What's the difference between 'being skint' & 'serious trouble'?

By Natasha Culzac

At what point does debt spiral out of control? Read about the tell-tale signs and the places that offer much-needed help

Unmanageable levels of debt can feel like wading through maple syrup. Just as you pay off one final notice bill, another rears its ugly head. Or you go two steps forward by paying a monthly credit card bill, but then slip one-and-a-half steps back when the interest charge is applied – and God forbid you spend the remaining pennies.

A fair few of us have been in this situation; living hand-to-mouth, with dark, grey clouds of debt looming above. It’s nobody’s idea of fun. But how do you differentiate between ‘being a bit skint’ and ‘being in serious financial trouble’?

What are the debt danger signs?

Being stifled with long-term debt is understood to have a severe impact on your economic attitude and behaviour. According to a British Psychological Society (BPS) report, those with long-term debt become highly skilled at managing the little money they have available to them, but in ways that actually harm them, rather than benefit them. For example, they tend to pay off small debts completely, rather than target larger debts with high interest; they deliberately ignore or destroy letters from creditors; and “they make use of, and often have positive attitudes towards, extremely expensive credit sources such as payday and doorstep lenders”. This often tolerant attitude towards debt is, according to the report, actually seen most starkly among university students.

Debt charity StepChange lists the five strongest indicators that things have got quite bad. If two or more apply to you then it might be time to seek help:

- You usually go up to, or over, the limit on your cards or overdraft

- You’ve taken out a new loan to cover your debt payments

- You’ve recently applied for a debt consolidation loan

- You’re having issues paying your household bills

- You’ve borrowed following unemployment or ill health

Reasons to start asking for help

Anxiety and stress prevention is reason enough to get out of debt. But things can often get a lot more serious, for example debt increases the risk of suffering with depression.

Being in so much overall debt can plunge you into a level of poverty in which your head is only just, if ever, above water. This is unsustainable and it seriously affects your quality of life. When unforeseen life events happen, such as job losses or personal accidents, having no savings or not having the ability to borrow low-interest credit to tide you over, can mean the difference between making things work and seriously struggling.

What can I do?

Firstly, remember that no debt is ever too large to tackle.

You might have to make some difficult short-term decisions by sacrificing luxuries or stripping your assets bare, but you can and will be able to start afresh. There is always a way out of serious debt and it won’t take a lifetime to get back on track, either. If you want to know a bit more about what debt consolidation actually is, check out this article.

There are a number of places where you can seek impartial advice and assistance in helping to clear your debts.  Charities which offer free and confidential advice include the National Debtline and StepChange. Beware that advice may differ if you live in Scotland.

Organisations like these, and the Citizens Advice Bureau (CAB), can help you to access debt-relieving agreements such as:

- Debt Management Plans (DMP): An informal repayment agreement between you and your creditors. This can only be organised for non-priority debts, such as loans and credit cards - not gas/electricity bills or your mortgage.

- Individual Voluntary Arrangements (IVA): A formal repayment agreement, if your debts equal more than £10,000 and you have more than £100 spare every month after paying your bills.

- Consolidation loans: This means borrowing a large sum of money to pay off all other strands of debt. There are pros and cons with this option. The benefits are that you now only have just one payment to deal with and this should be smaller and easier to handle than the monthly sum of your previous payments. It’s also a fairly quick process and will alleviate immediate cashflow problems. However, there are some serious drawbacks. Consolidation loans are usually taken out over the mid to long-term and with interest worked out across the whole term, you could pay a lot more overall. Additionally, if this new loan is secured against an asset like your house, you run the risk of losing your home if you have a history of missing payments.

- Bankruptcy: A way of wiping your debts if you cannot pay for them. But your assets may be sold off to pay creditors, you may find it difficult to obtain credit, you could be stripped of your business and you could have issues with your employment. Read more about going bankrupt here.

Top takeaway

No debt is ever too large to deal with. Some solutions have more serious effects than others, but with just a bit of persistence you can be back in the black in no time. If you, or someone you know, is saddled with an unmanageable amount of debt, talk in confidence to one of the aforementioned charities and get on top of your finances today.

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