Eight reasons you'll never be truly debt free
If you're guilty of these eight mistakes, you'll never truly be free of debt.
As you know we help people who are struggling with debt problems but we also want to prevent people having debt problems in the first instance.
But every day we hear from callers about financial problems that could have been easily avoided. With a little foresight they could have kept their finances on the straight and narrow.
If you’re guilty of even a couple of these bad behaviours you’ll never be truly debt free unless you deal with them sooner rather than later.
You don’t have the correct insurance
We’ve blogged before that the most common causes of debt are sudden life shocks such as redundancy, relationship break up or a death in the family. There are relevant insurances you can get for all three of these scenarios. It’s vital to make sure that you’re covered for the unexpected (remember to shop around for the best deals on insurance).
You don’t have emergency funds
It’s important that you build up an emergency fund; the best way to do this is to set up an automatic deduction from your bank account each month just as your wages hit it. The fund can build steadily over time for when things go wrong.
Car costs, household appliances going kaput and other unexpected expenses can arrive suddenly and you’re a lot better off having some of your own money to use, rather than have to take on debt to cover sudden unforeseen costs.
You fall for tricks like 0% or interest free
A 0% interest credit card might sound like a good idea. Indeed, it probably is a good idea if you can afford to pay the balance back when the 0% deal ends (and you’re buying something you need). However if you can’t afford it you might find that when the rate suddenly rises you’ll be stung for high interest, and another 0% deal hard to come by.
Interest-free offers from retailers work on the same principle; as long as you pay back by a certain date there’s no interest. However if you miss the deadline by one day you’ll find that interest has been added on starting from the day of your original purchase. Our blogpost about retail tricks that are debt traps is helpful on this subject.
‘Free’ deals can be good, but only if you can afford to keep them free.
You consolidate
We rarely recommend taking out a consolidation loan as a good debt solution. Taking out one to clear debt often just kicks the problem further into the future.
When people look to a consolidation loan they often don’t realise they are increasing the level of debt that they have and are making the repayment period a lot longer.
And if you do take one out to clear credit card debt, make sure that you cut up and cancel the now-cleared cards - we find many people use the cards again in an emergency. This can often be the start of a debt spiral…
You continue to borrow money (the debt spiral)
You’ve cleared the credit cards with a consolidation loan, but you’ve run into some unexpected trouble (hours cut at work or an unexpected illness are common examples). You’ve started spending on the cards again to cover essential costs and gradually the cards get back to the very limit. You don’t realise it yet but you’re slowly starting on a debt spiral.
You hope the situation will soon change, but in the meantime you’ve also maxed out your overdraft and possibly borrowed money from family and friends.
Sadly in cases like these the situation doesn’t always get better and often people continue to borrow more and more money as the debt spiral gathers momentum. We’ve found that many people with a debt problem take over a year before they seek financial assistance. During this period they usually survive by continuing to borrow money and worsen their financial position.
If you have a problem with your finances you need to seek help quickly.
You make the minimum payments
If you have a few credit cards and you’re happily paying the minimum payments, you might not think you have a debt problem. You might even be thinking of taking out another credit card as you can ‘afford’ the payments.
Many people don’t realise that if you have a £3,000 credit card balance at 21 years of age, and only make the minimum payments, it could take you until you're at least 50 to repay the balance.
You don’t budget or plan
Most people don’t do a budget; we’ve blogged before about the importance of one. Even spending an hour a week looking at your income and expenditure will pay dividends over the longer term. Combine this with using a spending calculator like MoneyTrack.
You pay for debt advice
Once you have realised that you have a debt problem, you don’t need to pay for debt advice: we offer impartial debt advice completely free of charge.
If you’re worried about personal debt why not try out online counselling service Debt Remedy. You can easily and quickly find the best debt solution based on your own individual circumstances and at least avoid one of the eight reasons you’ll never be debt free…
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@Dunsailing - do you own your own home? Did you pay cash for that? Or, is a mortgage not considered a debt? Or perhaps you were blessed enough to inherit a home? For many people the debt spiral actually begins when they take on a mortgage and then something - sickness, death, or even a financial crime (that happened to me, someone I trusted after many years of business dealings entered into a business arangement and then did a runner) - leaves them unable to live AND pay the mortgage. I know that there are insurances but it may not be the mortgage payer who becomes sick or dies.
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Some people who like to look at lovemoney.com do so because they like the idea of 'finding the best deal'. If, in the process, they look at the debt counselling area of the site and suddenly recognise that a particular point applies to them - that's good. Hopefully they can be helped to take the neccessary action to get back on the right path. Sometimes those who have been blessed enough to have their life go according to plan make the mistake of thinking that anyone who is struggling hasn't really worked hard. The reality of life is this: hard work does not always pay off. Life's vicissitudes CAN get in the way. Sometimes that can cause major financial disasters. Sometimes the individual manages (just) to come through bloody but unbowed. If an article like this will help just ONE person to come through, that's good enough. I can never forget a conversation with a work-colleague who criticised my deceased father for not leaving me a large legacy! I told her that he had done his best, having grown up in the northwest in the 20s and 30s when unemployment was a real problem, had left his home in 1935 without a penny in his pocket to travel south where he trained as a toolmaker and worked for the next 30 years without a break, having been refused a mortgage on age grounds, and thus paid rent to the local council until he died. Her reply? 'my father came from Newcastle in 1933 without a penny apart from £100 in his pocket'. Now, I think £100 in 1935 was a fair sum to start out with. It shows me that many of those who 'have' don't have the slightest concept of what it is like to 'have not'. We should not judge others, nor should we be complacent.
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Since John's post appeared directly after mine, I feel the need to set the record straight. CuNNaXXa quoted John's remarks, and then pointed out some of the situations that can arise when different members of the same family take different attitudes to money. Since I have lived alone for the last 20+ years, this didn't occur to me. I think this is a good point, and CuNNaXXa is right to raise it. It has little to do with the eight mistakes of the article, but it is a very nice riposte to my comments about poor management. Thank you, @CuNNaXXa. On the other hand, he "totally agreed" with John's remarks about it being "arrogant" of (apparently) ronat42 and me for thinking that those who "like to share [our] views ... are representative of the readership as a whole". I find this quite uncalled-for. What I had in mind when I said that few who needed the advice would see it is that to come seeking such advice - even on the internet - is a major step that people with such problems often fail to take, or fail to take until it is too late. I have never had problems with debt, but I have had other problems. In one case (and this is recent enough that I still find it painful) it was not until my girlfriend responded to my problem by cutting all connection with me that I was finally moved to seek help and sort it out; so I do understand people's reluctance in such things. I am very pleased to learn that so meany people with debt problems do make use of these resources. Anyway, that is what I meant. Assumptions about the demographic relationship between readers and commenters were not involved. (I would add that IMO commenters who take the word "you" in a headline personally and make unfunny rude remarks on that basis are best ignored. If John's remarks were aimed at the commenter who did that, please don't feed the trolls - it only encourages them!)
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21 August 2012