How Not to Get into Debt

Written by Karen Bryan

how not to get into debtThere seem to be many websites and blogs about getting out of debt; I’d like to see more sites about not getting into unmanageable debt in the first place. I’ve written about my attitude to debt, acknowledging that taking on some debt can have beneficial results, e.g. getting a mortgage to buy a home especially when house prices are rising, taking on loans to study to give you the opportunity to get a (hopefully) more interesting, better paid job, or borrowing to start a business.

I suppose I’m talking more about not getting in debt to buy stuff like new cars, furniture, expensive holidays and clothes. I’m pretty old fashioned in that I just don’t buy things that I can’t afford. Of course I’ve made plenty of purchases that weren’t strictly necessary, but never bought anything if I didn’t have the money to make a cash or debit card purchase or to pay off the credit card in full at the end of the month.  There is some element of self discipline required and we’ve always had some income mainly from working, but also from student grants in the past and my husband’s pension now.

Now it’s all very well to blame easy credit, but just because you can get a loan/credit card it doesn’t mean you have to take it. Surely there has to be some element of personal responsibility here?

Average UK household debt (excluding mortgages) stood at £8,064 in August 2011. I’m wondering what is the average rate of interest being paid on these loans?

Here are my tips for keeping out of debt:

  • Parents: give your kids some basic financial skills,  e.g. making a budget (although it can fall on deaf ears).
  • Stick to your budget i.e. if you see something you’d like to buy, first work out if can you afford it out of your monthly budget.
  • Have an emergency fund and then if you need to make a large purchase, e.g. a new washing machine, you won’t need to take out a loan or max out the credit card.
  • As soon as you spot any over spending, rectify it immediately, e.g. cut down on the next month’s travel and leisure budget. If you don’t identify and deal with the over spend right away, you can end up a bit deeper in the red every month.
  • Pay off your credit cards in full every month. With average interest rates at around 17%, it won’t take long for that outstanding balance to mushroom.

You can also read my article How To Live Debt Free.

This article was featured in the Canadian Finance Blog Carnival #63 on 20 November 2011.