Dealing with multiple debts can be a headache. Paying back money to more than one lender often makes it difficult to keep track of what’s due and when. This can leave you feeling confused and out of pocket.
Around one in five people in the UK are struggling to pay their bills 1. This means many may have to turn to alternatives to make ends meet. As such, the average UK household has more than £2,000 of credit card debt 2.
If you’re struggling to repay loans or credit cards, being in debt can have a significant effect on your mental wellbeing. This guide will take you through the ways you can get a handle on debt and take control of your finances.
What are the different types of debt?
A debt is where you borrow money from elsewhere to pay for something you want or need. They’re usually divided into two categories: secured (borrowed against your assets) and unsecured (no collateral but often higher interest). There are several types of debt, including:
- Credit cards – the most common form of unsecured debt. You can borrow up to a limited amount of money and pay it back over time.
- Store cards – similar to credit cards but for specific stores.
- Mortgage – a secured loan you repay in set instalments each month. Failing to repay could mean losing your home.
- Car finance – personal contract plans allow you to borrow money for a car and repay in monthly instalments. At the end of the term, you can typically buy the car outright or give it back.
- Personal loans – unsecured borrowing that can be used to consolidate debt, upgrade your home or pay for life events.
- Overdrafts – most banks allow you to spend past your balance.
Debt vs bills - what's the difference?
Bills are where you pay for something you’ve used, such as electricity or insurance, typically as part of a monthly expense. Meanwhile, debt involves paying over time for something you want to own, like a car or new phone.
Sometimes the two can coincide. For example, if you have a balance left to pay on your energy account, it’s classed as debt.
Signs you could be borrowing more than you can afford
More than 60% of people in the UK have some form of personal debt 3. But while some debt is necessary to cover your lifestyle, it’s also important not to borrow more than you can afford.
Here are five visible signs that you could be struggling with debt:
- Your outgoings are higher than your income. Spending more than you earn should set alarm bells ringing. Even if you are living within your means, it could indicate you need to make some changes to your spending.
- You can’t keep up with repayments. Making late repayments regularly or even missing them completely can get you in trouble. This could impact your credit score and you might even risk losing your home.
- You’re borrowing more money to cover existing debts. Borrowing additional money to pay for existing credit will only increase debt.
- You struggle to keep track of your debts. Not having a clear idea of what you owe and to who is often a strong sign that you’re spending more than you can afford.
- You aren’t able to save. It’s always a good idea to have some funds saved up for an emergency like a boiler breakdown. Without savings, you may find yourself borrowing again and again.
How to manage your debts
Thinking about the different amounts you owe might leave you feeling overwhelmed. However, the worst thing you can do is bury your head in the sand and pretend it doesn’t exist.
No matter your situation, it’s never too late to take action to manage your debts. And remember, you’re not alone. There are plenty of people in your situation who could use help with their finances.
Get a clear picture of your finances
The easiest way to get a handle on your finances is to write down all your outgoings and earnings. This way, you can compare both to see if you are paying more out than you are bringing in.
To do this:
- List out all your debts. Include the total amount due, payment dates and any other important features, like late fees or interest rates.
- Calculate your income. Make a note of your salary and any other earnings, such as child benefit or tax credits.
- Add up your regular outgoings. This could include your mortgage or rent, utility bills and subscription services.
- Include any additional finances. Saving up for a big life event? Due a sum of money in compensation? All these things could affect your overall finances.
Balance the budget
Now you understand where your money is going, you can begin to look at ways to make your funds stretch further. For example:
- Subscription services. TV and music subscriptions can add up if you’re big on variety. Some streaming platforms now offer Family accounts, while it’s always wise to split the TV bill with roommates or a partner. Likewise with music, gym or food services, where referral schemes could save you precious pennies.
- Food. Save money on food shopping with some simple tips and tricks. Set up alerts online for deals and vouchers on your favourite brands, and plan your meals ahead of the supermarket trip so you’re less tempted to impulse-buy.
- Luxuries. Are there any little extras you could cut back on or give up altogether? Swap out Starbucks coffee for home brews, and avoid temptation by unsubscribing to email offers you might have accidentally signed up for.
Get help with your situation
There are several organisations that aim to help people with their money. This includes debt charity Step Change, which offers free advice and resources for getting on track with your finances.
You can also reach out directly to your creditors to explain your situation. Most of the time, they will appreciate your honesty and work with you on a solution, such as giving you an extension on your repayment date.
Tips to help take control
Managing debt can often seem like a never-ending battle. Here are a few tips for staying in control of your repayments.
Create a payment calendar
Knowing what is due and when can help you organise your finances, to ensure you always have enough money in your account to cover the bill.
To do this, grab a calendar and add in the amounts due at different points of the month. Then, add when you get paid and any other earnings that crop up throughout the month.
From this, you can see how far your income stretches between payments.
Prioritise your debts
It’s a good idea to list your debts in priority order. This way, if you do have some spare cash at the end of the month, you know exactly which debt to pay towards first.
Usually, the debt with the highest interest rate should be top of the list (often a credit card bill). But you can also prioritise by amount due to tick off the smaller debts first, and free up some funds.
Meet the minimum payment
If you’re struggling to pay off debts, try your best to still meet the minimum payment. Even missing one payment can cause added late fees, which could land you further in debt.
If you’re struggling to even meet the minimum payment, try not to take out any more debts, such as another credit card, to cover this. Instead, speak to the creditor directly to ask for an extension.
Managing debts with a consolidation loan
A debt consolidation loan could help you pay off all your existing loans and combine your monthly payments into one single repayment.
How debt consolidation works
The idea is that you use a debt consolidation loan to pay off your existing debts, meaning you only owe money to the consolidation loan provider. This would mean you no longer had to make multiple payments each month, which could help you save on things like interest and late fees, as well as carving out a route to becoming debt-free.
Key considerations to make before taking on a debt consolidation loan include:
- Understanding your finances. Everyone’s situation is different, and a debt consolidation loan may not be a one-size-fits-all solution. It’s important to understand your specific situation in detail to know whether debt consolidation will help.
- Searching for the right product. Speak to a loan provider to find out what you can borrow, whether it’ll be enough to cover your debts (including interest), and whether you can afford the monthly repayments.
- Being prepared. Make sure you have all the information you need to hand when you apply, including a list of lenders you owe money to and the amounts due.
- Staying in control. Once you’ve paid off your debts, it’s crucial that you stay on top of your finances.
Debt management or debt consolidation?
Although they sound similar, debt management and consolidation are two fundamentally different approaches when it comes to clearing your debts.
Debt management involves speaking to the businesses you owe money to and agreeing affordable payments, whereas debt consolidation involves taking out a new loan to pay off your existing debts.
How to apply for a consolidation loan?
To apply for a debt consolidation loan with Norton Finance, begin by telling us how much you’d like to borrow and over what period.
Our loan calculator can help you get started on creating your debt consolidation plan, showing you the monthly repayments you could expect to pay if you’re successful in your application.
There are many things to think about before choosing to apply for a debt consolidation loan. Consider the drawbacks as well as the pros and take the advice of experts who can help you decide. If it seems that a debt consolidation loan could be the answer, take a look at our range of products.
1New report shows increase in the number struggling to manage their personal finances - Aryza.com.
2Average credit card debt in the UK: statistics for 2021 – fool.co.uk.
3Debt Statistics UK Edition  – cybercrew.uk.