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Personal debt crisis worsens
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.
It's a precarious state of affairs borne out by the current figures for personal debt in the UK: In June 2007 the total figure for UK personal debt stood at £1,355bn and appears to be escalating- the growth rate has shot up to 10.1% for the previous 12 months. The average household debt not including mortgages now stands at £8,856; this increases to a worrying £20,600 if the amount is based on households that have some form of unsecured loan. If mortgages are included the average figure is £56,000. Perhaps the situation is most starkly illustrated by the following statistic: The UK's personal debt is apparently growing by £1million every 4 minutes!
However perilous things look for the country as a whole there's no reason why you should succumb to serious debt 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.
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.
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. It may seem like an easy option but just setting up a minimum monthly payment on your credit cards is a far from effective means of clearing your debts. You should keep in mind that minimum payments are calculated by banks to keep customers in debt for as long as possible. By simply deciding on a fixed payment just above the initial minimum payment and sticking to it you'll quickly make a far bigger dent in your debts.
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% 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 loans and mortgages comparison site like Beat that Quote. 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.
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.
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?
Its good to be impulsive in life but extending that philosophy to your spending is a sure fire way to wind up with crippling debts. Try to get out of the ‘buy now pay later' mentality.
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