Although many regard debt as being something negative, or to be ashamed of, it’s often unavoidable. In fact, at certain stages of life, it’s necessary to get into debt. After all, how many of us have taken out a student loan, a mortgage, or requested additional funds because something was simply unavoidable?
The truth is, debt only becomes a problem when it becomes unmanageable. Often this can happen completely accidentally - for example, in the event of a job loss, sickness or bereavement. Regardless, when this happens, debts which weren’t an issue before can now start to cause problems.
We hear about these every day, and some of the most common include:
Bank loans are some of the most frequently used sources of lending in the UK. In many occasions the loan will be repaid without too many issues. However, should the unexpected happen, the resulting interest rates and charges on missed payments can lead to debt. Find out more
Catalogues can be a popular way to secure products and then pay for these over several months. Yet, the interest rates associated with these can be very high – and missing a payment can have severe consequences. This may lead to the purchase being very expensive. Find out more
Council tax is an essential bill which must be paid and, if repeated payments are missed, authorities in England have the power to implement prison terms. Consequently, if you’re struggling to make these payments, you should seek debt advice immediately. Find out more
Despite negative press in recent years, payday loans are still a popular source of short-term lending – especially for those with bad credit. However, as these creditors typically charge excessive interest rates, these loans can become unmanageable very quickly. Find out more
Credit cards are almost a necessity in today’s society and, when used sparingly, they generally don’t cause financial difficulties. However, one purchase too many and soon debts could mount up. Eventually, the credit card may become a very expensive form of lending. Find out more
Store cards are frequently sold with incentives. Perhaps vouchers are included or purchases come with initial discounts. Yet, these can come with high interest rates – meaning purchases via a store card can be extremely expensive. Find out more
As well as the debt types detailed above, we can also help with:
When juggling debts with multiple creditors, it can be difficult figuring out which ones to prioritise. Generally, you should separate these into three different categories:
Priority debts are those which can carry serious consequences if unpaid. In the most extreme situation, this includes legal action but other ramifications also involve having your heating or electricity cut off.
These cover such expenses as council tax, rent, and household bills.
Emergency debts are those situations which require immediate action to resolve. For example, a creditor might be threatening you with legal action or bailiffs could be appearing at your property.
Non-priority debts are those where non-payment either carries less significant consequences or eventually severe ramifications. In essence, you have time to resolve these. These include such debts as overdrafts and credit cards.
When dealing with types of debt, it’s important to understand the difference between secured and unsecured debt.
Generally, secured debt is classed as a priority debt because non-payment may put your assets at risk. For example, a mortgage is classed as a secured debt because the property may be seized if payments cease being made. Similarly, if a car is purchased on finance, not paying the debt could result in the vehicle being taken away.
Unsecured debt, on the other hand, means assets aren’t placed against the debt. These traditionally cover such types as credit and store cards. The consequences of non-payment usually mean additional charges and, eventually, legal action.