Debt isn’t just something that affects your finances – it can also have an impact on other areas of your life. If you’re struggling with levels of unmanageable debt, your health and wellbeing can begin to suffer as well, so it is important to spot the warnings signs.
But what exactly is the difference between manageable debt and problem debt? That’s what we’re going to explore.
Struggling to make repayments
Have you been struggling to keep up with your repayments recently? If so it’s worth having a look over your finances to figure out why this is. It might be that you’ve not yet recovered from a busy spending period like a holiday or wedding or maybe you’ve recently taken out another form of credit that you’ve yet to factor into your budget.
Whatever the case may be, it’s worth making sure you know exactly what money you owe and to whom. Make a list of all the people and companies you need to repay and write down the debts that are the most urgent. Not all debts are equal – there are some you should always pay first (they are known as priority debts) as the consequences of not meeting them can be more serious.
Priority debts could include your mortgage, rent, council tax payments, court fines, income tax or TV licence arrears. Think carefully about the debts that you treat as important as you might have to convince another lender or a court that this is reasonable, if you’re prioritising them over others.
All other debts should be classed as non-priority. This could include other money you owe – such as an overdraft, loan and credit card, as well as water charges and money borrowed from family. With these debts you should try to repay what you can but only after you’ve made your priority payments first, as the consequences for these can be less drastic.
Once you’ve prioritised your debts, have a look at your budget (or make one if you haven’t already) and see where you could make cutbacks. As a general rule, you should look to cut back on your non-essential spending – this could include things like your mobile phone package, TV subscription or weekly budget for an evening out.
As soon as you’re unable to meet the minimum repayments on your debts, this may be a sign that they’re a problem. The same goes for if you have to make extreme sacrifices just to meet the minimum repayments, like getting behind on your other bills, skipping meals or turning the heating off.
If you’re currently in this situation, don’t panic. Now that you’ve recognised that there is a problem, you can begin to seek out the right advice to get your finances back on track. You can do this for free through a number of organisations including the Money Advice Service.
A trained debt advisor will be able to walk you through your finances and advise you on what your next steps should be.