ConsumerValue: Financial Services
4. Problems with Debt
Credit cards and personal loans can be an efficient way of balancing your lifestyle with your personal finances, but events and circumstances can throw that balance off kilter.
When this happens, some people find themselves unable to manage their debts. The National Consumer Agency is not expert in this area, but we set out here a few essential rules of thumb if you are facing difficulties with debt.
Act quickly
This is the cardinal rule when it comes to debt problems. Admit to them at the very earliest opportunity and act to address the issues.
Under no circumstances should you avoid facing up to a problem in meeting your debt repayments or in managing your spending on borrowed money.
Don’t use credit cards to manage existing debt
Never take out a second or subsequent credit card to manage debt from a first card or from any other source, and don’t use your credit card for long-term borrowing.
Credit card interest rates are typically far higher than other forms of debt such as personal loans, so a credit card will only make sense if you are able to pay off all or most of your balance each month.
Consolidate debt at the lowest rate available
If you find yourself juggling a heavy burden of debt from a variety of sources, credit cards, overdraft, short-term loans etc, consider amalgamating them all into one loan, which you schedule to repay over a term that will make the payments realistic and manageable for you.
However, beware of stretching repayments over an excessively long term. While the individual repayment amounts may be more manageable, it could cost you in the long run, as interest will continue to accrue throughout the term.
The key to debt consolidation is to make repayments manageable, but to repay as swiftly as you can afford to minimise the build up of interest.
Talk to your lender
Be sure to talk to your lender at the earliest opportunity and advise them of your difficulties. You may be able to restructure repayments, and your lender may be able to offer other expert advice on managing your finances.
If you believe that you need assistance in managing your finances, and in particular if you are struggling with debt, contact the Money Advice and Budgeting Services (MABS) at 1890 283 438
Learn more
Read some tips on how to cope in a recession