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Britain’s Personal Debt Crisis - How to Manage Your Finances

Without wanting to sound too hysterical Britain is in danger of being suffocated in the ever tightening grip of an escalating personal debt crisis. It’s certainly true that, with the vast array of tempting borrowing opportunities available from credit cards to loans to store cards, more and more of us find ourselves struggling to keep our finances under control.

It’s a precarious state of affairs borne out by the current figures for personal debt in the UK: In June 2007 the total figure for UK personal debt stood at £1,355bn and appears to be spiralling – the growth rate has increased to 10.1% for the previous 12 months. The average household debt excluding mortgages now stands at £8,856; this increases to an alarming £20,600 if the figure is based on households that have some form of unsecured loan. If mortgages are included the average figure is £56,000. Perhaps the situation is most starkly illustrated by the following statistic: The UK’s personal debt is apparently increasing by £1million every 4 minutes!

On a more positive note there are plenty of straightforward common sense measures borrowers can take to help ensure that their debts are kept firmly in check.

Don’t spend money you haven’t got

It might sound obvious but if you stick to this one simple rule then there’s really no reason why debt should become a serious problem.

Be disciplined with debt repayments

The quickest way of accumulating debt is by paying it off too slowly. This is particularly the case with credit cards – ideally you should aim to pay off your cards in full every month, remember that the quicker you deal with debts the less likely they are to spiral out of control. Keep in mind that minimum payments, the smallest monthly amount you can pay without being charged, might seem convenient but won’t get you any closer to eliminating your debt because the minimum payment will decrease in line with your balance. If you can’t afford to pay off your debt in full set your monthly payment at a fixed monthly amount rather than fall in line with the minimum payment system – remember it’s designed by banks to keep you permanently in debt.

Transfer your balance

You can go a long way towards eliminating your credit card debt by transferring your balance to a 0% card. There are loads out there, just look for the longest 0% balance transfer period. Currently the market leading 0% cards are probably offered by Natwest credit cards and RBS credit cards who both offer 0% for 13 months although you can keep up to date with these things by consulting a comparison site like’s credit cards centre. The key to making this strategy work is by not making any purchases on your new card, if a card offers genuinely good balance transfer rates then the chances are it won’t offer a similarly attractive purchase rate.

Never, ever, take out a store card

These are generally sold by tempting shoppers with short term store discounts, don’t fall for it! Whatever the discount the store offers you on the day, remember, it won’t be as a gesture of goodwill. Nearly all store cards carry a vastly inflated rate of interest and they rely on you paying off the balance in full straight away.

Make sure you can afford your loan

If you’re taking out a loan be careful not to overstretch your finances. Look carefully at your monthly income and outgoings and asses realistically what you can afford to pay each month. As long as you budget carefully and don’t borrow more than you can comfortably afford to pay back then there no reason not to consider an unsecured loan. In fact with rates historically low at the moment now could be a good time to borrow. Currently there are a few lenders offering loans at 6.5% or cheaper, two of the best on the market at the moment are the A&L personal loan at 6.5% and the Moneyback Bank loan at 6.3%. You would be well advised however to first check a loans calculator (most lenders have one on their website – there’s one on the A&L Loans site for instance) this should give you a good idea of what you’d be paying every month.

Do you really need it?

As Christmas approaches, it´s easy to spend a little extra on clothes, food and drink and presents. However, if you make a list of what you need and stick to it, you’re likely to save yourself more money this way than if you went out impulse shopping.

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