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To keep your finances on track, it’s important to have a thorough understanding of what debt is, when it’s a good idea, and when to avoid it. This is what we're going to focus on today.
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What is debt?
Debt is any money you owe to a person or business. This can include obvious things, such as credit cards or loans, but also less obvious things such as mortgages, store cards and mobile phone contracts. Even borrowing money from friends or family counts as taking on debts.
When to get into debt
For most people, being in some form of debt or other is inevitable. Mortgage debt, for example, can become a part of everyday life but other activities can be avoidable, like running up credit card debt for non-essential items.
We understand sometimes it can be difficult to figure out when debt might be necessary. To help, we've created a quick check list for you to consider when you're thinking about borrowing money:
- Will you be able to make all the repayments comfortably?
- Is this option the cheapest way to borrow the money?
- Do you really need to purchase the item you're borrowing money for? And, if so, can you afford to buy it outright?
- Will this be a sensible investment that leaves you better off overall?
Debt is never a good idea if you're going to struggle to make the repayments, or you're paying more interest than you need to.
Equally, luxuries and treats are great in moderation, but if you can't afford to buy them outright, consider saving for them, rather than taking on more debt unnecessarily.
If you’re borrowing regularly to meet your day-to-day expenses, it’s usually a sign you’re living outside of your means, which can lead to debts spiralling out of control.
If you're struggling with debt, you can speak to a debt charity, such as Payplan, StepChange, or contact the Citizens Advice if you need more information on different types of debt.
Tomorrow we're getting ready for take-off by working out what you owe and what's manageable…
Fact of the day:
Did you know the average debt per adult is £31,798? You're definitely not alone. (Finder.com, Aug 2020)
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