When to seek help with your personal debt

Problems with debt can come in many forms. However, there are some warning signs that indicate when debt might be starting to become a problem.

1. Using credit cards to pay for everyday expenses such as bills or groceries but being unable to pay these off in full.
2. Using cash advances as a way of supplementing income or to make other debt repayments.
3. Missing or late payments for credit or other bills.
4. Only ever being able to make the minimum repayment for credit cards.
5. Never being able to clear or reduce their overdraft.
6. Hiding debts from partners, friends or their families.
7. Being declined for more credit.
8. Not knowing how much they owe in total.
9. No budget or spending plan.
10. Overspending or living beyond their means.

See some more in-depth information about this in our How to manage personal debt guide.

There’s an old saying that applies well to debt: If you find yourself in a hole, stop digging.

If your debt is out of control:

• Don’t ignore the problem – Accept that your debt is out of control. From here you can start to think about looking for help and guidance.
• Don’t hide your problem – You don’t have to tell everyone but be open with those you trust. You might find that someone you know has been where you are now and might have some valuable advice or tips.
• Don’t blow what little credit you have left on a spending spree – Some people’s reaction to the stress of financial worry is to spend more so they feel better about themselves.
• Don’t apply for even more credit – Even if you are intending to consolidate the debts. Get help and advice first then consider your options.
• Don’t turn to payday loan companies or unregulated lenders (i.e. ‘loan sharks’) – These charge horrendously high levels of interest that can quickly amount to far more than your original debt.

See more about the above in our How debt impacts your credit score guide .

There are a few tips and tricks that you can use to wean yourself off your dependency on credit. The good news is that your debt levels don’t need to be at critical levels to try these out.

Tip #1 – No cash? Don’t buy!

Set a rule with yourself that if you must borrow money to buy something, then you can’t afford it. Ask yourself: Do I need this, or do I just want it?

Tip # 2 – Focus on needs rather than wants

Before you spend money, ask yourself if what you are about to pay for is a ‘need’ or a ‘want’. Needs are things that you must pay for to live and carry out your normal life – things like mortgages, rent, money for electricity or gas bills, grocery shopping or petrol for your car so you can get to work. ‘Wants’ are the luxuries, treats and upgrades we buy ourselves – these are things like meals out, takeaways, non-essential shoes or clothes and entertainment like going to the movies or subscription tv services. See the section on the ‘50/30/20’ rule below for more information.

Tip #3 – Create your own emergency fund

Having an emergency fund you can dip into when unexpected expenses pop up is a great way to avoid adding to your total debt by using credit cards and such. Ideally, you should aim to have a savings pot for emergencies that is equivalent to three months’ salary. So, if you earn around £1,000 a month, your minimum emergency savings pot should be £3,000. This level provides a valuable buffer against both unexpected expenses and as a backstop should you find yourself suddenly unemployed.

Once you’ve achieved your target, keep going. The more you save the safer you’ll feel financially. And of course, when you have to make a withdrawal to cover that unexpected expense make sure you aim to build the pot up again as soon as possible.

Tip # 4 – Go back to cash

As much as everyone is in love with contactless payments these days, you can’t beat the old-fashioned way of sticking to a budget: cash. If the most you can afford on a night out is £40 then take that in cash and promise yourself that once it’s gone, it’s gone. No late-night visits to the ATM either.

This can work when shopping for other items too. Whether you are grocery shopping, buying clothes or going out, set a budget, take cash and stick to it.

Individual credit and personal debt are often spread out across multiple types: perhaps you have a loan, a couple of credit cards, a store card and an overdraft. This means you’ll be repaying the money you owe under different terms and APRs – and some of the interest rates on credit cards and store cards reaching up to 50% APR and even more for premium or exclusive cards.

In these circumstances, you may be considering debt consolidation – taking out a single line of credit to pay off your multiple liabilities.

Debt consolidation using a loan or a 0% balance transfer credit card can be a good idea, but bear the following in mind:

• It should reduce your monthly repayments – Your consolidation loan should be at a lower interest rate than your existing debts. Your total interest should be lower too.
• It should make your total repayments smaller and more manageable – If it doesn’t, then you are not gaining any benefit from consolidating your debts. There’s no point in consolidating debts if you end up paying more per month.
• Aim to pay off your consolidated debts within the 0% interest period if using a credit card – Be aware of when the 0% interest period ends and, if necessary, swap to a new 0% balance transfer card before this runs out.

Struggling with uncontrolled debt can seem a hopeless task – especially if you are on a low-income or have little knowledge about how debt and personal finance work. In this case, you could try the following organisations – all of which offer specialist help and advice for dealing with debts – often this is totally free.

• Citizens Advice – Visit its website or local CAB centre.
• The Money Advice Service – Free and impartial advice from an official Government website.
• The Samaritans – For anyone in crisis. Available 24 hours a day, 365 days of the year.
• StepChange – A charity that helps people deal with debt problems and get back on track.
• National Debtline – Call free on 0808 808 4000 or visit its website. There’s lots of free advice and tools to help.
• Business Debtline – Allied to the National Debtline above, this provides help specifically for businesses and self-employed people.