Debt Awareness Week is being held this week (7th October – 11th October) to highlight Britain’s growing debt crisis and encourage responsible lending, as well as responsible borrowing. As part of the week, a series of events is taking place to highlight and educate the public, and this morning we sat through a webinar by renowned financial journalist Paul Lewis, discussing Personal Finance Matters. We have summarized Paul’s presentation to give you the top 5 tips of dealing with debt:
1. Always pay off the debt of an item before the products end – If you purchase an item on credit, make sure you pay off that debt before the end of the products life span. Putting this into context, if you book a holiday on credit, make sure you pay off the full balance before you book your next holiday. If the item is of smaller value, say a new item of clothing, make sure you pay for that item before you stop wearing it.
2. Never ignore a debt – One of the worst things you can do with debt is try and ignore it. If the first thing you think about when you wake up, and the last thought before you go to sleep, is your debt problem, you need help. Organizations such as National Debt Line will be able to help you manage your debts, and will be able to help you come up with a plan to combat the problem.
3. Avoid Pay Day Loans – Many people get tempted to borrow money using payday loans and when handled correctly they can occasionally be useful. However, with some companies charging interest rates as high as 2000% APR such loans are an extreme option and should only be approached with caution and when other credit options are not available. It has been said that pay day loans only exist because the banks don’t cover that area, we think they are best left alone altogether.
4. Borrowing to pay off a loan isn’t paying off a loan – If you are desperate and do take a pay day loan, one of the worst things you can do is allow the balance to roll over, or take out another loan to pay off your existing debts. This method will only push you further into debt, and is more detrimental in the long run. Instead, seek professional advice and guidance.
5. Try to borrow for capital items only – not for luxuries – When purchasing on credit you are continually putting yourself at risk from external factors. What would happen to your repayments if you lost your job, or if the interest rates were to shoot up? If you only borrow money against capital items, at least you will be able to sell that item in the worst case scenario, while luxuries (such as holidays) you will not.
To find out more about National Debt Awareness Week please visit the CABA website.
*Image adapted from State Farm