. You need to see the debt as a tool to your dreams and not as a final resort for any cash gap.

Author's Bio: 

Rachel Weston is an experienced personal finance blogger. She is writing blogs and articles on money, debt and loans since 2010. You can directly share your queries with her.