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Are you struggling with debt?
Statistics compiled by the organisation Credit Action paint a worrying picture of the nation's personal finances.
They indicate that 18 per cent of adults in Britain have £10,000 or more of unsecured debt, equivalent to 8.2 million adults - a rise of 30 per cent on the figure published for 2006.
Over two million British consumers (six per cent) can't actually quantify how much debt they're in (according to research accredited to the website Unbiased.co.uk).
Whatever desperate straits someone is in, though, the truth is, there is always a way to escape 'bad debt', the kind of debt experienced when borrowing gets out of control.
This feature sets out the basics of how to do just that, and includes a range of helpful resources and case studies.
And by taking our simple action steps, debit cards, credit cards, loans and mortgages can be managed more effectively in future, too.
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WHAT NEWSPAPERS SAY ABOUT DEBT 'Young People are using loan sharks to fund pub crawls and pay for new clothes. A total of 77 per cent of young adults have been in debt by their 24th birthday and 20 per cent have been left with £50 a month or less to live on after their repayments, a survey by young people’s charity Rainer showed.' 'Britain's 'live for today' attitude toward debt is plunging an ever-growing number of families into financial ruin, the City's watchdog warned yesterday. The Financial Services Authority (FSA) issued a stark warning that borrowers have become profoundly complacent about the size of the debt they are carrying.' 'An advert in which a woman arranges a £25,000 loan over the phone between helping her family locate a missing scooter and trainers broke advertising rules because it suggested borrowing large sums of money was an everyday occurrence, the industry watchdog ruled today.' |
Do the maths but don’t panic Many conclude that 'bad debt' mounts up a little at a time due to it being 'human nature' in today's world to want more luxury items than we can afford (see What Newspapers Say About Debt). Paying household bills often, then, means responding to promotional offers for mortgages and loans offering a little extra, often containing confusing small print. Mortgages, for example, are not just about the APR (Annual Percentage Rate) as there may be a maze of penalties to tie a customer to charges and punishing payments. Step one of escaping 'bad debt' is to take back financial control - which means cutting spending, and putting a repayment plan in place. One of the best starting points is to create a set of priorities in terms of how debt on cards and loans will be repaid; in most cases it is best to pay off credit cards first, starting with those of the highest APR. When behind with some payments, it may be necessary to renegotiate payment terms with some of the companies money is owed to. There is a very good self-help guide on the Credit Action website, which includes advice on how to do this. Consolidating debt (paying off debts with one loan) should be considered - without taking out a higher loan than needed to repay debts - and bankruptcy is another option in extreme circumstances. There is plenty of free advice available on consolidating debt and bankruptcy; see the links below, or call the Consumer Credit Counselling Service on 0800 138 1111. |
Take three 'action steps' to better finances
Planning future spending is necessary via three common sense action steps - to ensure the hard work put in to get personal debt under control is not cancelled out by more over-spending.
1. Cutting outgoings even for a few months leads to healthier patterns of spending, as decisions are made as to what is essential and what isn't - the end result being a tried-and-tested household budget; the new interactive resource in the left-hand panel will help you to create a balanced budget, and it is a good idea to open a second current account to pay known bills, transferring by Standing Order the right amount to pay the bills every month from your original account.
2. If something is too expensive now it is quite likely it will be in future too - and a second important action step is to develop an understanding of the true cost of interest free credit before making a big purchase; it often just delays the process of sinking deeper into debt.
3. A third step in the right direction is to fully understand that financial institutions and banks are there to make a profit no matter how compassionate their advertising campaigns; think about what is in it for them when arranging credit, especially when paying off outstanding bills with credit card cheques - which often have high charges.
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Consider joining a credit union Whilst high street lenders meet the needs of the majority of people, organisations called credit unions, run by leaders in the local community and monitored by a government body, provide a more personal service for those who need extra assistance with money matters, perhaps because a complicated credit history means no-one will lend them money. Membership normally only costs a few pounds, accounts can be set up with a minimal initial deposit, and they are an excellent place to learn all about how to successfully combine saving, spending and borrowing. |
COMMON SENSE FROM THE BIBLE We must fulfil our obligations Learn to be content with what you can afford |
To keep APR rates lower than those offered by shops, catalogues, most credit cards and banks, borrowing in a credit union is by application only and set at a sensible maximum level, relating to a member’s savings account balance.
What makes a credit union unique is that all profits go back to all members as an annual dividend, so the money stays in the local community.
Increase income
Borrowing from the future, by getting into 'good debt', is probably essential for most people in the 21st century, especially during certain life-stages, for example, for those buying a property on a mortgage, or going through university education.
However, the only way to pay for that debt is to have enough money to be able to afford the repayments.
One last general rule of thumb is: to increase spending and borrowing, it is necessary to increase income - but it is also worth considering whether there might be more to life than simply increasing lifestyle costs and the amount consumed.
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Recommended reading The Money Revolution by John Preston (Authentic Media) The Money Secret by Rob Parsons (Hodder and Stoughton) Grace and Mortgage: the Language of Faith and the Debt of the World Useful links ABCUL - Promoting Quality Credit Unions Christians Against Poverty Citizens Advice Consumer Credit Counselling Service Credit Action Financial Services Authority Money Basics National Debtline Scripture quotations from |
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