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How much do you spend on debt repayments?

How much do you spend on debt repayments?

Category: Debt

Updated: 03/05/2017
First Published: 14/01/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Paying off debt should be at the forefront of any financial plan, as there's nothing worse than seeing all that interest mount up. However, some people find that they're so entrenched that they spend a large proportion of their income simply making minimum repayments, and that's a recipe for disaster. So, just how much do you spend on debt?

Unfortunately, some people spend so much that they could find it difficult to make ends meet elsewhere. Research from Debt Advisory Centre (DAC) found that 65% of respondents had some form of unsecured borrowing (such as credit cards, personal loans, store cards or overdrafts), and 7% of those spend a whopping 50% or more of their take-home earnings on repayments each month.

Happily this is just the minority, with the average borrower spending around 20% of their earnings on debt repayments. However, it's still cause for concern, particularly with a much larger figure (34%) spending between 21% and 49% of their income on repayment commitments, something that could take a serious toll on their finances.

While some people may be able to comfortably sustain this kind of financial arrangement, others will find it incredibly tough. Ian Williams, of DAC, commented: "Clearly circumstances differ, and a young person with no dependants and living at home may be able to sustain a higher proportion of their income going towards their unsecured borrowing.

"However, it is alarming to find that for 41% of borrowers their monthly commitments are 21% or more of their pay, and very concerning to find that for 7% of borrowers their repayments account for over half their income. Whatever their circumstances, this is unlikely to be sustainable for very long."

Take control

If your debt repayments are getting too much, it's time to take action. Even spending only a small proportion of your income on repayments is probably more than you'd like, but there are things you can do to get back in control.

  • Budget to make sure you never miss a payment. You want to make absolutely certain that you never miss a repayment, as this could make it more difficult to secure credit in future. So, plan ahead and budget for the repayments, and ideally, set up a direct debit to pay at least the minimum amount by the due date.
  • If you can, pay off more than the minimum each month. This will mean you're able to clear your debt sooner and will be far better off in the long term, but if you're already spending a large proportion of your income on repayments, don't put yourself in financial difficulty to pay more.
  • Pay off debt rather than save. If you're in the savings habit, we applaud you – but if you've got debt that's attracting a large amount of interest, it'd be better to put the money you'd save towards paying that off. This is simply because the amount you'd spend on credit interest will far outweigh anything you'd receive from your savings, so unless you've already got a 0% credit deal, you should try to pay off your debt first.
  • Switch to a 0% balance transfer credit card. Speaking of 0% credit, if you've got a credit card that's costing you a small fortune, consider transferring the balance to one that offers 0% interest for a set period of time. Many offer terms of two years and more, giving you plenty of time to pay the balance without accruing more debt.
  • Consolidate. Alternatively, if you've got several cards or overdrafts, think about consolidating them with a personal loan. You may not get the same 0% benefit, but the trade-off is that you'll have a clear route out of debt – your repayments will be set for a certain number of months or years, and once that term has finished, you're debt free!
  • Speak to your lender. If you're really struggling, don't be afraid to speak to your lender to see if you can make alternative repayment arrangements. This will be far better than getting into arrears, and they may be able to come up with a solution.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.