Debt is any money or services or goods or anything else of value that is owed by one person or group to another party as the result of a previous agreement. For most people consumer debt takes the form of credit card loans, personal loans, mortgages and overdrafts.
Attitudes to debt vary across different cultures and generations and are a matter of personal values and priorities. Some people consider all debt incurred for anything other than a long-term investment as unwise. Some would advise that you should try to spend only what you can afford and if you do take out a loan then it should only be for a significant investment like your home. Others believe that consumer credit is a standard part of life, it is good for the economy and it helps people have a good quality of life by obtaining goods and services more easily.
The UK has high levels of home ownership, a situation which offers long term financial security for the vast majority and this is only achieved via debt - a mortgage loan which is paid back over a long period. Even if you don't like it the chances are that you like everyone will be in debt at some point in your life. This is because many of today's big purchases which are seen as essential such as a home or a car and they cost much more money than most people can earn in a reasonable amount of time. Interest fee credit deals on some items appear more like a bargain than a debt.
Unfortunately serious debt, as opposed to moderate or minor debt, can lead to serious consequences if not managed carefully. In the worst case scenarios the loss of your home, bankruptcy and imprisonment could occur. When debt becomes a problem it can also have a negative impact on your health.
Average consumer borrowing via credit cards, finance deals, overdrafts and personal loans is rising in the UK. In fact, The UK has some of the highest levels of personal debt in the world. The level of debt is increasing at staggering levels - about a million pounds every four minutes. Total UK personal debt had exceeded £1 trillion (£1,000 billion) in 2006. In 2006 average household debt had risen to over £8,000 (excluding mortgages) and over £50,000 including mortgages.
Communication is vital. If you're worrying about what you're spending talk to your partner, friends and family members. Get a spending plan together.
Assess your outgoings and fix some spending limits. Discuss spending priorities with your partner and family, including long-term plans as well as day-to-day budgeting. Budget for irregular bills and expenses. Try and pay on time and use direct debits which may give you small discounts.
Discuss the family budget with your children. Teaching them they need to live within a budget is a good thing for their future.
Keeping track of your spending and building up an accurate picture of your spending helps to budget. Always check your bank statements and receipts. Seek help immediately if debts start to build up.
We all need to treat ourselves but think carefully about your purchases. Ask yourself whether what you buy is something you really need or whether it is something you just want or feel like you should have.
If you can do DIY work around the home it will save you money.
Save money on energy bills. Turn off lights and electrical appliances when not in use and switch utilities bills to cheaper suppliers. Rising energy and council tax bills are forcing increasing numbers of people into debt.
Recycle and do not waste goods that are perfectly adequate. Reuse shopping bags for rubbish, do not waste food. Walking or cycling to work will save on petrol.
Compare prices on goods and services carefully and always obtain different quotes for services. Use Review Centre reviews for recommendations and check out our price comparison guides.
One of the main causes of debt problems is via unsecured debts such as credit cards. Try and limit the number of your cards and pay off your debts on time to reduce your bills.
It will be good for your health and these heavily taxed items are expensive over time.
Studies show that customers who pay with cash pay less than those who pay with credit cards. Customers paying with credit are more likely to overspend.
Paying your bills at the same time each month and checking your debts regular can have a profound effect. Having a system for paying your debts helps you stay in control and can ensure things don't spiral out of control.
Even if you are on a small budget you should always be able to save a small sum each month. Having even a few saving can help in case you run into difficulties paying off your debts or towards your bills. It is also a habit to get into.
Always check your bills each month to ensure that they are accurate. Regularly check to see you are still getting the best interest rates and best loan deals possible.
Paying only the minimum is costly and will ensure that you have debt for a long time. Try and pay off your debts early. Beware of penalty charges for this though. Always check your policies.
Many companies will be happy to offer you more loans if you have a good credit rating. While this is good on one hand, on the other it can lead to a vicious circle for some people. Take it easy. Only take out a loan when you need to and are happy you can afford it.
Check your bank statements carefully. If you notice that your card is missing or that an unrecognized charge has appeared report it. Identity fraud can damage your credit rating. Arrange to see your credit report. Your bank will advise you.
If you do need a loan be sure to research it properly. There are lots of competitive deals and lots of not so competitive deals. Always understand how much you will pay for your loan in full and look for the lowest interest rates. Be realistic about what you can afford to repay.
Debt consolidation involves taking out a one off large loan that will pay off all your existing debts. The benefits of this are that you should be offered the loan at a lower rate of interest than your current loans and you should be able to pay back your debt over a longer period of time. But beware - debt consolidation can mean paying out more money in the long run and you may be asked to offer your home as security on the debt.
If you find yourself troubled with debt do not panic as there are many solutions available. Equally, do not bury your head in the sand. Your debt if it has become a problem will not go away so you must tackle the problem head on before it gets even worse.
Consider The Following As Your Battle Plan:
Work out your budget and decide how much you can afford each week or month to pay off your debts. Identify priority debts.
Contact all your creditors as soon as possible. Offer to pay off the debt at an amount you can afford even if it's only a small amount per week or month. You will be surprised by the results.
Cut out all unnecessary spending and cut up store cards and credit cards.
Earn more money if you can. Can you work overtime, work weekends, take on a lodger? Are you missing out on any tax breaks or benefits?
Switch to a basic bank account which will helrevent overspending.
Rise to the challenge. Tackle the problem. Do something today. Don't give up. Everything can be sorted. The sooner you act the better it will be in the long run.
There are various options to consider and remortgaging your home is just one of them. The low interest rates in the UK in recent years has meant houses can be used fairly easily to consolidate other debts by remortgaging. The amount of re-mortgaging deals has risen significantly in recent years. A remortgage may reduce your overall monthly debt payments. But you need to remember that if you cannot keep up repayments on a mortgage or other debt secured against your property you risk losing your home. And remember you are likely to be paying over a longer period.
Priority debts are things you should consider as a priority because if you fail to meet them the consequences are serious.
Don't pay and a court order could be made to evict you.
Don't pay and be evicted and lose your home.
Don't pay and gas or electricity can be cut off.
Don't pay and get sent to prison.
Don't pay and HM Revenue & Customs could start bankruptcy proceedings.
Don't pay and get sent to prison.
An IVA is an Individual Voluntary Arrangement. An IVA an alternative to bankruptcy which was introduced by the UK government as part of the 1986 Insolvency Act. Debtors can make a proposal to creditors to reach a settlement. If approved by a majority of the creditors the IVA stands as a contract that binds all parties and prevents any further legal action. An IVA is a good alternative when someone cannot pay their debts but does not want to file for bankruptcy. It can be a good option to creditors as well, as often they will receive a better financial result than in bankruptcy. Always get some free independent advice on IVAs from one of the many good advice services/registered charities offering debt advice. The Citizen's Advice Bureau is a good place to start.
