Debt is something that the majority of Brits live with today. However, large debts – especially credit card debts – are also becoming increasingly common. While the average person in the UK owes around £8,000, more and more people are finding themselves with credit card debts that break through the five-figure mark. Some are even as high as £60,000 or more. However, while we hear horror stories every day about people who have become completely overwhelmed by their personal debts, there are also tales of those who have fought the debt battle and won.
The problem with credit card debt
It’s all too easy to get into trouble with a credit card and get into serious debt. You may be accepted for a card with a great introductory low rate and spend freely on it assuming you’ll be able to repay quickly. Then something happens to your finances and you don’t quite have enough to clear the balance. The next month you start just making the minimum payments. A year down the line, the introductory rate ends and you have a situation in which you’ve got thousands of pounds accrued on a credit card that is now also generating interest on the balance every month. This is the point at which many people start struggling with credit card debt and many begin to wonder whether there will be light at the end of the tunnel. These are just a few of the common horror stories:
Starting a new job and trying to fit in. Liam got a job in the City at 24 and desperately wanted to fit in. To be able to afford the expensive suits, meals out and ski trips that his colleagues all seemed to be enjoying he took out a number of credit cards. He now owes more than £60,000, which is the total figure excluding his student loans and without a mortgage.
Not living within your means. Jane 21, left university and took on an unpaid summer internship, which she paid for with her overdraft. At the end of the internship, she got the job but the salary was just £12,000 a year, which made it almost impossible to live in London. Instead of being realistic about her finances, she took out credit cards, first a card with a £4,000 limit which she spent straight away and then another card with a £5,000 limit. She now owes more than £10,000.
Covering interest with yet more debt. Dan, 35, took out a loan to help cover the cost of moving home and DIY repairs he wanted to make to the new property. He then lost his job and found it difficult to cover both the cost of the mortgage and the repayments he was obliged to make on the loan. Dan started to take out payday loans so that he could meet these monthly obligations and is using credit cards to cover his everyday expenses, sending his total debt soaring.
Despite the large numbers of horror stories about being in debt, there are also those who have got themselves out of a bad debt situation. Mum of two Tori Gabriel, for example, recently made the national news after managing to clear £11,000 of credit card and loan debt despite an income of just £22,000 a year. So, how do you do it?
Cutting back on the luxuries. From trips to the cinema to meals out and even shopping at a cheaper supermarket, cutting back can help to create more spare cash that can be put towards credit card and loan repayments.
Paying more than the minimum. The only way to get on top of problematic debt is to avoid just making minimum payments – it can take many years to repay if you only ever opt for the minimum.
Be smart about switching. Energy is one of the most substantial costs that many people face today but there are lots of services that enable you to switch so that you’re constantly on the cheapest deal. The money you save on energy you can use to reduce your debt balance.
Target the most expensive debt first. If you’ve got one credit card with a 0% rate and one with a 24% rate it makes sense to clear the card with the highest rate first. That way you will reduce the total interest that you’re paying and clear the debt more quickly.
Look for ways to boost your income. From finding opportunities to earn more, to selling second-hand items or renting out a spare room, it pays to be entrepreneurial when it comes to generating extra income to help clear your debts more quickly.
Being in debt can feel very distressing but no matter how much you owe, -as others have proven – with hard work and determination you can clear it.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley