Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
Money Habits – How to Avoid the Debt Spiral
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My dad once said something very simple but wise to me regarding credit card debt: “It’s as easy to pay off your credit card as it is to spend on it – it’s just a matter of habit.”
He’s right of course: we might want to treat ourselves once in a while and stick it on the old “never never” but one fine day we’ll have to pay back everything we borrow. But right there is some good wisdom: small amounts can really pile up, whether it’s from spending or saving.
So why do we all have habits when it comes to money, and what are they? As the new year is here, lots of headlines are telling us that the average debt per household in the UK is currently sitting at £65,756. This can sound a scary amount but can mean mortgages, overdrafts and even ‘buy now pay later’ (BNPL) purchases. This style of reporting instantly strikes us with debt as a negative – inferring that debt is something shameful and scary, and create a feeling around it that makes people secretive about it, makes people struggle to get help and end up in hot water.
It should be said straight up that if you need any help or advice regarding debt, then contacting the right person comes first and foremost. Hiding away from debt, understandable though the ‘ostrich’ approach is, can cause even larger issues later down the line, so picking up the phone and making that call is a step in the right direction. Whoever you speak to, make sure that first phone call is designed to aid you and offer objective help.
Avoiding debt escalation
We’ve all been there. My parents used to call it ‘the dance of the credit cards’ as you work out what money is coming out of which account, and desperately try to make sure you have enough money on the right card on the right date to ensure payments come out and don’t bounce, which can incur fees and cancellations, and bag you the dreaded red letter or CCJ through the postbox.
You can also easily get into a ‘robbing Peter to pay Paul’ situation where you’re borrowing money to pay back money you’ve already borrowed: that isn’t an endless avenue and will eventually catch up with you.
So, the best thing to do first is to Take Stock: what debts do you have and how does this stack up against your monthly income? That’s one of the first things a debt advisor will ask you: how do we limit your outgoings and find that money in your income to cover the shortfall? There’s usually a way, even if it’s by talking through your employment situation or plans, just so that the lenders know your intentions. Because believe us, it makes it way worse to hide from debt, thinking it will either go away or the people you owe money to will psychically guess what your situation is. Usually, they just want to help!
Avoiding debt won’t make it go away and an arrangement will still need to be sought with your creditors in order to overcome your debt. A debt advice company will talk you through your options and show you how this can be done: more on this in a bit.
Living Above Your Means is something we’ve probably all done at some point. That can include credit cards and BNPL deals. And trust us, if you buy now and don’t pay now, you certainly will pay later!
According to Finder.com, 38% of Brits used BNPL services in the year to January 2024, and 14% used them for the first time. In 2022 around 360 million people worldwide used BNPL services. Over half of people who used BNPL in 2023 paid a late fee (53%), an estimated 10.6 million people. That’s a LOT of us!
Now, there is “good debt” (mortgages, car loans, student loans – borrowing for investing in an asset, such as shares, that might improve your financial situation) and “bad debt” (debt that you are unable to repay. In addition, it could be a debt used to finance something that doesn’t provide a return for the investment.)
Good debt can open up an opportunity to you that you otherwise couldn’t have and can even help build a credit score.
Jonathan Mills from Debt Advice firm MoneyPlus says, “The key is responsible borrowing and transparent and honest evaluation of your financial position. Careful planning and budgeting are essential skills whether you are taking on debt or organising the repayment of debt. Debt tends to turn bad when you cannot afford repayments.”
That’s the key point: not all debt is ‘bad’ and where it tends to become so is when it’s not dealt with properly. This is how some people end up in hot water. A credit score reflects how reliable you are at repaying money, and so if you have a poor credit score, it can make it harder for you to borrow money and get good deals on things such as loans, credit cards and a mortgage.
However, a common myth is that your credit score has to be good in order for you to borrow money – this is not so. Different lenders will be looking for different things when they assess potential customers, and so while some companies may refuse you if your credit score is low, others may accept you.
Beat the BNPL Cycle
Paying later is often very tempting and there are many things we can’t or don’t want to pay for immediately. Always remember before signing up to anything loan or deb-related that, first of all, most of those deals involve interest charges, so in the end you’ll end up paying more than face value for the privilege of paying later.
Also remember that, whether it’s on a store card, credit card or other kind of borrowing deal, this money is being loaned to you and you should always read the small print carefully to make sure whatever monthly deal you’ve agreed to is something you can cover.
A third thing to consider is that, as with all debts, it’s best to take stock of what’s coming in and going out early on, and make cuts if you can: for example, do you really need subscriptions to five streaming services? Do you really need the things now you can’t afford yet, or can you go without until you’re pulling in more money? These are things a staggering amount of people neglect to consider before borrowing money.
In Conclusion…
The most important thing is to educate ourselves around our finances. Whilst the word debt can be petrifying, it is worth equipping ourselves with an understanding as to how it works.
Making sure you get the advice is key – and you should make sure that the organisation you speak to is properly regulated and can also provide advice on all the solutions out there.
It is important to say when searching for a debt advice firm that you should always check legitimacy and policy. With both the free and the paid for services, the initial phone call should always discuss what debt solutions are available and eligible to your own circumstances.
Jonathan Mills adds, “Debt isn’t always to do with not having the money and is often the result of struggling with financial planning. The free services are set up to help people in dire need and are often oversubscribed due to the sad financial climate at present.”
Free Debt Advice Charities
Finally, there are also free debt advice charities such as MoneyHelper, StepChange, Turn2us and CMA. It’s worth having a good think about your debts and who you may need help from before taking the next step (you can take a look at our ‘Fee Vs Free’ article here). Remember: nearly half of us are in the same boat.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
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