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.
See some more in-depth information about this in our How to manage personal debt guide.
Dealing with debt worries can lead to a range of emotional and even physical symptoms. Someone worried about rising debts can find sleeping difficult, may be unusually irritable, stressed, anxious, depressed or distracted.
They may find admitting to or talking about the problem difficult as they are embarrassed or want to hide problems from those they care about.
How to help someone combat anxieties about money
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:
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.
If you are wondering how much you need to save from your wages, the 50/30/20 rule is a great help. Popularised by the US Senator Elizabeth Warren, this rule is simple and easy to follow.
Basically, you should divide your income up into these three chunks:
50% goes towards things you need
30% goes toward things you want
20% to your savings
Needs (50%) – These are all things that you must spend to live each month. It includes your rent or mortgage, all your utility bills, council tax, groceries, vehicle fuel and credit repayments. If you are spending more than 50% on your needs then you should look to reduce these expenses, say by moving to a smaller property, shopping at a low-cost supermarket and getting a better deal on your utilities, such as electricity, water, gas and basic broadband.
Wants (30%) – These expenses are the ‘nice to haves’ in life. For example, high-speed internet access, meals out and takeaways, subscription TV packages, entertainment (say going to the movies or getting football tickets) as well as the gym or exercise classes. Basically, in here are all the things that you may not ‘need’ but ‘want’. Sometimes, deciding what things you need and those you only want can be quite tricky so be prepared to be hard with yourself.
Savings (20%) – Finally 20% of your income should go toward savings. This not only includes savings toward your ‘emergency fund’ but also things like extra debt repayments. You ‘need’ to pay the minimum on a credit card, so this can be subsidised by extra payments from here.
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:
Debt problems can happen at any age. See our Dealing with debt in retirement guide for more info.
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.
Finding out your credit score can be the first step in getting yourself back on an even financial keel. You can get your free ClearScore Credit Report via our credit check page.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.