Protection Insurance :: Personal debt in Britain out of control

Personal debt in Britain out of control

Without wanting to sound hysterical Britain is in danger of being suffocated in the ever tightening grip of an escalating personal debt crisis. It's certainly true that, with the huge array of tempting borrowing opportunities available from credit cards to loans to store cards, more and more of us find ourselves struggling to keep our finances under control.

It takes only a cursory examination of recent personal debt statistics to see the extent of the problems: The total figure for personal debt in The UK in June 2007 was £1,355bn with the growth rate rising 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 4 minutes this country's personal debt is rising by a million pounds.

However perilous things look for the nation as a whole there’s no reason why you should succumb to serious debt issues yourself. Effective money management is mostly straightforward common sense, by keeping a tight reign on your borrowing and staying on top of repayments you can nip debt-related stress in the bud.

Don't spend money you haven't got

Not so much a tip, more just plain common sense. Nonetheless, stick to it and you won’t have a problem. The majority of personal debt is a direct result of the increasingly prevalent ‘buy now pay later’ approach.

Be disciplined with debt repayments

The quickest way of accumulating debt is by paying it off too slowly. This is particularly true of credit cards - in an ideal world you would pay off your cards in full every month; remember that the quicker you deal with debts the less likely they are to spiral out of control. Far too many of us simply make the minimum payment on our credit cards every month, whilst this may seem like a handy option you should be aware that this is precisely what the banks want you to be doing. In fact because the amount of the minimum payment decreases at the same rate as your balance this is an arrangement effectively calculated to keep you in debt. Instead, set the monthly payment to something you can manage and keep it at that - you’re debts will be cleared far more quickly
.

Transfer your balance

You can go a long way towards eliminating your credit card debt 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% credit 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 key to making this strategy work is by not making any purchases on your new card, if a card offers genuinely good balance transfer rates then the chances are it won't offer a similarly attractive purchase rate.

Never, ever, 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

Before taking the plunge and getting a loan give consideration to whether you can comfortably afford the monthly repayments - be realistic and don’t overstretch your finances. 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 Alliance and Leicester Loans site for instance) this should give you a good idea of what you'd be paying every month.

Do you really need it?

A boring question perhaps but one you need to be asking yourself more often if debts are starting to get out of hand. Essentially you should try to get into the habit of prioritising your spending. Make a list of what you're going to buy and stick to it. Impulse buying really is the quickest way to rack up debts, particularly if you take your flexible friend along for the ride.