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How to Solve your Debt Problem

In one of our articles last week we  reported on the mental health issues that can be caused by debt – these are appropriately known as “debt related stress”, and we pointed out that ignoring the problem will just make it worse.  Financial advisors here in the UK agree with the mental health professionals that unmanaged debts lead to unmanaged stress.  Today, we’re going to be examining some of the challenges that face the 8 million people in the UK who are in debt.

Getting out of the debt cycle and back into a good financial position can seem an overwhelming challenge to the average householder who has around £900 of outstanding debts and they will often find themselves back in debt as a result of the increased cost of living or, in many cases, an unexpected personal financial crisis. 

Loan companies regularly advertise online and on TV, tempting people to take out high cost loans, whilst gambling firms are on a constant quest to attract more customers into the betting game.  Betting your way to a better future is a recipe for disaster and those with bad credit find it difficult to get approved for an affordable loan. 

Here in the UK, we have a long history of household debt problems, usually cyclical and heavily influenced by recessions.  In the run up to a recession, household debt levels tend to build up and when the recession hits, banks become more cautious, whilst householders knuckle down in a bid to pay off their debts, rather than take out new credit. 

The average householder today faces much higher costs when purchasing or renting a property and consumer goods, like electronics, computers, mobile phones and fashionable clothing, which were once deemed a luxury are now seen as necessities. 

This leaves many people here in the UK relying on expensive payday loans to make ends meet, whilst others may be trapped in a cycle of offloading expensive items to a pawnbroker in the hope of reclaiming their goods once they have some money available again.  Both of these options are likely to intensify the problem, rather than solve it.

A more effective approach when dealing with debt is to consolidate all of your outstanding debts into one single payment, whether this is secured against your home, or using a guarantor loan with the help of a family member (perhaps a parent) to act as guarantor.  Some people use an inheritance to get out of the debt cycle and straighten out their finances, but not everybody can rely on a future inheritance to solve their debt problems. 

Speaking to a debt advisor is a sensible approach when taking the first steps in tackling your debts and, as we reported last week, debt charities can offer some really great help in finding a solution and educating people, not just on getting out of debt in the first place, but staying out of debt in the future.