That Britain is slipping into a personal debt crisis has been well documented for a number of years now. The UK's burgeoning levels of personal debt have, for a long time, far outweighed that of our European neighbours. Indeed, figures released last year revealed that the average consumer in this county is £3,008 in debt compared to an average figure of £1,558 across the rest of Western Europe. Alarmingly the UK is now responsible for a third of all unsecured debt in Western Europe.
Further indications of Britain's escalating personal debt crisis are there for all to see in recent figures on personal debt: The total figure for personal debt in Britain in June 2007 was £1,355bn with the growth rate growing to 10.1% for the last 12 months; it would appear that this is not a problem that shows any sign of slowing down. Including mortgages the average household debt for the UK is £56,000, excluding mortgages the figure is £8,856 and if based on households with some form of unsecured loan the average amount is £20,600. Every 4 minutes this country's personal debt is rising by a million pounds.
However alarming things look for the country as a whole there’s no reason why you should succumb to serious debt yourself. Effective money management is mostly straightforward common sense, by keeping a tight reign on your borrowing and staying on top of repayments you can nip debt-related stress in the bud.
Don't spend money you haven't got
Maybe this is a fairly obvious sounding suggestion but stick to it and you can’t really go wrong. Most people’s debt problems are a product of relying too much on a buy now pay later attitude.
Be disciplined with debt repayments
The quickest way of accumulating debt is by paying it off too slowly. This is especially true of credit cards - ideally you should aim to pay off your cards in full every month, remember that the quicker you deal with debts the less likely they are to spiral out of control. Far too many of us simply make the minimum payment on our credit cards every month and whilst this may seem like a convenient option you should be aware that this is exactly what the banks want you to be doing. In fact because the amount of the minimum payment decreases at the same rate as your balance this is an arrangement effectively calculated to keep you in debt. Instead, set the monthly payment to something you can manage and keep it at that - you’re debts will be cleared far more quickly
.
Transfer your balance
The first thing to consider if you feel like your credit card debt is getting out of hand is to transfer the balance to a card with a 0% introductory rate. There are loads out there, just look for the longest 0% balance transfer period. Currently the market leading 0% cards are probably offered by Natwest credit cards and RBS credit cards who both offer 0% for 13 months although you can keep up to date with these things by consulting a comparison site like fool.co.uk's credit cards centre. The one thing to remember if you're doing this is not to use this card to buy anything. The likelihood is that it won't have a purchase rate that is anything like as competitive as the balance transfer rate
Never, ever, take out a store card
These are generally sold by tempting shoppers with short term store discounts, don't fall for it! Whatever the discount the store offers you on the day, remember, it won't be as a gesture of goodwill. Nearly all store cards carry a vastly inflated rate of interest and they rely on you paying off the balance in full straight away.
Make sure you can afford your loan
Before taking the plunge and getting a loan give consideration to whether you can comfortably afford the monthly repayments - be realistic and don’t overstretch your finances
. As long as you budget carefully and don't borrow more than you can comfortably afford to pay back then there no reason not to consider an unsecured loan. In fact with rates historically low at the moment now could be a good time to borrow. Currently there are a few lenders offering loans at 6.5% or cheaper, two of the best on the market at the moment are the A&L personal loan at 6.5% and the Moneyback Bank loan at 6.3%. You would be well advised however to first check a loans calculator (most lenders have one on their website - there's one on the A&L Loans site for instance) this should give you a good idea of what you'd be paying every month.
Do you really need it?
Its good to be impulsive in life but extending that philosophy to your spending is a sure fire way to wind up with crippling debts. Try to get out of the ‘buy now pay later' mentality.