How To Manage Debt – Marsh Finance’s Best Tips

Managing debt starts with understanding what you owe, prioritising essential bills, and choosing a repayment strategy that fits your situation.

Statistics Around Debt

Upcoming data will give a clearer picture of the debt situation in the UK, but for now, we have compiled data from 2021. It is important to note that this situation has likely worsened due to the cost-of-living crisis.

1. Household debt: According to the Bank of England, household debt in the UK reached £1.7 trillion in 2021. This includes mortgages, credit cards, and other types of loans.
2. Credit card debt: The average credit card debt per household in the UK was £2,060 in 2021, according to the Money Charity.
3. Student loan debt: According to the Student Loans Company, the total outstanding student loan debt in the UK reached £160.3 billion in 2021.
4. Personal insolvencies: In 2021, there were 28,800 personal insolvencies in England and Wales, according to the Insolvency Service. This includes bankruptcies, individual voluntary arrangements (IVAs), and debt relief orders.
5. Payday loans: According to the Financial Conduct Authority, 1.4 million payday loans were taken out in the UK in 2021, with an average loan size of £250.

Causes Of Debt

Summary: Common causes of debt include overspending, loss or reduction of income, unexpected costs such as repairs or emergencies, and a lack of budgeting or financial planning.

There are many reasons for debt, and no circumstance is the same. We’ve listed some of the leading causes to give clarity to readers and alert them to the potential ways people fall into debt.

• Overspending: One of the most common causes of debt is overspending. This can happen quickly and is even more prevalent during the current cost-of-living crisis.
• Job loss or income reduction: Losing a job or experiencing a significant decrease in income can quickly lead to debt. If you need more money to cover your expenses, you may have to rely on credit cards or loans to make ends meet.
• Unexpected expenses: Unexpected expenses, such as car repairs, home repairs, or emergency travel, can lead to debt if you don’t have savings available. These are, of course, unpredictable, and so we recommend having an emergency fund always saved up.
• Poor financial management: Poor financial management, such as not keeping track of your expenses, not budgeting, and not paying bills on time, can also contribute to the debt.

How To Manage Debt Step By Step

Summary: Managing debt involves reviewing your finances, identifying which debts need urgent attention, choosing a repayment strategy, and seeking help if repayments become unaffordable.

Assess Your Financial Situation

List your debts, create a budget and track income vs outgoings. Remove unnecessary spending and cancel any subscriptions that aren’t necessary. Also take a look at your credit report to check for any mistakes and see what’s causing you issues currently.

Prioritise Priority Vs Non-Priority Debts

Any debts that carry a serious consequence if unpaid are classed as a priority. This could include housing risks, a risk to affording essential services and legal consequences.

Choose A Repayment Strategy

Reach out to your lender, bank, repayment provider to find a suitable repayment plan that suits you. Here are a couple of examples of strategy:

• Debt avalanche: focus on highest interest first
• Debt snowball: focus on smallest balance first

Take Action If You’re Struggling

Don’t be afraid to reach out for support. There are many fantastic debt support services, all ready to help you navigate a tricky period. We’ve taken a look at some of these debt support services below.

Debt Support Services

Managing debt can be a challenging and overwhelming experience. Still, many resources and services are available in the UK to help people navigate these difficulties. Here are some of the key resources and services people can use to manage their debt in the UK:

1. National Debtline: National Debtline is a free, confidential debt advice service run by the Money Advice Trust. They offer expert advice and support over the phone, email, and web chat to people struggling with debt.
2. StepChange: StepChange is a free debt advice service that provides practical solutions to people struggling with debt. They offer advice and support on various solutions, including debt management plans, individual voluntary arrangements, and bankruptcy.
3. Citizens Advice: Citizens Advice provides free, impartial advice on various issues, including debt. They have local offices across the UK and can offer face-to-face support and guidance.
4. Debt Management Companies: Several debt management companies offer fee-based services to help people manage their debts. These companies negotiate with creditors on your behalf and help you set up a debt management plan. They typically take a commission for this, so it’s essential to do your research and choose a reputable company.
5. Debt Relief Orders: Debt Relief Orders are a form of insolvency that can help people in serious debt situations. They can be a good option for people with low incomes, limited assets, and debts of less than £20,000. You can apply for a Debt Relief Order through an approved intermediary.
6. Debt Consolidation Loans: Debt consolidation loans can be a good option for people with multiple debts. These loans combine all your debts into one loan with one monthly payment. However, it’s essential to consider the interest rates and fees before taking out a debt consolidation loan.

What Are Priority And Non-Priority Debts?

Priority debts are those with serious consequences if unpaid, such as rent or utilities, while non-priority debts include credit cards, loans, and overdrafts with financial but less immediate risks.

Conclusion

Many online tools and resources can help you manage your debts, including debt calculators, budgeting tools, and debt management plans. It’s essential to seek help and support as soon as possible if you’re struggling with debt, as ignoring the problem can worsen.

Debt affects everyone in some way. As we move through the cost-of-living crisis, people may fall into debt and feel lost. Don’t fear; there are numerous support avenues available to you. It is essential to spot the early signs of debt and stop them before they start. However, if you find yourself in a position where that is too late, there are many ways to recover.

During this debt awareness week, reach out to anyone struggling and take some time to look at your finances and how you can ease any potential burdens.