There are not many times during the past 50 years where a prediction could be made with regard to property.
One event occurred in 1988 when the then Tory Government decided to
abolish double MIRAS (Mortgage Interest Relief at Source)- This change
meant that mortgages were more expensive by £80 pcm for couples
(married or singles)-
This was announced on the 15th March 1988 the deadline was 31st August
1988 and fuelled property prices to rise by a staggering 33% in that
24-week period.
Now, because the market rise was artificial they then went on to lose this gain over the next 4 years.
If a lesson is to be learned it is this; if you force the market up it will bite you on the arse!
I believe it contributed to the recession of the 90's because at that
time I was an agent and I felt the decline, business was down 50% at one
stage. The wider implications have a knock on effect just like what
happened in 2008, 20 years later, when lending came to an abrupt halt.
You remember that don't you?
Less sales, less agents, less solicitors, less money for the Government and so on; then cut-backs and the rest is history.
So, we could predict 2 things in 1988:
Prices would rise quickly as there was a mad rush to get in before the deadline
Prices would fall back because the cost for a new mortgage would be higher and so
The wider economy would be affected.
The key is by how much and to what degree; that's the thing most people miss.
Now we have another with last March's budget announcement.
So what impact could this new Government housing scheme have on the market?
How much, and most important, what will the fallout be?
This was the Government announcement; that from Jan 2014 they will
underwrite all mortgages up to £600k. This is not exclusive to FTB's or
second timers. This is for the general property market.
It is to encourage lenders to lend at higher loan to value and give them
confidence to lend generally. Banks will have to stick to normal
lending criteria for income multiples but I suspect they will be a
little more lenient on peoples' credit ratings and not as harsh as they
have been.
Those with a poor credit rating will still be excluded I should imagine.
The idea is the Government will underwrite and take a hit if someone gets repossessed.
The whole point is to get more buyers back into the market because they
(the Government) believe this will get the economy going. More buyers,
more new houses, more new jobs, more VAT from fees and more stamp duty;
I'm sure you get the picture.
It will make it cheaper to borrow as the Funding for Lending Scheme is
still in place so mortgages will be cheaper, it will be cheaper than
renting and there is huge pent up demand from buyers.
People still want to own property, just wait and see.
They are talking of underwriting up to 130bn quid's worth for 3 years.
This is going to fuel the property market which is great for your equity
increase but absolutely useless to you as a landlord. Or so you may
think!
The only reason lettings have boomed is because of a lack of mortgages.
We are going to witness the biggest property boom you have seen for
years and it underpins everything I have been talking about in the last
12 months.
This will be the result of too much stimulus and will get the Tories re elected.
There will be so much money flushing through the system it will be a joke.
Also, it is on top of the Bank of England's £375 billion QE (printing more money) which adds to the feel good factor.
The feel good factor is when people feel wealthy when their houses go up in value and they start to spend more.
People won't want to let a property now, and why would they?
Affordability will be in favour short term for buying. The lettings
market will soften in the next 18 months because all self-respecting
people in this country will want to own a property to give them security
unless of course they are looking for short-term flexibility.
This market is artificial; it won't last long because rates will have to
go up. That's when the shit will hit the fan and is at least 3-5 years
away.
But everyone should take advantage of this great time ahead.
You will see it won't be able to miss it. I'm not talking a small percentage I'm talking 25-100% increase in a few years.
This will buck all trends in general economics, it won't make sense to
the number crunchers as all the data will point to bad news while
property increases.
But these are uncharted waters in which we have never been in 400 years.
We can only look back at history for a bit of guidance, it won't help
much.
1 guiding principle to remember is supply and demand; the demand will be insatiable and supply will not be able to keep up.
So that brings me back to my point...--
We should now be able to predict the market!
So we could predict 2 things in 2014-17-
Prices should rise quickly due to the mad rush to get in before the deadline in 3 years time
Prices should fall back when interest rates have to rise to stop the over heated property market and so
The wider economy will be affected.
The key is by how much and to what degree and that's the thing most people miss.
This will be sort of deadline driven because people won't want to miss
out. The Government has stated 3 years and as values rise quickly there
will be more pressure for buyers.
Sunday, January 26, 2014
Stop Your Financial Fight With These Expert Tips!
You can take action now, and be the master of your finances. Start
improving your finances by learning some workable approaches to
effective money management. It isn't necessary to go to classes or take
expensive seminars in order to improve your skills in money management.
Anytime you can learn something it does help.
If the timing is wrong for you, avoid selling. If you're getting good money from a certain stock, leave it alone for a period of time. You can certainly take a second look at stocks that are underperforming and think about moving some of those around.
If you want to save money when eating in foreign countries, you can try eating like a local. Your hotel restaurant, and any other restaurants in tourist areas, are likely to be way overpriced, so do some research and find out where the locals eat. Not only will the food be tastier, but probably less expensive, too.
You can better understand where your money goes when you write down how much you spend every day. If you just write this information in a place you do not look at frequently, it may not have a great effect on your behavior. Try listing how much you spend on a whiteboard set up in your office or den. Seeing this multiple times a day can help keep it fresh in your mind.
If you want to start improving your finances stop paying full price for things. Reconsider your brand loyalties, instead favoring products for which you have coupons. For example, if you normally buy one detergent but one has a $3 coupon, buy the one with the coupon.
Usually, if a product has faults, you will notice it within 90s, which is the length of most warranties. Extended warranties are great for businesses, but they aren't great for the customer.
Your car and house are very likely going to be your biggest expenses. A large portion of your budget will likely be devoted towards interest and payments for these items. You can save thousands of dollars over the life of these loans by making one additional payment on an annual basis.
Be careful! Learning personal finance techniques can be addictive. Try using some of these tips. You will definitely be helped when incorporating some of these money-saving tips into your own situation. Adopt new habits and look for more ways to reduce your expenses, and place your money in good investments.
If the timing is wrong for you, avoid selling. If you're getting good money from a certain stock, leave it alone for a period of time. You can certainly take a second look at stocks that are underperforming and think about moving some of those around.
If you want to save money when eating in foreign countries, you can try eating like a local. Your hotel restaurant, and any other restaurants in tourist areas, are likely to be way overpriced, so do some research and find out where the locals eat. Not only will the food be tastier, but probably less expensive, too.
You can better understand where your money goes when you write down how much you spend every day. If you just write this information in a place you do not look at frequently, it may not have a great effect on your behavior. Try listing how much you spend on a whiteboard set up in your office or den. Seeing this multiple times a day can help keep it fresh in your mind.
If you want to start improving your finances stop paying full price for things. Reconsider your brand loyalties, instead favoring products for which you have coupons. For example, if you normally buy one detergent but one has a $3 coupon, buy the one with the coupon.
Usually, if a product has faults, you will notice it within 90s, which is the length of most warranties. Extended warranties are great for businesses, but they aren't great for the customer.
Your car and house are very likely going to be your biggest expenses. A large portion of your budget will likely be devoted towards interest and payments for these items. You can save thousands of dollars over the life of these loans by making one additional payment on an annual basis.
Be careful! Learning personal finance techniques can be addictive. Try using some of these tips. You will definitely be helped when incorporating some of these money-saving tips into your own situation. Adopt new habits and look for more ways to reduce your expenses, and place your money in good investments.
Commodity Markets Trading Strategies For Starters
The simplest way to learn just how to trade in the commodity markets is
to take lessons directly from a successful trader. However, even if you
found the right persons, and they taught you all they know, this in
itself does not guarantee that you will make money the way they do. For
this, you need to keep {a good trading strategy yourself|yourself to a
good trading strategy}, if you are to succeed in doing commodity futures
trading.
Trade Correctly Or Not At All
A lot of people don’t realize it, but they end up learning through trial and error. However, you are unlikely to become a good trader if you use this method. The first thing you need to do to trade the right way is to read as much as possible about commodity trading. This may not give you the {best trading plan|the best trading plan to you}, but it will definitely prepare you for the trades you might want to take in the future. You will gain more knowledge about the risks you are about to take, and how to limit them. You will also have the benefit of learning from the mistakes made by these experts, rather than having to go through them yourself.
Essentials Of A Sound Trading Strategy
The first decision you need to take while formulating a trading strategy is to decide how much capital you want to invest, as this will greatly determine how much you will end up {making as profit|as profit making}. The more you invest, the better your chances of making money. {It provides for more lasting power in the market if you have more ‘risk capital’|If you have more ‘risk capital’ It provides for more lasting power in the market}. Risk Capital is the amount of money you are willing to lose without it affecting your way of life. The next step is to decide what your average trade investment will be – as in the value of each trade taken.
The four essentials of any good trading strategy are as follows. Firstly, always remember to trade in the direction of the market trend. Remember, the market trend is your only friend. Secondly, always keep stops in place. They will determine how much capital you will lose. Thirdly, let your profits run as deep as you can. Don’t be in a hurry to {exit a trade if you are making only a little money|if you are making only a little money to exit a trade}. This sounds like it is easy to do, but is perhaps the most difficult of all the four principals. Lastly, manage your risk {wisely and carefully|carefully and wisely}. Make sure that {the risk reward ratio is always leaning in your favor when you are taking a trade|when you are taking a trade that the risk reward ratio is always leaning in your favor}.
Use Of Technical Analysis
{Most traders use technical analysis as part of their trading strategy|As part of their trading strategy most traders use technical analysis}. Technical analysis provides many vital tools that allow you to be more informed about the trades you are taking, and help to decide which ones to ignore. Among other things, indicators used in technical analysis allow you to determine {trends, entry points, stops, target prices, supports, resistances, possible breakouts and breakdowns|possible breakouts, entry points, stops, target prices, supports, resistances, trends and breakdowns}. It would be wise to use these indicators when you are formulating a strategy to trade in the commodity markets.
Remember, it is wise to always trade a commodity that you are knowledgeable about. Try to master one commodity and know the factors that affect its movements. Know what you are trading, and you will find your self on the winning side more often.
Trade Correctly Or Not At All
A lot of people don’t realize it, but they end up learning through trial and error. However, you are unlikely to become a good trader if you use this method. The first thing you need to do to trade the right way is to read as much as possible about commodity trading. This may not give you the {best trading plan|the best trading plan to you}, but it will definitely prepare you for the trades you might want to take in the future. You will gain more knowledge about the risks you are about to take, and how to limit them. You will also have the benefit of learning from the mistakes made by these experts, rather than having to go through them yourself.
Essentials Of A Sound Trading Strategy
The first decision you need to take while formulating a trading strategy is to decide how much capital you want to invest, as this will greatly determine how much you will end up {making as profit|as profit making}. The more you invest, the better your chances of making money. {It provides for more lasting power in the market if you have more ‘risk capital’|If you have more ‘risk capital’ It provides for more lasting power in the market}. Risk Capital is the amount of money you are willing to lose without it affecting your way of life. The next step is to decide what your average trade investment will be – as in the value of each trade taken.
The four essentials of any good trading strategy are as follows. Firstly, always remember to trade in the direction of the market trend. Remember, the market trend is your only friend. Secondly, always keep stops in place. They will determine how much capital you will lose. Thirdly, let your profits run as deep as you can. Don’t be in a hurry to {exit a trade if you are making only a little money|if you are making only a little money to exit a trade}. This sounds like it is easy to do, but is perhaps the most difficult of all the four principals. Lastly, manage your risk {wisely and carefully|carefully and wisely}. Make sure that {the risk reward ratio is always leaning in your favor when you are taking a trade|when you are taking a trade that the risk reward ratio is always leaning in your favor}.
Use Of Technical Analysis
{Most traders use technical analysis as part of their trading strategy|As part of their trading strategy most traders use technical analysis}. Technical analysis provides many vital tools that allow you to be more informed about the trades you are taking, and help to decide which ones to ignore. Among other things, indicators used in technical analysis allow you to determine {trends, entry points, stops, target prices, supports, resistances, possible breakouts and breakdowns|possible breakouts, entry points, stops, target prices, supports, resistances, trends and breakdowns}. It would be wise to use these indicators when you are formulating a strategy to trade in the commodity markets.
Remember, it is wise to always trade a commodity that you are knowledgeable about. Try to master one commodity and know the factors that affect its movements. Know what you are trading, and you will find your self on the winning side more often.
How to Choose Right Forex Robot for Online Forex Trading.
If you plan to start trading Forex online , of course , to use a robot
system . This system will make it easy for you to quickly get
information about market prices and make trades. There are two types of
Forex robot available , web -based client base.
As the Forex market is a fast moving market and will have up to the minute information to make informed transactions , that is up to you to see that you have an internet connection of high speed. Wireless Internet after all not work for this. Another consideration may be the location of the servers used by the broker. If your broker's servers are located quite a distance from you, say in another country , this could delay their transmissions. If you plan to trade online need a modern computer and internet connection speed.
The next consideration would be what type of robot, web based or client based ? Web based software is on their website brokers. You do not have to install any software on your computer . A program of web-based software allows you to connect from any computer with internet connection . A robot-based client program , or one that is downloaded to your own computer will be limited to transactions only on the computer is downloaded . Programs Web based software is preferred by most riders who think they are safe and reliable. Web based software tends to be less vulnerable to virus attacks and hackers during transmissions to the client-based robot .
Any Forex software should offer real-time quotes and provide means to enter and exit the market quickly. These are the minimum requirements of any trading software . Updated software packages are usually offered at a monthly cost additional runners.
Generally , brokers have customer information housed in two severs kept in two different places . This is to ensure customer data is kept as safe as possible. If there is a power outage or a problem with a server data is sent back and forth from the second secure server and will not notice an interruption. Regular backups of these servers is another way that brokers maintain financial data safe in case of server failure.
Key elements Forex robto
Before buying a Forex robot there are some essential elements that must be included. The most important is the safety and software online Forex trading should include a bit SSL 128 encryption that prevents hackers from accessing any of your personal data and information, such as your account balance , transaction history , etc.
Providing the best security for your Forex trading will include a company that provides technical server support 24 hours for your Forex software , 24 hours maintenance should anything go wrong , daily backups of all information , and a system of security that has been designed to prevent any access authorization . Along with these security protocols there are also some Forex trading companies that use smart cards and fingerprint readers to ensure that only their employees can have access to their servers .
Another important factor when choosing your Forex software is to check what downtime of the company is . When it comes to currency trading and in particular the online Forex trading you need to ensure that the Forex software you choose is reliable and available 24 hours a day. The Forex software you choose for your Forex trading should also have technical support available at all times if your session was cut short .
Ensure that all the above features are shown in the Forex software you choose will help you make sure your success.Anyway Forex trading , Forex robot is a must if you want to make money .
As the Forex market is a fast moving market and will have up to the minute information to make informed transactions , that is up to you to see that you have an internet connection of high speed. Wireless Internet after all not work for this. Another consideration may be the location of the servers used by the broker. If your broker's servers are located quite a distance from you, say in another country , this could delay their transmissions. If you plan to trade online need a modern computer and internet connection speed.
The next consideration would be what type of robot, web based or client based ? Web based software is on their website brokers. You do not have to install any software on your computer . A program of web-based software allows you to connect from any computer with internet connection . A robot-based client program , or one that is downloaded to your own computer will be limited to transactions only on the computer is downloaded . Programs Web based software is preferred by most riders who think they are safe and reliable. Web based software tends to be less vulnerable to virus attacks and hackers during transmissions to the client-based robot .
Any Forex software should offer real-time quotes and provide means to enter and exit the market quickly. These are the minimum requirements of any trading software . Updated software packages are usually offered at a monthly cost additional runners.
Generally , brokers have customer information housed in two severs kept in two different places . This is to ensure customer data is kept as safe as possible. If there is a power outage or a problem with a server data is sent back and forth from the second secure server and will not notice an interruption. Regular backups of these servers is another way that brokers maintain financial data safe in case of server failure.
Key elements Forex robto
Before buying a Forex robot there are some essential elements that must be included. The most important is the safety and software online Forex trading should include a bit SSL 128 encryption that prevents hackers from accessing any of your personal data and information, such as your account balance , transaction history , etc.
Providing the best security for your Forex trading will include a company that provides technical server support 24 hours for your Forex software , 24 hours maintenance should anything go wrong , daily backups of all information , and a system of security that has been designed to prevent any access authorization . Along with these security protocols there are also some Forex trading companies that use smart cards and fingerprint readers to ensure that only their employees can have access to their servers .
Another important factor when choosing your Forex software is to check what downtime of the company is . When it comes to currency trading and in particular the online Forex trading you need to ensure that the Forex software you choose is reliable and available 24 hours a day. The Forex software you choose for your Forex trading should also have technical support available at all times if your session was cut short .
Ensure that all the above features are shown in the Forex software you choose will help you make sure your success.Anyway Forex trading , Forex robot is a must if you want to make money .
What is Malinvestment?
Once it is established that the rising prices of goods and services is a
symptom, rather than a cause of inflation, we can see more easily why
periods of high inflation are coincident with times of economic
hardship. Inflation, as defined as an increase of money supply, is
detrimental because it detracts money away from wealth-generators toward
the holders of the newly created money.
This results in a misallocation of resources, which Ludwig von Mises termed 'malinvestment'-
Usually the first holders of this money created literally 'out of thin air' are the banks. As such they can direct a large proportion of the newly created wealth to themselves. Through the fractional reserve banking system new loans are created and the newly created money is passed on to various entrepreneurial activities. Some of these will be true wealth-generators, but some will not. However, because of the abundance of 'easy money' it is difficult in the early stages of the boom to determine which is which.
So far both the primary recipients and the secondary recipients have done well from the influx of new money. The secondary recipients will employ workers who will also benefit from the inflationary monetary policy. These new jobs and companies will create localized areas of prosperity. So far so good.
The problem arises because of the fact that one cannot get 'something for nothing'- As the new money trickles down it does so in a diminishing fashion. In fact, there will be people within the society that will never receive any of the newly created money! However, these very same people will be affected by rising prices in goods and services. They now face higher prices with the same amount of money as they had before. They will be forced to curtail their spending on certain items that may lead to a decrease in demand for those goods and services. This reflects the notion that the newly injected money is non-neutral - a 10% increase in the money supply will not lead to a simple 10% increase in prices across the board.
An Example---
To use an example, let us assume that the U-S- government decides to spend money on a new computer system for jets. Let us also assume that this money is newly created money - it wasn't collected through taxation or the issuing of government bonds (i-e. debt)- This newly created money first goes to the people involved with the company that designs and manufactures these said computer systems. Accordingly, these people become wealthier and have more to spend. Let us assume that they buy cars and wine. Now the new money has gone to those people involved with the making of cars and wine. They in turn buy books and shoes. Now those people become wealthier. And so on---
Now what about the average person who doesn't work in these industries. All he sees is an increase in cars, wine, books and shoes. He now has less to spend on beer and pretzels. So now the beer and pretzel industry experiences a downturn. New entrepreneurs, seek business opportunities within the car, wine, book and shoe industries and avoid the making of beer and pretzels.
So what we have is an unequal increase in the pricing of certain goods and services. Some go up, while others actually go down. We also experience a transfer of capital investment from some industries to others-
This results in a misallocation of resources, which Ludwig von Mises termed 'malinvestment'-
Usually the first holders of this money created literally 'out of thin air' are the banks. As such they can direct a large proportion of the newly created wealth to themselves. Through the fractional reserve banking system new loans are created and the newly created money is passed on to various entrepreneurial activities. Some of these will be true wealth-generators, but some will not. However, because of the abundance of 'easy money' it is difficult in the early stages of the boom to determine which is which.
So far both the primary recipients and the secondary recipients have done well from the influx of new money. The secondary recipients will employ workers who will also benefit from the inflationary monetary policy. These new jobs and companies will create localized areas of prosperity. So far so good.
The problem arises because of the fact that one cannot get 'something for nothing'- As the new money trickles down it does so in a diminishing fashion. In fact, there will be people within the society that will never receive any of the newly created money! However, these very same people will be affected by rising prices in goods and services. They now face higher prices with the same amount of money as they had before. They will be forced to curtail their spending on certain items that may lead to a decrease in demand for those goods and services. This reflects the notion that the newly injected money is non-neutral - a 10% increase in the money supply will not lead to a simple 10% increase in prices across the board.
An Example---
To use an example, let us assume that the U-S- government decides to spend money on a new computer system for jets. Let us also assume that this money is newly created money - it wasn't collected through taxation or the issuing of government bonds (i-e. debt)- This newly created money first goes to the people involved with the company that designs and manufactures these said computer systems. Accordingly, these people become wealthier and have more to spend. Let us assume that they buy cars and wine. Now the new money has gone to those people involved with the making of cars and wine. They in turn buy books and shoes. Now those people become wealthier. And so on---
Now what about the average person who doesn't work in these industries. All he sees is an increase in cars, wine, books and shoes. He now has less to spend on beer and pretzels. So now the beer and pretzel industry experiences a downturn. New entrepreneurs, seek business opportunities within the car, wine, book and shoe industries and avoid the making of beer and pretzels.
So what we have is an unequal increase in the pricing of certain goods and services. Some go up, while others actually go down. We also experience a transfer of capital investment from some industries to others-
Ideas For Wood working Projects - Selecting a Simple Gratifying Project
No matter if they understand it or not, every body on earth will have a
natural talent. Numerous everyday people may easily sew , making
glorious apparel, whilst some others can cook you a great dish, while
some are still brilliant at working with wood. Are you proficient at
wood working and are therefore looking to find some wood project ideas
to enable you to going in order to move onto larger projects? Listed
here are relatively easy woodworking projects to get you going on making
that skill of yours better still.
Duvet rack: This is a simple yet fine-looking opportunity for anybody to view your persistence and talent. This quilt rack is straightforward yet convenient and may even be sent as a caring gift or stored in the corner of a bedroom to hold quilts.
Duvet rack: This is a simple yet fine-looking opportunity for anybody to view your persistence and talent. This quilt rack is straightforward yet convenient and may even be sent as a caring gift or stored in the corner of a bedroom to hold quilts.
Credit Cards: Why You Should Pay More Than The Minimum
In today's world of online shopping and bill servicing, credit cards
have become almost an essential part of our everyday lives. No one would
argue that they don't make life easier, but it's also true that they
have a dark side in that it's all to easy to build up debt.
Of course, it's simple to advise against getting into debt by overspending with your card, but that advice is perhaps a little hollow for people who have already built up a balance. If you're lucky, that balance is not yet too much of a problem, but one almost guaranteed way of setting your debt on the slippery slope is to continue spending with your card while only making the minimum monthly repayment required by your card issuer.
Each month when you receive your statement, the minimum amount you have to pay will be clearly shown, and many people choose to have this amount repaid automatically through their banks. This makes it easy to keep your account up to date, and gives the illusion that you're keeping on top of your card balance.
The problem lies in the size of the repayment you're making. In the early days of plastic, the minimum repayment level was generally around 5% of the balance, but over the years this has drifted inexorably downwards with 2-5% to 3% being the norm nowadays, with some cards going as low as 2%-
Why is this a problem? Surely a lower repayment amount is attractive, as your credit will cost you less each month, putting less pressure on your budget? This is true to an extent, but the problem lies in the long term. To get an idea of how bad an idea only paying the minimum is, we need to look a bit more closely at your credit card statement.
As well as showing the familiar annual interest rate, or APR, your card statement will also show the monthly rate of interest charged on your balance. A typical card might show a rate of around 1-6% a month. In simple terms, this means that each month you will be charged 1-6% of your balance in interest. Compare this to a 2% repayment, and you'll see that over three quarters of everything you pay is swallowed up in interest charges, leaving your original debt virtually untouched.
This situation is bad enough, but it gets worse when you consider that the interest rates charged on other ways of using your cards such as instant cash or overseas use can be much higher. Monthly rates for withdrawing cash, for example, can be nearly as high as the minimum repayment percentage. If you withdraw a significant amount of cash within a month, it's quite possible that the whole of your repayment can go towards interest, with your debt level not reduced at all.
So even from this quick look at repayment levels, it's plain to see that if you only make the minimum payment required on your statement, you'll be prolonging the life of your debt by many years and vastly increasing the amount of interest you'll be paying in total. How can you avoid this?
The best way is to set up automatic payment of the minimum, so that you'll be sure that every month you'll at least be staying within the terms of your credit agreement and not risking damage to your credit rating. Then, at the end of the month, make an extra payment of as much as you can afford without borrowing from another source. Even if you can't afford to pay a large amount, every little helps especially as all of it will count towards reducing your balance and not servicing interest charges-
Of course, it's simple to advise against getting into debt by overspending with your card, but that advice is perhaps a little hollow for people who have already built up a balance. If you're lucky, that balance is not yet too much of a problem, but one almost guaranteed way of setting your debt on the slippery slope is to continue spending with your card while only making the minimum monthly repayment required by your card issuer.
Each month when you receive your statement, the minimum amount you have to pay will be clearly shown, and many people choose to have this amount repaid automatically through their banks. This makes it easy to keep your account up to date, and gives the illusion that you're keeping on top of your card balance.
The problem lies in the size of the repayment you're making. In the early days of plastic, the minimum repayment level was generally around 5% of the balance, but over the years this has drifted inexorably downwards with 2-5% to 3% being the norm nowadays, with some cards going as low as 2%-
Why is this a problem? Surely a lower repayment amount is attractive, as your credit will cost you less each month, putting less pressure on your budget? This is true to an extent, but the problem lies in the long term. To get an idea of how bad an idea only paying the minimum is, we need to look a bit more closely at your credit card statement.
As well as showing the familiar annual interest rate, or APR, your card statement will also show the monthly rate of interest charged on your balance. A typical card might show a rate of around 1-6% a month. In simple terms, this means that each month you will be charged 1-6% of your balance in interest. Compare this to a 2% repayment, and you'll see that over three quarters of everything you pay is swallowed up in interest charges, leaving your original debt virtually untouched.
This situation is bad enough, but it gets worse when you consider that the interest rates charged on other ways of using your cards such as instant cash or overseas use can be much higher. Monthly rates for withdrawing cash, for example, can be nearly as high as the minimum repayment percentage. If you withdraw a significant amount of cash within a month, it's quite possible that the whole of your repayment can go towards interest, with your debt level not reduced at all.
So even from this quick look at repayment levels, it's plain to see that if you only make the minimum payment required on your statement, you'll be prolonging the life of your debt by many years and vastly increasing the amount of interest you'll be paying in total. How can you avoid this?
The best way is to set up automatic payment of the minimum, so that you'll be sure that every month you'll at least be staying within the terms of your credit agreement and not risking damage to your credit rating. Then, at the end of the month, make an extra payment of as much as you can afford without borrowing from another source. Even if you can't afford to pay a large amount, every little helps especially as all of it will count towards reducing your balance and not servicing interest charges-
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