Last year, nearly 418,000 people contacted the UK’s leading debt charity Consumer Credit Counselling Service (CCCS) for help dealing with their credit cards, personal loans, store cards and other kinds of unsecured debt. The average amount owed by a CCCS client was £22,476 – and the charity says that building up this kind of debt can be easier than you might think.
Taking a pay cut, losing your job, your relationship breaking down, illness in the family and other unexpected expenditure can all turn small debts into large ones very quickly - and before you know it you can find yourself at risk of falling into problem debt.
However, there are steps you can take to minimise this risk. CCCS offers the following top tips to avoid getting into serious debt.
Prepare a budget
Make your financial position clear by preparing a personal budget. Write down all of your sources of income and a list of your expenditure each month. Don’t forget to include items you purchase annually or quarterly, such as car insurance, TV license or birthday / Christmas presents in your budget by dividing them to arrive at a monthly figure – this is so you don’t get any nasty shocks throughout the year!
Reduce unnecessary spending - and prioritise
Once you have identified how much you are spending each month, you might be able to see some areas in which you can cut back. You can also prioritise your expenditure to make sure the most important things are always paid first. Always make sure you can pay your council tax, gas, electricity, water bills as well as your rent or mortgage payments, as the consequences of not paying these can be severe. Try to always pay your bills on time, and consider setting up direct debits to make sure that you always meet the deadline.
Shop around to get the best deal
You can lower your costs by shopping around for the best prices. Visit price comparison websites to see if you can lower your bills or switch to a better deal – you might be surprised at how much you can save by devoting some time to looking for alternative options for gas, electricity, mobile phone tariffs and other bills.
Save, save, save!
If you don’t have any existing debts and have money left over in your budget at the end of each month, try to build up a ‘rainy day’ fund in a savings account. Set a target of how much you want to save for emergencies (many people use three months’ pay as a rule of thumb) and keep track of your progress – it can be very satisfying to watch your balance grow! If you do have existing debts, you can use your surplus to repay them more quickly, so that you can start to building up your savings.
Use credit carefully
If you have a credit card, use it carefully. Avoid the temptation to use credit to buy things you couldn’t normally afford – and always make sure you have enough money to pay off your balance in full each month. If you don’t, the debts will grow with interest and charges and before you know it you could have difficulty repaying.
By following these tips, you can put yourself in a better position to deal with any financial shocks that life throws your way. However, if you do get into difficulty, help is available – and with charities such as CCCS, Citizens Advice and National Debtline providing free and confidential advice on how to deal with your debts, there should never be a need to pay for it.
With thanks to Matt Hartley, CCCS
CCCS can be contacted via its freephone helpline, 0800 138 1111 (open Monday to Friday 8am – 8pm. You can also seek advice via CCCS Debt Remedy, an anonymous online debt counselling tool available at www.cccs.co.uk