Personal debt in and of itself is not a bad thing. But some people regard debt almost as if it is a mortal sin. On the other hand, there are those who are entirely too casual about debt. Both attitudes are unrealistic and counterproductive to reaching your financial goals. Sensible attitudes and actions regarding debt are essential for sound money management.
Like it or not, we’re a nation of debtors
In March 2017, MoneySuperMarket reported that British consumer debt has now reached £240 billion. The report noted that 73 percent of UK adults admitted they currently have some form of unsecured borrowing, in the form of a personal loan, bank overdraft, or credit card. And 33 percent said they rely on credit to get by every month. Moreover the average amount owed per adult, not including mortgages, has risen 5% in the past year to £6,372.
Over a third of the people surveyed who have more debt than they had last year blamed the rising cost of living, including bills, groceries, and transport. Yet 30 percent admitted they spent too much on luxury items, while eight percent confessed that they could not control their spending.
The report also revealed that those in debt have been so for two years on average. Unfortunately, five per cent cannot see themselves ever getting out of debt. And since inflation hit 1.8 percent in February 2017 and is widely expected to rise as the year progresses, this makes the picture look even bleaker for those in debt.
But the situation is far from hopeless. Honest examination of your own circumstances can help you figure out what you need to do about your debts.
Think before you take on more debt
Experts on consumer debt report that they are often asked, “How much debt is a problem?” Of course there is no straightforward answer to this question, as every debtor’s situation is different. As noted above, debt in and of itself is not a bad thing. For that matter, taking on more debt before you have your old ones paid off is not necessarily a wrong move either. But it should never be done on impulse. Before borrowing, think it through.
There are several factors to consider when you’re thinking of taking on additional debt. The amount that you already owe, the amount of income you have to repay your debts, and the likelihood of that income continuing are crucial factors.
And so, believe it or not, is your general attitude towards debt. Your attitude will not only influence the way you manage the debt, but it will also determine your stress level. The latter is no small consideration, since financial stress can be devastating to your emotional and physical health. Some people are adamantly opposed in principle to owing money to others, and feel quite stressed even when they owe a very small amount. On the other end of the continuum are those who are so relaxed and casual about borrowing money that they’re in over their heads before they even realise it. In between these two extremes are millions of other folks who may start out a little uncomfortable about debt but end up becoming comfortably numb as they gradually get themselves in deeper.
It’s smart to consider all of the above factors before you take on any debt, no matter how large or how small. And whether you ultimately choose to take on more debt or to let well enough alone, it’s essential that you learn to exercise self-restraint before making just about any purchase. Make sure that you’re not just “buying things you don’t need, with money you don’t have, to impress people you don’t really like” (to slightly misquote the late American humorist and social commentator Will Rogers).
Stack the odds in your favour
The consumer affairs expert at the aforementioned MoneySuperMarket, Kevin Pratt, noted that there are a number of simple steps that people can take to give themselves the best possible chance of paying off their debts. “What matters most,” he said, “is that you take a proactive approach to debt, to see if you can reduce the interest you pay and make inroads into what you owe.”
One simple but extremely important point to remember is that you should always shop around to make sure you are paying the lowest interest rate possible. The lending business is very competitive and some lenders offer much better deals than others. Not surprisingly, people with excellent credit have access to the best deals, but a host of alternative lenders have arisen in recent years to meet the needs of those with less than perfect credit. These loans do carry higher rates than the conventional loan products for the creditworthy elite, but it’s still important to shop around in order to find the best terms. Customer service and integrity are as important as reasonable interest rates, so shop carefully and read customer reviews about the lender(s) you’re considering.
Says the MoneySuperMarket’s Mr. Pratt: “With the UK facing an uncertain economic future, households should be taking whatever steps they can to get their finances into the best shape possible.”
If you think you need help, you probably do
Millions of people with problem debt live in denial about their problem, sometimes for years. We humans have all kinds of ways to distract ourselves from serious issues, and a common strategy is to keep on spending money frivolously without giving it a second thought. This accomplishes nothing except to delay the inevitable crisis.
If you are currently worrying about debt or simply wondering whether or not you might have a problem, you should consider yourself fortunate. That may sound odd, but your worrying is a sign that you are not living in complete denial and are at least marginally aware that there is a problem. This awareness can be the first step in finding a solution – but only if you’re willing to take the next step.
Fortunately there are numerous resources to help you deal with problem debt. On this site we have many other articles about debt and other subjects related to money management. As well, the Gov.UK site offers details about options for paying off your debts (e.g., Debt Management Plans, Debt Relief Orders, etc.). And charities such as the Money Advice Service or StepChange maintain websites that have abundant information about dealing with debt, whether you just want general information or you’re ready to embark upon a debt management program.
Getting yourself out of a debt trap will probably not be easy or painless, but staying in that trap will be even more painful. So take advantage of the resources available to you – not only to get out of debt but also to avoid problem debt in the future.