James Walker: Burst your debt bubble before it gets too big

I've been speaking to everyone from politicians to the press about debt and credit lately and it's sparked something of a national debate about whether the UK is facing a 'debt bubble'. The Bank of England has expressed concern about the level of credit and how easy it is to fall into a credit trap. And lots of people are being seduced into debt by the availability of interest-free deals on store cards or online shops.

Its time to face facts about your household accounts

Through our users at Resolver, it’s clear that there are a lot of people worrying about their finances. This doesn’t mean people have overspent and are going to have to face the consequences. It does mean that many are struggling to stay in the black each month but just about managing. But if interest rates go up, it could tip them over into the red.

At Resolver, we’re all about solutions – though if it’s already too late and you find yourself in a difficult position and need to make a complaint, get in touch.

I like to stay optimistic – but it makes sense to plan your finances with a view to the possibility of a sudden interest rate hike. Here are a few tips.

◆ Be realistic about your finances. If you know money is tight, spend five minutes working out how tight it is by reviewing your incomings/outgoings. I’m a realist, so I know how much of a nightmare this can be for people. But honestly, it’s the most important few minutes you’ll spend this year. Knowing what cash you have to spare can help you start to put a little aside to cover you if something goes wrong.

◆ Call it what it is. Online catalogue? Store card? These are expensive forms of credit. These deals work by encouraging you to spend, knowing that you’re unlikely to pay off the full cost during the interest-free period, after which the interest goes through the roof. If you’re not paying them off during free deals, then don’t use them anymore and pay off the debts when you can.

◆ Ask for help. People don’t realise that they can ask banks and credit providers for help and advice before they get into trouble. See if you can reduce or spread out your payments and ask them for their tips on getting your finances back on track. Your bank or credit provider has an obligation to help you if you explain the situation – so if they decline to help, any complaint you make stands a good chance of succeeding. Don’t go on to any debt management plans that might affect your credit rating unless you have to.

◆ Cut up the card. Loads of people switch credit card debt to other credit cards on interest-free plans. But bear in mind that the percentage you’re charged as a “moving fee” might outweigh the benefits of the deal. If you do switch, then don’t make the fatal error of not cutting up the original card. It’s tempting to hold on to it for “emergencies” but you and I both know that’s not what it’ll be used for.

◆ Downsize. It sucks, but if your finances are over-extended, reduce your outgoings while you can. This can involve some frank and difficult discussions, so speak to your family and friends and get advice before making any snap decisions. There are loads of ways to downsize, so get in touch if you’re struggling to get started.

Don’t let debt get you down. Dealing with your outgoings is the first step to sorting out so many other things that might be holding you back from happiness. So don’t 
give up.