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Personal debt on the rise

Posted 24 January 2016

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The amount of personal debt in the country is on the rise. Learn what the stats say, as well as how to make sure you’re borrowing sensibly here.

According to a report from the BBC, personal debt in Britain has gone over the £180 billion mark (this figure does not take mortgages into account). And some debt experts are warning that the increase in personal borrowing could well lead to some people finding themselves in financial difficulties – especially if they’re hit by unforeseen circumstances. 

After seeing this figure, and hearing the concerns some experts have, you might be wondering when it’s a sensible idea to borrow and how much it is “safe” to borrow. With this in mind, we thought that it would be beneficial to go over our advice when it comes to borrowing sensibly. 

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When is it sensible to borrow?

It’s important, of course, that we all keep a close eye on our personal finances especially when it comes to borrowing. First of all, you shouldn’t borrow unless you have a good reason. By this we mean that you have a real need for something that you’re unable to save for in time. For example, imagine you got a new job that requires you to drive to work, but you don’t have a car. In this situation, it might not be a bad idea to look into car finance or hire purchase so that you can get to work and start bringing in a stable income. As long as you knew for sure that you had the job, and you’d worked out how much you’d have to pay back and over what length of time, this could be considered sensible borrowing. You’re likely to be better off financially in the long term by taking the job, than by refusing it because you couldn’t afford to buy a car straight away without borrowing. 

On the other hand, there are situations where you can end up paying for something long after you’ve enjoyed it or had use out of it. An example of this would be if you wanted to go on an expensive holiday or buy a new bigger TV – although the one you’ve got now works just fine. If the item isn’t really needed, or there’s a possibility that you could save up for it instead, borrowing probably isn’t a good idea. Generally borrowing to fund a “lifestyle” that you can’t really afford should be avoided.

One thing you should look at when you’re considering borrowing is the APR.  This stands for Annual Percentage Rate and this figure tells you everything you’ll pay to borrow the money, including interest and charges. Always be sure to take this figure into account when weighing up whether borrowing will be worth it. 

There’s no “right” amount of borrowing for any one individual.  It will depend on your own personal circumstances.  It is important to remember that if your credit card company offers you a credit limit of, say, £5,000 that does not mean that it’s a good idea for you to borrow that much.  You should never borrow more than you can comfortably repay.

So the golden rules are, make sure you couldn’t save up for it instead, and make sure you calculate the true cost of borrowing by checking the APR and repayment term. 

What to do if you’re hit by unforeseen circumstances

The report from the BBC highlights the problems that some people can have when they are hit by unforeseen circumstances, like a losing a loved one or illness. 

It’s a fact that life is unpredictable and sometimes there’s nothing to indicate whether your circumstances will change and impact your ability to repay what you’ve borrowed. If you find that there’s been a significant negative impact on your finances it’s so important that you tell you lenders are soon as possible. You don’t have to wait until you get behind with your payments or they feel that they need to start legal action. Call them before you miss the first payment if you can, and explain the situation. They may be able to make changes to your repayment plan to ease the strain by freezing interest and charges or allowing you to take a payment break. Nor is it a good idea to keep making the repayments but have to go without heating or food to make ends meet. If that sounds like you then you really should seek help with your debts as soon as possible: why not get in touch using one of the contact methods on the left of the page?

Feeling mentally overwhelmed by debt

The report, quite rightly, touches on the subject of mental health and debt, highlighting the intense feelings of anxiety and depression that problem debt can cause in certain cases. Suddenly finding that you can’t pay what you owe and receiving calls and letters from lenders can have a dramatic impact on your life satisfaction. If this is you, our blog Debt and Depression should point you in the right direction and tell you how to move forward when you’re dealing with both debt and mental health issues… and there is always a way forward. 

If you’re drowning in debt seek help

Although it’s possible to borrow sensibly, you might already be in a position where you can’t manage your debts due to unforeseen circumstances or past mistakes. The people mentioned in the report are described as “drowning in debt” and if you can relate to this, make sure you seek help. There could be a debt solution available to you that could transform your financial situation. These are plans designed to provide a route of unmanageable debt, so make sure that you’re aware of them if this is where you are. Don’t forget that our advisors are ready and waiting to take your call and recommend the best solution for you, just use the options on the left. 

 

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.