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How to beat personal debt


That Britain is slipping into a personal debt crisis has been well documented for a number of years now. The UK's burgeoning levels of personal debt have, for a long time, far outweighed that of our European neighbours. Indeed, figures released last year revealed that the average consumer in this county is £3,008 in debt compared to an average figure of £1,558 across the rest of Western Europe. Alarmingly the UK is now responsible for a third of all unsecured debt in Western Europe.

It takes only a cursory examination of recent personal debt statistics to see the extent of the problems: The total figure for personal debt in The UK in June 2007 was £1,355bn with the growth rate increasing to 10.1% for the last 12 months; it would appear that this is not a problem that shows any sign of slowing down. Including mortgages the average household debt for the UK is £56,000, excluding mortgages the figure is £8,856 and if based on households with some form of unsecured loan the average amount is £20,600. Every four minutes this country's personal debt is rising by a million pounds.

Don't despair though, on a personal level bad debt is not inevitable and with a slightly more money savvy, disciplined approach to managing your financial affairs you should be able to keep things under control. Here are a few easy ideas to help you avoid debts escalating.

If you haven't got the money don't spend it

Not so much a tip, more just plain common sense. Nonetheless, stick to it and you won't have a problem. The majority of personal debt is a direct result of the increasingly prevalent 'buy now pay later' approach.

Be disciplined with debt repayments

The quickest way of accumulating debt is by paying it off too slowly. This is particularly the case with credit cards - ideally you should aim to pay off your cards in full every month, remember that the quicker you deal with debts the less likely they are to spiral out of control. Keep in mind that minimum payments, the smallest monthly amount you can pay without being charged, might seem convenient but won't get you any closer to eliminating your debt because the minimum payment will decrease in line with your balance. If you can't afford to pay off your debt in full set your monthly payment at a fixed monthly amount rather than fall in line with the minimum payment system - remember it's designed by banks to keep you permanently in debt.

Transfer your balance

You can go a long way towards eliminating your credit card debt by transferring your balance to a 0% card. There are loads out there, just look for the longest 0% balance transfer period. Currently the market leading 0% cards are probably offered by Natwest credit cards and RBS credit cards who both offer 0% for 13 months although you can keep up to date with these things by consulting a comparison site like fool.co.uk's credit cards centre. The one thing to remember if you're doing this is not to use this card to buy anything. The likelihood is that it won't have a purchase rate that is anything like as competitive as the balance transfer rate.

Never, ever, take out a store card

These are generally sold by tempting shoppers with short term store discounts, don't fall for it! Whatever the discount the store offers you on the day, remember, it won't be as a gesture of goodwill. Nearly all store cards carry a vastly inflated rate of interest and they rely on you paying off the balance in full straight away.

Make sure you can afford your loan

Before taking the plunge and getting a loan give consideration to whether you can comfortably afford the monthly repayments - be realistic and don't overstretch your finances

As long as you budget carefully and don't borrow more than you can comfortably afford to pay back then there no reason not to consider an unsecured loan. In fact with rates historically low at the moment now could be a good time to borrow. Currently there are a few lenders offering loans at 6.5% or cheaper, two of the best on the market at the moment are the A&L personal loan at 6.5% and the Moneyback Bank loan at 6.3%. You would be well advised however to first check a loans calculator (most lenders have one on their website - there's one on the A&L Loans site for instance) this should give you a good idea of what you'd be paying every month.

Do you really need it?

A boring question perhaps but one you need to be asking yourself more often if debts are starting to get out of hand. Essentially you should try to get into the habit of prioritising your spending. Make a list of what you're going to buy and stick to it. Impulse buying really is the quickest way to rack up debts, especially if you take your flexible friend along for the ride.


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