You may not think you have a debt problem – but then again, you may be in denial! Here is how to tell...
These days, most of us have some form of debt to deal with – whether it is a loan, a credit card, or an overdraft. But the big question is, at what point does that debt become a serious problem?
If you are just about managing financially, you might not think you have a debt problem. But if your finances are a bit of a mess and if you, even occasionally, struggle to keep up with your debt payments, this could indicate that your debt is a bigger issue than you realise.
Facing up to these problems can be really hard. And it can seem far easier to simply ignore the problem, shove your bills in a cupboard somewhere, and hope it will all go away. Unfortunately, it does not work like that, and the longer you ignore your debt problem, the worse it will get. So here are the top 10 warning signs that your debts could be spiralling out of control.
1) You only pay the minimum monthly repayment on your credit cards
Minimum monthly repayments are typically set at ridiculously low levels. This means that if you only manage to pay this amount, it is going to take you a long time to pay off your credit card debt in full. Not only that, but you will end up paying far more in interest before you clear your balance.
2) You do not know how much you owe and you do not want to find out
If you have lost track of how much you owe and have no idea how you ended up in debt, you are probably overspending. Losing track of what you are spending where is not a good idea, especially if you are spending large amounts. It indicates you have no control over your finances.
3) You're borrowing more to pay off your debts
Borrowing more and getting further into debt to meet your other debt payments is a dangerous path to follow – particularly if you're using payday loans, logbook loans or credit card cheques. Equally, if you're taking money out on your credit card just to cover monthly payments on other debts, you could find yourself in serious trouble in the future.
4) You are spending more than you earn
If you have no idea what your budget is and you are spending more than you earn each month, or you are not sure whether your salary is covering your expenses, you could be in serious trouble.
5) You use your credit card to pay for everyday spending
If you regularly use your credit card to pay for necessities such as food or petrol and cannot afford to clear the balance each month, your debts will continue to build up and put more strain on your finances.
6) You are regularly late paying bills
If you regularly fail to make your bill payments on time, your cheques bounce, or you overspend on your credit card or overdraft, you will incur extra fees and charges from your bank. This will drive you further into debt and could also damage your credit rating.
7) You have no savings
If you are unable to put even a little money aside into a savings account each month because your debts are too high, that is not a good sign. Having said that, it is usually wise to pay off your debts before starting to save - so it is the right strategy, but do not be blase about it: it is a sign that you are struggling.
8) You find it hard to talk about your situation
If you find it difficult to be honest with your friends and family about your debt problems, or you are lying to them about your spending habits, you could be in denial about your debt.
9) You have been rejected for credit
This could be because you have too many credit cards – even if you no longer use them – or because you have missed payments in the past. All of this can damage your credit rating.
10) You are constantly worried about your finances
Recent research from talkaboutdebt.co.uk has revealed that 61% of people in serious debt are not sleeping due to debt stress, and 29% have taken up to six months off work. If your money problems are affecting your working life, leisure time, and how you sleep, it is time to seek help.
Help yourself
If any of the situations outlined above apply to you, you are probably feeling concerned. Debt can have a serious impact on your life, but the important thing to remember is that you do not have to deal with it on your own. Simply talking about your financial problems with your friends and family can feel like a huge weight has been lifted off your shoulders. Iit is a big step in helping you to face up to your debt problem.
If you want to get back in control of your finances, the first thing to do is to adopt this goal: Destroy your debt.
Financial products
The following financial products may also help you to fight back against your debt: If you have credit card debt that is earning a hefty rate of interest, transfer that debt to a 0% balance transfer deal right away. This will give you some breathing space and give you a chance to tackle your debts head on. The current market-leader is the Virgin Money Card which offers a fantastic 16 month interest-free period. And as well as paying off a credit card or store card debt, you can also use this card to transfer money directly into your bank account to pay off an expensive overdraft or settle a debt with cold hard cash.
Just be aware you will have to pay a transfer fee of 4% for this money transfer, and just 2.98% for the card balance transfer. You also need to remember to try to clear the balance within this 16 month period. If you not, make sure you are ready to transfer the remaining debt to another 0% card – just remember you will be charged another transfer fee in the region of 3%.
Alternatively, you could switch your current account to a bank which offers an interest-free overdraft, and use that to pay off debts or transfer an overdraft. The Alliance & Leicester Premier Direct Account, for example, offers a 0% overdraft for an impressive 12 months!
It is also a good idea to get a 0% new purchases credit card for any further spending you need to do. The Tesco Clubcard Credit Card, for example, will give you 12 months interest-free on your spending. What is great about this is that you will be able to focus on your more expensive debts without worrying about racking up any interest on any purchases you make, for a year.
So if you cannot move all your debts onto interest-free deals, try snowballing – it is a very effective way of tackling your debts. Find out more here. Finally, if you desperately need more money, you could consider taking out a personal loan such as the Alliance & Leicester Personal Loan or the Sainsbury Finance Shopper with Nectar Card Loan – both of which offer a low rate of 8% APR.
Seek advice
If you are still feeling completely at a loss as to how you are going to tackle your debts, contact a free independent debt advisory service such as Citizens Advice, National Debtline, the Consumer Credit Counselling Service, Payplan and Advice UK.
These charities will be able to provide guidance on a range of options to help you sort out your debt problems, and you will not have to pay anything for this advice. But whatever you do, do not bury your head in the sand and think your debt problem will go away by itself. Because it wont.
There are people out there who can help you and the sooner you start to face your debts, the easier it will be to get yourself out of debt. So do not give up hope!
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