How to escape the spiral of uncontrolled debt

20 August 2019

Uncontrolled, debt can be highly corrosive for your personal finances. Moneywise investigates what you can do to get out of it


Borrowing can be a great way to fund large purchases or manage a short-term cash flow problem. But what should you do if you get yourself into a hole and can’t manage your loan repayments?

Mark’s* problems started when he first joined the army after leaving school. He was spending most weekends in the pub, which was costing him a fortune, and if he wasn’t there he was travelling back and forth from his home in Buckinghamshire, spending yet more in the process.

With his expenditure exceeding his income, he quickly found himself using his overdraft to cover his costs.

“I then got offered a credit card, and very naively I didn’t pay the debt off,” says Mark. “I ignored the issue in the hope that it would go away, which it didn’t.”

Following an operation on his spine, Mark had to leave the army. He got a sales job in an office, but it was not long before he was once again spending money he didn’t have.

Then things took an abrupt turn for the worse. Mark’s creditors refused to give him breathing space and his local council threatened to take him to court.

Scared to answer the phone, he stopped eating and fell behind in paying his bills.

He says: “I was told I was going to receive visits from bailiffs, so I turned off the lights, drew the curtains and parked the car around the corner.”

But one day Mark, now in his 30s, saw an advert for debt charity StepChange on television and decided to get help.

After speaking to a debt adviser, he felt a weight lift from his shoulders.

He says: “The adviser helped me budget and put me on a debt management plan, which even allowed me to put a little aside each month. If it wasn’t for this help, I’d probably have become homeless.

“Fortunately, I’m now debt-free and applying for a mortgage. I can’t wait for the next journey to start.”

Borrowing basics

If you decide to borrow, you have to work out how much you can afford to pay back each month, as this will affect how much debt you can take on.

Make sure you choose the right loan for your situation or you could end up paying over the odds.

Credit cards may seem like the ideal solution for purchases and cash, but they can be expensive.

When borrowing, always make sure you shop around so that you get the best deal and lowest interest rate.

A 0% interest purchase card can allow you to borrow interest-free if you manage it well.

The current 0% purchase card best buy is from Barclaycard, which offers 0% interest on all spending for 27 months. It has a representative APR of 19.9%.

Just make sure you pay off everything by the end of the 0% period to avoid paying interest.

Personal loans allow you to borrow and repay a set amount each month for a fixed period.

The interest rate you pay depends on how much you borrow and how creditworthy you are in the eyes of lenders.

However, while personal loans can provide a lifeline, they usually come with higher interest rates than other types of loan.

They are flexible and allow you to borrow more than is possible using a credit card and at a lower interest rate. But they may cost more overall, depending on the length of the repayment term.

For example, if you take out a personal loan of £1,500 with Admiral at an interest of 13.2%, you will pay £1,805 over three years. But if instead you use a credit card with an 18.9% APR and pay off £100 each month, you will pay £204 in interest and £1,704 in total.

Debt spiralling out of control

Consumers’ growing reliance on credit has led to the highest personal debt levels in recent history.

In the past decade ultra-low interest rates helped drive a surge in borrowing: households now owe a staggering £217 billion to lenders. Split evenly across the UK population, this debt works out at more than £3,000 per person.

The debt trap has severe consequences. StepChange spokesperson Sue Anderson says: “While 25 years ago a lot of the debt was consumer credit and mortgage related, these days it is a lot broader.

“More and more people are getting into debt because they can’t afford to pay their bills. We often see people borrowing more money to keep up with existing [loan repayment] commitments. Increasingly, younger people are getting into debt, which is worrying.

“Many lower-income households just can’t bridge the gap between their living costs and the money they have coming in, and that is pushing households into debt.”


Take charge of your debt

If you are struggling with debt, the first step to take is to list your debts: loans, credit card debts and overdrafts.

The priority debts are those where failure to pay them off can have serious consequences, such as mortgage debt and gas and electricity bills.

Although the interest on your credit card debt might be higher than that on your mortgage loan, missing mortgage payments can have more serious consequences. Your mortgage is secured against your home, so you may lose it if you can’t keep up with your repayments.

Council tax is another bill to prioritise. You can be sent to prison for up to three months if you fail to pay it.

Non-priority debts include water bills, credit card debt and overdrafts. Note, though, that while the consequences of failing to repay lower-priority debts are less serious, creditors could still take you to court or instruct bailiffs to recover what they are owed. Moreover, credit card debt can be expensive, so it makes sense to pay off this debt as quickly as possible.

You then need to work out how much money you have coming in and how much you need to spend. This will help show where you are overspending and where you can cut back on outgoings. It will also help you work out a realistic budget that will limit your spending and free-up money to step up your debt repayments.

A debt adviser, over the phone or face to face, can help you draw up a plan to reduce and manage your debt.

Plenty of debt organisations and charities will provide help for free: National Debtline, StepChange and Citizens Advice, for example.

Cut credit card debt

Balance transfer cards allow you to consolidate your debts so that you only need make one manageable, routine repayment. And by aggregating all your debts on one card, you pay less interest.

Transferring debt to a credit card that offers 0% interest on purchases can make debt repayments easier.

Some of the best deals will allow you to borrow for more than two years, giving you extra breathing space to pay off your debt.

Look for a card that offers a lengthy 0% interest period so that you can clear your debt before it reverts to its normal APR and you end up paying interest. Remember, 0% interest doesn’t mean free – many of these cards will charge a balance transfer fee.


Reduce loan costs

You may be able to pay off an existing loan by taking out a loan with another lender that charges a lower interest rate or a has shorter loan term – although the latter can increase your monthly payments.

Most lenders don’t charge penalties if you pay off loans early, but if you do have to pay a charge, there are government caps on the amount.

You can also take out a loan to help consolidate existing debts. The advantage of this is that you can lower your payments and you only have to deal with one lender.

However, while this may seem an attractive option in the short term, it can end up costing you far more in the long run.

Another option is to clear your debt when you remortgage with a second charge mortgage, which allows you to spread your payments over a longer period.

David Hollingworth, associate director at L&C Mortgages, warns that while this option is cheaper than paying off loans or credit card debt each month, you could be putting your house at risk.

He says: “You need to be aware that turning your unsecured debt into a secured debt means that your home could be repossessed if things go wrong. Moreover, the debt will stay with you longer – unsecured debt can be paid off far sooner. As the repayment period is longer, you could also end up paying more overall in interest.

Where to get help

StepChange is a charity that offers free and confidential debt advice over the telephone and online. To get in touch, call 0800 138 1111 or go to its website at

National Debtline is a free telephone debt advice service for people in England, Wales and Scotland. Go online at or call 0808 808 4000.

Citizens Advice and Citizens Advice Scotland provide face-to-face support at more than 3,500 locations across the UK.

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