How to manage your debt

Debt is a fact of life for many people, especially in today’s economic climate, but there are always ways that you can avoid getting into problems and escape them if you are struggling with repayments. Whether you are stuck in a rut, and don't know where to turn, there are a number of tips and advice to help you in managing your money or simply clearing your debt.

How to avoid getting into debt?

for many people these days, debt is a fact of life, but if you follow some simple rules you can avoid getting into trouble in the first place, i.e. preventing the debt cycle problem.

It’s all too easy to just recommend not to overspend, but there are some other ways of reducing your chances of getting into debt.

If you can't trust yourself, then avoid credit cards, as one of the most common types of debt is caused by overspending on credit cards. If you feel that you have the ability to manage credit card repayments, then you should always use one with a low or zero percent interest rate.

Many people pay more than they need to for credit, but there really is no need. A range of good deals already exist on the market, with interest rates ranging anything from 0% to 6%. There are many providers of credit card deals.

It may seem an ideal choice to apply for a credit card which has a 0% rate of interest, but you need to be careful as this low rate is very likely to be for a limited period only, so it’s important to shop around and switch to a better rate when the initial special rate period expires.

You should steer clear of store cards as their rates are much higher than normal credit cards, unless you have the finances to pay off your balance within the interest-free period. For example, Monsoon charges 30.7%, and Kwik Fit levies even more at 31.9% - these rates are 30 times as much as the best credit deals!

One of the simplest ways to save money is to change mortgage provider by shopping around for the best current deals, particularly if in your current mortgage, you are not trapped by redemption penalties. Most borrowers pay the standard variable rate (SVR) mortgage rate and are literally throwing money away.

Should I consider a debt consolidation loan?

Daytime television is awash with adverts from loan companies offering a tempting quick-fix solution to debt; that is, you take out a single loan to cover all your existing repayments. As debt can be enormously stressful, having someone else to deal with all of your creditors may sound like a dream come true, but debt counsellors advise people to steer clear of debt consolidation loans. This is because the interest rates charged on these loans are typically much higher than you can get on the high street. They often come with ‘hidden extras’, such as payment protection insurance. They are also secured loans, i.e. if for some reason you are unable to keep up repayments you will lose your home.

If you are sure you want to consolidate your loans into one payment, you should shop around for a competitive rate on the High Street and get a normal unsecured personal loan. Another option is to apply for a logbook loan.