Being in debt can be uncomfortable, but having problem debt is far worse. It can be worrying and stressful, and make you feel very alone. Many people in that situation don’t know where to turn, and they feel a sense of shame and embarrassment when it comes to their debt.
According to a study from The Royal College of Psychologists, one in two people with debt problems also has mental health problems. It states that “debt can cause — and be caused by — mental health problems”.
So How Should You Manage Your Debt?
The best answer is to do all you can to get out of debt. If your debt problems are alleviated, so will the feelings of worry be. However, it’s not always that simple, and for most people, the road to financial freedom is a long one.
Even so, starting your journey along that road will give you the hope that you need to begin feeling positive about your financial future.
You should start your journey by prioritising your debt. You can read more about priority debt in our debt help section, here. You must always ensure that you pay your priority debts first, as these carry the most serious consequences if they are left to go into arrears.
If you are in the early stages of problem debt, and are struggling to manage your finances, the most important thing to do is contact your creditors as soon as possible. Many creditors will be willing to pause the interest and charges on your payments to give you time to catch up.
Learn to Budget
Whether you are simply struggling to make ends meet or have found yourself in thousands of pounds worth of debt, understanding how to budget will undoubtedly improve your financial situation.
It’s important to keep track of all of your incoming and outgoing money. It can save you from getting into serious debt, or help you get out of it. It’s never too late to start. Keeping to a strict budget can help you pay off your debts in less time, and keep track of where you can afford to spend money.
Follow these 5 steps to create your monthly income and expenditure budget:
- Calculate your monthly household income. Don’t forget to include alternative sources of income, such as pensions, spousal or child maintenance, and benefits. If your income has been reduced recently, or is expected to be, ensure you use the lower figure.
- Identify your priority bills. Priority bills include rent/mortgage payments, utility bills, council tax, and any other payments that carry serious consequences if left unpaid.
- Calculate your fixed outgoings. These should include your priority bills, as well as any other fixed monthly payments that must be made, including debt repayments, mobile phone bills, TV, and broadband.
- Calculate your non-monthly fixed outgoings. This is where many people fall short when learning to budget. There may be some payments that we make regularly throughout the year, but not monthly. These could include MOT and car tax, as well as seasonal childcare. Once you’ve calculated these, divide the total by 12, and you have your monthly total. Put this away each month to make sure you can pay these outgoings when they come due
- Calculate your regular monthly spending needs. This one is also quite tricky. When creating a budget, it can be difficult to remember all the small, everyday expenses that tend to go unnoticed when things are easier. It helps to look over your historical bank statements or receipts to get an average amount. Always round up to give yourself a buffer. These outgoings may include groceries, clothing and uniform expenditure, hobbies and kids’ clubs, fuel, etc.
You can see our full guide to creating a budget here.
Don’t Be Afraid to Talk About It
Many people with problem debt describe feeling isolated. They feel unable to talk about their money issues, and feel ashamed of their financial situation. This can lead to loneliness and other mental health problems. Not only can talking to people about your problems take some weight off your shoulders, but talking to those within your household about their spending habits can go a long way to reducing outgoings. It’s important to work as a team to lower the household’s general spending.
Don’t stop there, though. Talking to your loved ones will certainly help, but there’s someone else you should be talking to — a debt professional! Getting help and guidance from debt professionals can help you understand your situation better, as well as the debt solutions that are available to you.
And lastly, because the link between debt problems and mental health problems is so strong, you may need to talk to someone about the emotional side of your debt. There are a lot of resources, services, and helplines available to you if you feel that you need to talk to a professional about the way your debt problems are affecting your mental health.
You can find a list of services that provide help and support for those with debt and related mental health problems in our Help and Support Services section.
What is Considered to Be Too Much Debt?
Many financial experts agree that lenders class a debt-to-income ratio of under 30% as low risk. This suggests that they would consider anything over 30 to 40% to constitute a risk of you being unable to meet repayments. If you have a high debt-to-income ratio and you’re struggling to meet repayments, please avoid taking on any more debt, and seek help and guidance as soon as possible.
Knowing when to ask for help is just as important as actually doing it. If you leave it until it’s too late, it can seriously affect your credit file and even lead to bankruptcy.
What Is Debt Relief and How Can Debt Movement Help?
Debt relief, not to be confused with a debt relief order, is the definition of debt solutions that write off, or significantly reduce, the applicant’s debt. The aim of debt relief is to create the best possible outcome for both parties. The idea is that the creditors won’t waste their time and money chasing a debt they may never recover, and the debtor will only repay what they can afford.
A DRO (debt relief order), on the other hand, is a specific debt solution for people who have debts of under £30,000, and no way of paying them back in the agreed term. A DRO is set up through a DRO advisor and the Insolvency Service. It allows all payments, interest, and charges to be frozen for 12 months.
Once your DRO is active, your creditors can no longer pursue you for payment. There is a £90 set-up fee, and the process will not begin until it has been paid in full. Once the 12 months are up, if you are still not in a position to pay your debts, they will be written off. Your DRO will remain on your credit file for six years.
If you’ve found yourself in financial difficulty, and unable to meet priority bill payments and minimum debt repayments, contact Debt Movement for an evaluation of your financial situation.
Our friendly and helpful guides will explain all the options and debt solutions that may be available to you, and help you decide how to move forward. If you’re also struggling with feelings of isolation, we may recommend that you seek additional advice from a related charity, such as Money and Mental Health or Mind.
If you are struggling with debt and it is affecting your mental health, please contact our non-judgmental team at Debt Movement for caring and understanding debt guidance and solutions.
