Are you Dicing with Debt?

In an ideal world we’d all plant money trees and give them a little shake every time we wanted to buy something. Unfortunately we don’t live in a magical land of leprechauns and unicorns so cash is a bit harder to come by.

The truth is if you want to buy stuff, there’s two ways to do it: save hard or be prepared to borrow. At some point in your life you’ll probably find yourself opting for the latter. Borrowing money isn’t as simple as fluttering your eyelashes at the bank manager and promising you’ll pay it back. Financial organisations are businesses and the money they lend you is going to come at a cost. However, borrowing money doesn’t always have to be scary, as long as you know what you’re doing.

Matters of life and debt

To stay afloat you need to get savvy about how lending works. Here is some no-nonsense advice for avoiding the pitfalls and staying out of trouble.

Borrowing isn’t free

Banks and financial institutions aren’t charities: they’re big businesses that lend money to make money. Loans, credit cards, a store cards, overdrafts and ‘hire purchase’ agreements are all products that are designed to make a profit for the big companies behind them. And they make that profit from people like you!

Understanding interest

When you pay back a debt to a lender, you’re not just paying back the money you owe, you’ll also be charged interest: an extra wedge of cash for the privilege of borrowing their money. The amount of interest you pay will vary a lot depending on who you borrow from, how much you ask for, and how long you take to pay it off. However, things can be a bit more complex than this. Over time you may find yourself paying interest not just on the original loan amount, but on the accumulated interest you owe too (“compound interest”). This can see your overall debt quickly mount up if you don’t stay on top of it.

Not all loans are equal

There are lots of different places you can go to borrow money and all of them will offer different perks. These could range from the ease and speed with you can access the cash to the amount they’ll let you borrow. Be aware, however, that where you choose to borrow from can affect how much you pay, often with truly mind-boggling implications for the amount of money you’ll owe. The difference between taking out a loan for from a high street lender such as a bank or building society (who’ll be stricter with who they’ll lend to) and a payday lender (who are less strict but charge a LOT more) could run to thousands of pounds over the life of the loan. Always check the small print!

Dealing with debt

If you do find yourself in serious financial difficulty there are organisations who can help. Check out our support pages for more information.