Debt has this horrible habit of creeping up on you and snowballing – a few payments on a credit card here, a one-off loan there and all of a sudden, the interest rates and repayments start to build up. Taking on too much debt nowadays – with the average UK household owing £57,490 in September (including mortgages), is all too easy.
That’s why it’s a good idea to know the warning signs of dangerous debt levels, so that you can make sure that you don’t take on too much debt and stay on top of your finances.
5 warning signs that tell you if you’re taking on too much debt:
Warning sign #1: You don’t know exactly how much you owe
Of course, we’re not expecting you to know down to the penny how much you owe, but if you’re not sure how much you owe – even a ballpark figure – then you’ve probably taken on too much debt.
In a situation like this, it can also be tempting to bury your head and not acknowledge how much money you owe – that’s another warning sign: not wanting to look at your statements or letters that arrive through the door.
Tackle the issue head on. Go through and write down exactly how much you owe, to whom and when the repayments are due. The issue isn’t going to go away, so it’s best to confront it and deal with it quickly and efficiently.
Warning sign #2: You make your repayments late because you don’t have enough money
If you’re making your repayments late every month, then that’s definitely a sign that you’ve already taken on more debt that you can manage. If you’re thinking about borrowing again, we don’t recommend looking to borrow any more. Sadly, late payments make your debt problems worse – you’ll get interest rates and late payment charges, which just run up the total you have to pay back.
Make a list of the date every payment is due, and make sure that there’s enough in the account to cover them. If necessary, ring your lender and see if they can reduce the repayment amounts but extend the amount of time you’re borrowing for – this might buy you some time to get on top of your repayments.
Warning sign #3: You borrow money to pay your bills
This is major warning sign that you’re are taking on too much debt. If you have to put repayments on a credit card, or borrow money from friends and family, then you’ve probably got too much debt. And, certainly more debt than you can manage. This is a sign of a deeper problem – your income doesn’t fund your lifestyle, which means that you’re living above your means.
Warning sign #4: You have nothing in savings
OK, this is a warning sign with a caveat: having no savings doesn’t always mean that you’re taking on too much debt. If you’ve just used your savings to buy a car, go on holiday or used them as an emergency fund, then that doesn’t signal the debt alarm. But if you’ve eaten away at your savings to make repayments on loans and credit cards, then that’s the sign of a problem – your repayments are beyond your means, and using your savings is an unsustainable solution.
Before you take on too much debt, always remember to check that you can afford the repayments from your monthly income, and not from your savings.
Warning sign #5: You’re constantly stressed about money and it’s taking a toll on your personal life
There’s not much to say on this one – it’s pretty obvious. If your finances are causing you considerable stress and anxiety – perhaps you can’t sleep wondering how you’re going to pay the bills or make the next repayment – then it’s time to get on top of your debt. This is not just for your financial security, but for your mental wellbeing too. We know how horrible it can be to worry about making ends meet.
The stress can lead to a whole array of problems, from arguments with your partner to illness. In fact, the effects of debt on your mental wellbeing and personal life are so well recognised that the NHS has a page devoted to it.
David Richards, professor of mental health services research at the University of Exeter, gives some excellent advice on how to deal with debt affecting your personal life – stay active, face your fears, don’t drink too much alcohol and maintain your daily routine.
For help with managing your debt, go to the Money Advice Service website or contact StepChange. At Bamboo, we’ve put together a huge collection of budgeting advice, frugal ideas and ways to trim spending and break free of the debt cycle on our blog – why not head over and check them out?