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Debt is part of life in the UK. From managing student loans through to getting a mortgage, almost all of us will take on a debt at some point in our lives. However, despite the fact that debt is so commonly used in the UK we are never taught how to deal with it. There are no lessons in handling debt at school and many parents don’t pass on this kind of information to their children. As a result, there are many things that you simply may not know about debt, even if you should.
As of autumn 2017, the average UK debt stood at £8,000 per person. This figure was worked out on the basis of unsecured debt, such as credit cards and personal loans and does not include mortgages. Research from Comparethemarket.com established that 62% of Britons were worried about the level of personal debt that they had accrued and 6 million Britons didn’t believe that they would ever get to a position in life where they were debt free. So, the use of debt is widespread in the UK and not everyone is comfortable with it.
Student loan terms are probably the most attractive you will ever be offered for debt. Low-ish interest rates and long repayment terms are made available to students and this isn’t often the case out in the wider world. For example, you don’t need to start repaying student debt until you’re earning at least £25,000 and after 30 years any remaining debt is written off. Whether it makes sense to pay your student loan off early is debatable and depends on your personal situation.
The Money and Mental Health Policy institute, set up by Money Saving Expert Martin Lewis, found that people who have mental health issues are three times more likely to be in trouble with debt and struggling financially. This could be anything, from depression through to anxiety. Worryingly, debt and mental health issues tend to feed each other and can create a vicious circle from which it’s difficult to escape.
Credit cards and overdrafts can seem like free money, especially if they’re offered at a time when their rates are low and there are no fees attached e.g. when you’re a student. However, these attractive student rates are often quickly converted as soon as graduation takes place and the costs kick in. If you haven’t cleared balances before that point then the costs can soon mount up.
When you get into debt then you owe money to a creditor, such as a credit card provider or personal loans lender. If it looks like you’re not going to be able to meet the regular payments agreed then most lenders are much more appreciative of borrowers who give them a heads up first. So, if you’re about to miss this month’s credit card payment it’s always worth contacting the lender first. Most lenders will want to work out a way to help you out of trouble so that what you owe them eventually gets paid off. UK Finance, the organisation that represents banks and lenders, suggests for example a 30 day breathing space to borrowers who are in trouble.
Charities like StepChange are getting increasing numbers of requests for help from those who are not coping with their debts, especially from younger people. In 2017, the 340,000 people who contacted the charity looking for advice had a grand total of around £4.5 billion in unsecured debt between them. As interest rates go up, wage rises remain sluggish and the cost of living rises, experts have predicted that getting in to trouble with debt is highly likely to become more and more common.
For example, although debt is often offered cheaply to students, if it is not paid back before graduation this can often have an impact on your credit score. Credit cards and personal loans where there have been defaults or missing payments could make it difficult to get new credit – such as a mortgage – in the future. Debt problems that spiral tend to bring default fees and more interest payments, which can make budgeting even more challenging. And problems with debt could affect your mental health to the point at which it’s difficult to concentrate or work. So, debt problems aren’t just about not being able to make a repayment, they can affect your life in a much broader way.
Amanda Gillam is Solution Loans's General Manager and has been since 2009. She is also a prolific writer on personal finance issues, and has been quoted numerous times in articles published on 3rd party websites and in press releases. Her...Read about Amanda Gillam
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