Debt in the UK – Tips for Getting On Top of Your Finances
Debt is not a fun subject to broach, but it is something that has touched practically every citizen in the UK. Some debts, like mortgages or start-up business loans, are justifiable and wise decisions – but some are difficult to manage, and the result for the average individual can be catastrophic. If your personal debt burden is high, what can you do to get on top of your finances?
The UK’s Personal Debt Burden
According to data shared by The Money Charity, UK adults collectively owed £1.8 trillion at the end of February 2023 – a £66 billion, or £1200 per UK adult, increase since February of the previous year. The reasons for this stratospheric level of debt are numerous, but recent pressures have been greater than ever.
The cost-of-living crisis has had profound impacts for every household in the UK, with the cost of household goods rising considerably in the last two years alone. Much of the £1.8 trillion takes the form of mortgages, too; rising mortgage rates have made home ownership more expensive than ever before, and led some first-time buyers into negative equity.
Getting Out of Debt
Consolidation
For those with multiple debt sources, simplifying the problem is a priority. Different debt sources might have different repayment terms, some of which might be much more painful than others. If you’re struggling to prioritise one repayment without forgoing another, you can end up in a vicious cycle.
Debt consolidation loans enable you to combine all debts under one roof; you use the loan to close out your debts with different lenders, and the total value of your debt is brought under one set of repayment terms. This doesn’t absolve you of your debt, but does make it much easier to plan your way out – and does reduce the level to which your debt could grow.
Budgeting
The next important step is to gain a truthful image of your financial situation besides your debt. How much do you earn each month, and how much of that goes to essential costs like rent or utilities? Do you have any savings already in place? Where does your leftover/disposable income go? With all this information, you can build an equitable debt repayment plan, with a tangible end goal.
With regard to savings, it might be wise to use those savings towards your debt; debt interest is often higher than savings interest, with a net-negative financial impact. Getting out from debt early makes saving in the future much more effective.
Protecting Against Future Debt
From here, it is a waiting game. Sticking to your plan, and paying extra in where possible, will ensure you find yourself debt-free eventually. The trick then is to remain out of debt. One great way to do this is by starting an emergency fund before you start saving money. Your emergency fund would cover some months of income, and can shield you against everything from an emergency car or appliance breakdown to temporary unemployment.