What if I can’t pay my debts because of coronavirus?
Find out which debt solution is right for youGet started
Answer a few simple questions
See if you are suitable
Understand your next steps
More and more families are dealing with problem debt in the UK. Find out why and, if you’re one of them, what you can do about it
The Guardian recently reported that in 2014, 3.2million families put 25% or more of their gross monthly income towards paying off their unsecured debt. The report looked at unsecured debt so took into account debts like loans, credit cards, payday loans and overdrafts. This is a shocking amount and could push families who, previously, were easily able to cope, in to debt. Is your family one of them?
Why the increase?
We are all aware of the credit crunch and what it’s done to our finances over the last few years. Most of us have seen little or no wage rise despite continued increases in the cost of living. For some this has meant they have found themselves trying to make up the shortfall by taking on more borrowing. This often results in having to put a larger and larger proportion of their income towards their debt repayments, leaving them with less and less to live on day-to-day.
Unfortunately, it seems that the most financially vulnerable have been hit the hardest, with low income families, self-employed people and young people seeing the biggest increase in their levels of problem debt.
What’s the definition of problem debt?
Here at Debt Advisory Centre we define problem debt as borrowing that you cannot afford to repay on the dates you agreed to, at the level you agreed, or both. In some cases you may be making the repayments on your debts, but only at the expense of getting behind on other bills, or not having enough to eat or being able to keep warm – this would also be problem debt. If either of these sound like you, it’s probably best for you to speak to a debt advisor.
If you have substantial debts, but you can easily afford to pay them off at the agreed rate and on time, then there’s probably nothing for you to worry about.
Rise in interest rates
Part of being smart with money is looking to the future and predicting whether there will be any further demands on your budget any time soon. If you’ve been following the financial news, you’ll have seen that The Bank of England is predicting that it will start to increase its interest rates over the coming months.
This means that the interest on variable rate borrowing – which could include your mortgage (if you have one) as well as some loans, credit cards and overdrafts may increase when the Bank of England raises interest rates to try and keep inflation steady.
So it would be prudent to look ahead to the future and see whether you could afford an increase in the interest rates on your loans, credit cards and mortgage, to makes sure that this change doesn’t catch you off-guard.
How much should you put towards your debt?
There’s no straight answer to this one, as how much you should put towards your unsecured debts will depend on your situation. If you can only make the minimum payment on your credit card, for example, it’s a good idea to see how you could increase your income or reduce your outgoings, so that you can pay off more. This is so you can actually start to pay off the balance, rather than just the interest on the debt.
If you are putting more than the minimum towards your debts, then great! Just make sure that you’re not having to sacrifice anything more important, like health costs or priority bills such as your rent or council tax. We say this because the consequences of not paying these priority bills can be greater than not making your payment on a credit card for example.
If it’s getting too much then ask for help
If you’re one of the families that’s having to put a significant proportion of your income towards your repaying debt and you don’t think that you can afford it anymore, then make sure that you seek help and advice. Use one of the options on the left to contact us. The sooner you tackle the situation and look at your options the better and the sooner you can get rid of your problem debt..
by Christine WalshBack to blog home