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What Is A Debt Problem?

Are you worried about your debts? Millions of families in the UK are struggling financially, but only a small percentage of them have taken professional debt advice. One common reason for this inaction is a lack of certainty about what exactly constitutes a “debt problem”.

Researchers like to create simple ways to measure these things. A recent TUC report on problem debts defined a “problem” as spending more than 25% of your gross household income on debt repayments. If your gross household income is £30,000 per annum (£2,500 per month before tax) you’d have a problem if your monthly repayments were £625 or more.

 

Have I Got A Debt Problem

Is this a useful definition?

If you have a mortgage or rent, a car payment, and a child in nursery, £625 of monthly repayments would probably cause you huge financial problems. If your mortgage is paid-off, you don’t need a car, and the kids have grown up and left home, the same £625 commitment might be easily affordable.

The above definition of a debt problem is useful mostly for newspaper headline writers. It’s not necessarily helpful for a family who are worried about money and aren’t sure what to do. 

Some Debt Warning Signs You Might Recognise

A straightforward definition of a debt problem isn’t easy. However, there are some very common financial warning signs – some of which you may recognise:

  1. Using credit for household essentials. Do you regularly have to pay for supermarket shopping or car fuel on your credit card?

  2. You live in your overdraft. After you’ve been paid, your current account still isn’t in credit? Making your debt payments puts you straight back into your overdraft again? 

  3. Late payments and arrears. Are you in arrears repaying a credit card or loan? Are you being chased by debt collectors for missed payments?

  4. Arrears on housing costs. Have you fallen behind on your mortgage or rent payments?

  5. Arrears on important household bills. Have you fallen behind on payments for your council tax, gas, or electricity bills?

  6. Rejected credit applications. Have you applied for new credit recently and been rejected?

  7. Using high-cost credit. Do you sometimes rely on high-cost credit (such as payday loans) to manage financially until you’re next paid?

  8. Your total debts aren’t reducing. Despite making significant repayments every month, the total amount that you owe isn’t really going down much?

  9. Your overall debts are increasing. You make your repayments on time every month, but from time to time you have to obtain further extra credit to make ends meet?

  10. You can’t cut your spending any more. You have cut your spending to the absolute bone in order to stay on top of your finances, but you’re still finding things tough?

Do any of these warning signs apply to you?

Recognising a single one of the above warning signs might mean that you have problems with your debts. If more than one of these factors applies to you, it’s increasingly likely that you’re going to need to take some type of action to address the issue.

It’s Not Just About Money  

Debt can lead to serious personal issues. Your general sense of wellbeing, mental health, even your physical health, can be affected. In particular, the two-way causal link between debt and mental health is very well established by research.

Have you experienced any of the following in connection to your financial concerns?

  1. Relationship problems. Have debt worries led to arguments with your partner or other family-members? Have you noticed worsening relationship difficulties as your debt concerns have increased?

  2. Sleep difficulty. Are you sometimes unable to get a full night’s sleep due to stress?

  3. Workplace issues. Has your performance at work suffered as a result of stress or distraction? Has your attendance record been at work been affected?

  4. Medical intervention. Have you seen a medical professional about a condition that you believe is connected to your financial concerns?

  5. Depression. Have you felt persistently sad for weeks or months?

  6. Social withdrawal. Do you (consciously or subconsciously) see less of your friends and family than you used to?

  7. A sense of shame. Are you embarrassed to discuss your financial situation with otherwise trusted relatives, friends, or colleagues? Are you worrying about debt without any support?

  8. Substance abuse. Are you drinking or smoking more than you’d like? Have you become more reliant upon potentially harmful drugs?

  9. Other potentially damaging behaviour. As an example, are you sometimes gambling money that you cannot really afford to lose?

  10. Suicidal thoughts. Have you had thoughts about taking your own life?

If any of the above factors apply to you, it’s all the more important that you resolve to take action.

Prioritise your own wellbeing first. This might mean using your GP as a gateway to obtain the help and support that you need personally. If you’re experiencing a serious personal crisis, please remember that organisations such as The Samaritans exist to help and support you.

Tackling your debts will become much easier if you prioritise your wellbeing and health first.   

How Do Debt Advisers Diagnose A Debt Problem?

Debt advisers take a methodical approach to determining whether you have a debt problem.

They’ll want to understand your income, your expenditure, how much you owe, and what assets you own. This information enables them to make an assessment which they can quickly share with you.

A debt adviser wants to understand if your income is sufficient to cover:

  1. Essential bills – such as your mortgage, council tax, electricity.

  2. Priority household expenditure – such as your food, travel, and clothing.

  3. Unsecured debt repayments – such as credit cards, store cards, and bank loans.

If your current income isn’t high enough to cover all of these three spending areas, they’ll discuss with you:

  1. Can you realistically increase your income?

  2. To what extent could you reduce your expenditure?

  3. Do you own assets that you’re prepared to sell (or refinance) to repay debts?

  4. Could your debts be restructured affordably (with cheaper credit sources if possible)?

What if none of the possibilities above are feasible or realistic?

The adviser will then be able to suggest alternative measures to tackle your debts. These alternatives will enable you to get your finances back under control.

In Scotland the options include trust deeds, sequestration, and the debt arrangement scheme.

Elsewhere in the UK the options include debt management plans, IVAs, debt relief orders, and bankruptcy.

Don’t Delay Getting Debt Advice

Having read this article, are you more certain that you do have a debt problem requiring some attention?

The very nature of debt problems is that they tend to get worse. The longer you delay tackling the problem, the greater the financial and personal risks you will become exposed to.

A delay in taking advice can also result in fewer options eventually being available to you. The longer you leave it, the less likely that some of the less onerous debt solutions will remain available to you.

Where can you get this advice? Organisations such as Citizens Advice and certain debt charities are popular sources of help with debt problems. There’s links to some relevant resources on our other sources of help page.

Our own advice team is also available to help you. They’re professionally qualified debt advisers who can assist you wherever you live in the UK. Get in touch with us by using our contact form or by calling 0141 2490416. 

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Data Protection Registration: Z1332750