We keep hearing that we are a nation in debt, that even the government must borrow money to function and that it is all going to collapse at some stage. This is probably an overly dramatic view of the situation but it is a fact that more and more of us have debt of some form. So how do we know when it is a problem? And how do we manage it?
Take a step back
Manageable debts are a part of life – mortgages and car loans are two examples while credit cards are something many of use. There’s nothing wrong with having debt but the problem comes when having so much debt you’re worried about it isn’t great. If the debt you have is keep you up at night, then maybe you need to take a step back and look at the overall picture.
There are two common ways to know if you are in a debt crisis. One is that you are struggling to make the payments you need to make such as rent or mortgage, energy bills, credit card minimum payments and then have anything left for food. The other is if your debts (excluding your mortgage) are more than your take home pay.
Re-organising your debt
Maybe you aren’t in a debt crisis but you want to get a handle on things and look to tart proactively working to improve your credit score can help reduce the cost of borrowing. Going out and getting loads of quotes for mortgages and loans won’t do you any good so start by find out what interest rates you’re paying (lots of people don’t even know), and see if you can reduce them.
For example, your credit card may have offer twelve months’ interest free but you are eighteen months on and the APR is higher than other similar cards, it might be worth applying for a different card with lower or no interest rate and swapping the balance. Similar situations can arise with loans and store cards.
Taking new debt
Sometimes consolidating debt can be a good way to save money, improve your credit rating and stop all those little payments coming out of the bank. If you do have to borrow, look for ways to get the best possible credit deals so that you are saving money on what you were paying before as well as making your credit record tidier. Only consider a situation with a poorer interest rate if you are going to save money on monthly payments and this is your problem.
Lots of people have claimed for things like payment protection insurance that they were paying and didn’t realise – and a lot of people haven’t done this yet! Make sure you claim back anything you are entitled to and then you can consider paying this off your debts or using the money to replace essentials like kitchen appliances, rather than using a credit card.
Finally, don’t forget all those voucher websites. There are hundreds now and you can save a lot of money with a combination of vouchers and clever shopping. This can ease the situation on your finances or mean you don’t need to use your credit card for something, saving you interest and an increased minimum payment.