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Don’t become overwhelmed by debt

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Debt Awareness Week

As the world grapples with the aftermath of the pandemic, the cost of living continues to escalate, and for many, debt is a looming shadow that can't be ignored. Against this backdrop, Debt Awareness Week took place from March 20th to 26th, reminding us of the importance of financial literacy and debt management.

This year's theme, 'What is debt advice?' highlights the many free, confidential, and impartial support schemes available throughout the UK. From financial education to debt counselling, these organizations offer a wealth of resources to help people regain control of their finances and alleviate the mental toll that debt can take.

Can debt ever be good? 🧐

Not all debt is bad, though. We are all familiar with the types of debt we manage every month, which help us live our lives: car finance, mortgages and credit cards.

Debt can help us start businesses and get on the property ladder. These debts give us access to assets that will grow in value in the longer term. A well-managed credit card can prove invaluable for emergency repairs, larger purchases or surprise expenses such as vets' bills.

debt good or bad

Managing your repayments and keeping abreast of your debts demonstrates responsibility. Sound financial planning around debt means it is manageable and fits your monthly outgoings.

Before taking out a loan, determine what's affordable and make a repayment plan. Your credit score will improve if you pay back the right amount on time every month – a good score will help you to get credit in the future. 

Do your research before taking out a loan, and make sure you get an affordable deal that will work for you.

Talking about debt and getting advice

Discussing debt can be tricky – it's hard not to feel down, even if the circumstances surrounding your debt are beyond your control (having to close your business, for example). 

Money worries, bills and financial obligations can keep you awake at night and have a negative impact on your mental health. However, debt charities are non-judgmental and will listen and work with you to make a plan to pay it off or reach settlements. There's loads of support – it's all about taking the first steps.

talking about debt

Step Change charity is experienced at helping people to manage the worries and practicalities of debt. If you're not ready to phone up and talk to someone, they offer equally comprehensive online assistance.

This booklet from Money Saving Expert is free to download and offers help to anyone with mental health and financial concerns.

And don’t forget Citizens’ Advice, who will provide information to help you make the right choices.

Your mortgage deal is ending…positive steps to take now

mortgage deal ending

If your mortgage deal is ending, it can be too easy just to let it 'roll over' onto the default plan, usually a standard variable rate, which is often a lot more expensive. Interest rates are rising, and finding the right deal will be crucial for your family finances. The ONS believes that more than 370,000 fixed-rate deals will come to an end between April and June.

🏠 The mortgage landscape may have changed since you took out your last deal, which is why it is worth planning now. Think ahead and start looking around well in advance – lenders often allow you to sign up for a new mortgage deal up to six months ahead of the current one finishing, so ask your existing lender about deals that are coming up. 

🏠 There will be less admin involved if you don't have to move providers – however, don't automatically assume they have the best deals. Seek an independent mortgage adviser to help you find the deals that are best for you elsewhere, too, as they may be able to find deals that an online search cannot.

🏠 Although interest rates are higher than they have been for a long time, some lenders are introducing lower fixed-rate deals again, so shop around and see what's available. With interest rates going up again last week, the likelihood is that your monthly payment will increase, so take an overall look at your household spending to see what impact the new mortgage payments will have.

🏠 Finally, if you can overpay on your mortgage before your deal ends, that will save you money in the long run as it reduces the overall amount of interest you pay. If you think overpayments will be likely, ensure this is possible without penalty for the new mortgage you take out.

It takes confidence to face situations like these. If you’d like to improve your financial confidence, SmartPurse’s Money School can help. Its easy-to-follow structured learning programme boosts financial confidence, starting you on the road to financial independence. Find out more about Money School here.

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