8 min read

Keep your debts under control with help from our expert

Hannah Salih
22 March 2018

We've teamed up with Erik Porter from The Money Charity to help you understand when debts can go from good to bad and how you can take back control

As a society, we are becoming more comfortable with debt. For most people buying a house or attending university isn’t possible without it. And as long as you manage it well, credit can help your financial health, keep your purchases safe and even save you money.

But as people have begun to feel more ‘squeezed’ there's a growing reliance on using credit to make ends meet. In fact, the average consumer credit debt per household stood at £7616 at the end of last year*.

To help you make sure your debts stay manageable, we've teamed up with Erik from The Money Charity. He's head of Adult & Industry Programmes at The Money Charity, and has over 20 years of experience working in banking across the world. He's helped countless people develop the skills, behaviours and confidence to make the most of their money, so he really knows his stuff. But he also knows what it's really like to struggle with your finances, having overcoming £40,000 of credit card debt himself.

Erik has shared his expert knowledge especially with ClearScore to help you tackle your debts and feel better about your money.

First things first, how can you distinguish between manageable and unmanageable debt and why is it so important to understand the difference?

Not all debts are created equally. For most of us getting a mortgage is the only way to buy a home and many adults tend to carry a small balance on their credit cards from month to month without it being a concern. When the repayments are affordable and the credit allows you to pay for something over time it can help make managing your finances easier. If you feel in control and know what you’re paying for, e.g. a home, a car, a holiday and you made a conscious decision to take on the debt then it's more likely to feel manageable.

On the other hand, you have 'unmanageable debt'. This is often associated with credit cards although it can also come from other sources like loans.

There's the most obvious form of unmanageable debt, which is missing repayments or having homes, cars, or products repossessed. In my experience, it’s usually only this group who seeks support and advice. But it's so important to stress that debt can turn bad before it reaches this extreme. A lot of it is about whether or not you feel in control.

What constitutes unmanageable debt may be different for different people. If you don't feel comfortable with your debt levels then it's ok to try and get some help or to refocus your finances for a while to get yourself back into a more comfortable place.

That's why it's so important to understand the difference. It can help you spot the warning signs, anticipate any problems and help you take the action you need to sooner rather than later.

What are some of the warning signs of unmanageable debt?

  • Being able to make the monthly repayments but knowing that you are often one boiler breakdown away from not making this month’s repayment.

  • Feeling like you are paying for something but have nothing to show for it.

  • Not looking at the total cost of what you're borrowing and instead just focusing on the minimum monthly payments.

  • Feeling that not enough of the repayment is going to pay down the debt and instead it's just going on interest and fees.

As you can see, a lot of it is about how you feel. Ideally, no one should have to worry about their finances so if you are ever concerned it might be time to make a change (even if you can technically afford your debts).

In my experience, many people in the situations above either don't realise they're on potentially rocky ground or they want to avoid admitting there’s a problem. And I definitely do understand why. Although we are becoming more comfortable with taking on debt, there is still a stigma around it all.

All of these things can contribute negatively to your wellbeing and make your debt feel unmanageable. But if you’re worried about your debt levels, it is possible to take control — the most important thing is to start now.

If your debt is manageable what are the next key steps you should be taking?

It’s all about making sure it stays that way. This could include:

  • Shopping around and making sure you are getting the best deal. For example, it might be that you could save by shuffling all your outstanding credit card debt onto a 0% balance transfer card.

  • Having some reserves in case something does happen. If you're not missing repayments, before you start ploughing more money into your debts, it's always worth making sure you have a solid emergency fund. Ideally, you should have about three to six months’ worth of essential outgoings saved up.

And if you feel that your debt is unmanageable how can people take back control?

If you're worried about your debts or you feel like your debt could become unmanageable then the most important thing is to not avoid it. There's loads of advice out available and there's no time like the present to start taking the steps to take back control:

  • Make a list of all your debts, the monthly repayments, interest rates, etc. This will help you get a handle on the size of your problem and will also save you time if you decide to seek advice later.

  • Consider using an app or signing up for alerts from your bank or lender. This can help you be more aware of your spending and may highlight some financial behaviours that you could change for the better.

  • You could attend a course, in person or online, to help develop money management strategies helping you to ride out financial shocks, if and when they occur.

  • You may wish to speak to a financial or debt charity, a Financial Capability or Money Coach or even a Debt Advisor. You don't have to face debt alone. Even if you think your problem is small in comparison with others, there is never any harm in reaching out.

Finally, what's the one thing you wish everyone knew that would help them to tackle their debts?

There is help available! It’s important to know you don’t have to face debt alone. There are many great debt and money advice charities out there. Many people aren't aware of the help that is available via your employer, local charities, community groups that you belong to, or professional and industry bodies. Many organisations are finally understanding the benefits of financial education and providing support and have started to implement programmes to help those in debt.

*stats from The Money Charity

by Hannah Salih

Hannah reads all the finance info on the web so you don't have to. She also spends a disproportionate amount of time responding to Moose and Flearoy's fan mail.

ClearScore exists to make your finances simple.
We offer a free service where you can handle everything to do with credit in one place. In your ClearScore account, you can see your credit score and the full details of your credit report. Your credit cards, mortgages, mobile phone contracts, loans, overdrafts and utilities all on the record. Our goal is to make ClearScore as simple, calm and straightforward as possible. Money is stressful enough.