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Money advice: how can I avoid debt?
As personal debt continues to grow across the UK, with the level of unsecured debt recently topping £200bn, the Bank of England, debt charities and consumer groups have all put out warnings regarding the growing levels of debt for households up and down the country.
Campaigners have said that Britain’s growing debt problem is now at levels not seen since the global financial crisis in 2007/2008. Peter Tutton from debt charity Stepchange has commented on the situation for many households struggling with debt currently; “There is a bunch of people hanging on by their fingernails and a little shock to their finances pushes them over the edge.”
Stepchange currently estimates that 2.9 million people are in severe financial difficulty and around 9 million classed as ‘on the edge’. As the Bank of England starts to get tough on lenders in an attempt to stop reckless lending to those struggling with debt, what can you do to avoid or deal with debt?
Keep an eye on your spending
The best ways to keep an eye on your spending are to regularly check your bank statements and create a budget which looks at where you are spending your money and what money is coming into your account every month.
A budget can be a good snapshot of your current financial situation which can help you plan for the future whether you want to save or pay down some of your debts. However, once created, your budget will need to be regularly updated in order to help you avoid debts.
By keeping an eye on the money you are spending each month, you can root out bad habits and hopefully avoid the need to borrow money for everyday purchases such as food bills and monthly transport costs.
Try to repay more than the minimum
On debts such as loans where interest is charged on the outstanding balance and credit cards, you need to meet the minimum repayment on the money you have borrowed every month. However, by only paying back the minimum every month it increases the amount of time you will be repaying the debt for which means you will be incurring more interest on the money you already owe your lender.
Therefore, paying off as much as you can afford per month will help you to pay the debt down quicker and ensure you don’t have as much interest added onto your debt. If you have multiple unsecured debts, look at which one would be the most beneficial for you financially to pay off then focus on paying larger amounts for this whilst meeting minimum repayments on your other debts.
Switch and cancel
After making your budget, look into the cost of your household bills and any other regular payments you make. When it comes to your energy bills or insurance costs, is there any way that you can switch providers and save money on these expenses? The more you can save by switching, the more you can put towards paying off debts or saving for non-essential purchases such as holidays.
Also, look into any bills or subscriptions that you can cancel such as unnecessary outgoings or unused memberships. By doing this, it will ensure you are saving money and only spending on what you need and use.
Take advantage of having your car for longer
Personal contract payments (PCPs) have become increasingly popular over the last few years with the use of them growing four fold in the last ten years. These deals allow car buyers to put down a small deposit and make monthly payments for two, three or four years before handing the car back or making a balloon payment to buy the car outright.
The interest on PCPs is usually lower than a traditional loan which is why they have become so popular but by changing your car every three or four years, many drivers are missing out on years of cheaper driving.
Sara Williams from money blog Debt Camel explained why drivers are missing out on The Guardian; “The car industry has found a way to keep people changing their cars after three or four years, getting another new car each time. All the depreciation happens at the start – you are missing all of the cheap years driving by getting these short-term PCP contracts. If you keep each car for six years instead of three, you are going to pay a dramatic amount less for cars over the whole of your life.”
If you are struggling, get advice
Whether you are struggling to pay down your debts or struggling to not rely on credit for everyday purchases, you should look into getting help and advice to deal with your debt situation. We can help by offering you advice, listening to your situation and providing you with the best solution to help you deal with your money issues and get back on track.