How
to ease your personal debt worries
It
seems that the UK's borrowing habits are rapidly spiralling out of control
and could be leading towards, if they haven't already, what has been
described as a 'personal debt crisis'. It's hardly a recent development;
Britain
has for a long time far outstripped its European neighbours when it comes
to accumulating worrying levels of personal debt. A study last year showed
that this country is responsible for a third of
Western Europe
's unsecured debt.
Further
indications of Britain's escalating personal debt crisis are there for all
to see in recent figures on personal debt: The total figure for personal
debt in Britain in June 2007 was £1,355bn with the growth rate growing to
10.1% for the previous 12 months; it would appear that this is not a
problem that shows any sign of slowing down. Including mortgages the
average household debt for the
UK
is £56,000, excluding mortgages the figure is £8,856 and if based on
households with some form of unsecured loan the average figure is £20,600.
Every four minutes this country's personal debt is rising by a million
pounds.
Don't
despair though, on a personal level bad debt is not inevitable and with a
slightly more money savvy, disciplined approach to managing your money you
should be able to keep things under control. Here are some simple ideas to
help you avoid debts spiralling.
If
you haven't got the money don't spend it
It
might sound obvious but if you stick to this one simple rule then there's
really no reason why debt should become a serious problem.
Be
disciplined with debt repayments
If
you're efficient at paying off outstanding debt before it has a chance to
accumulate serious amounts of interest then you should stay well on top of
your debts. Of course, if we're talking credit cards the most effective
measure is to pay off your debt in full every month but, realistically,
this might not be feasible for everyone.
Keep in mind that minimum payments, the smallest monthly amount you
can pay without being charged, might seem convenient but won't get you any
closer to eliminating your debt because the minimum payment will decrease
in line with your balance. If you can't afford to pay off your debt in
full set your monthly payment at a fixed monthly amount rather than fall
in line with the minimum payment system - remember it's designed by banks
to keep you permanently in debt.
Transfer
your balance
An
easy method of stopping your credit card debt spiralling out of control is
by transferring your balance to a 0% card. There are loads out there, just
look for the longest 0% balance transfer period. Currently the market
leading 0% cards are probably offered by Natwest
credit cards and RBS
credit cards who both offer 0% for 13 months although you can keep up
to date with these things by consulting a comparison site like
fool.co.uk's credit
cards centre. The one thing to remember if you're doing this is not to
use this card to buy anything. The likelihood is that it won't have a
purchase rate that is anything like as competitive as the balance transfer
rate
Don’t
take out a store card
These
are generally sold by tempting shoppers with short term store discounts,
don't fall for it! Whatever
the discount the store offers you on the day, remember, it won't be as a
gesture of goodwill. Nearly all store cards carry a vastly inflated rate
of interest and they rely on you paying off the balance in full straight
away.
Make
sure you can afford your loan
If
you're taking out a loan be careful not to overstretch your finances. Look
carefully at your monthly income and outgoings and asses realistically
what you can afford to pay each month. As long as you budget carefully and
don't borrow more than you can comfortably afford to pay back then there
no reason not to consider an unsecured loan. In fact with rates
historically low at the moment now could be a good time to borrow.
Currently there are a few lenders offering loans at 6.5% or cheaper, two
of the best on the market at the moment are the A&L
personal loan at 6.5% and the Moneyback
Bank loan at 6.3%. You
would be well advised however to first check a loans calculator (most
lenders have one on their website - there's one on the A&L
Loans site for instance) this should give you a good idea of what
you'd be paying every month.
Do
you really need it?
As
Christmas approaches, it’s easy so to spend a little extra on clothes,
food and drink and presents. However, if you make a list of what you need
and stick to it, you're likely to save yourself more money this way than
if you went out impulse shopping.
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