For the past 10 years we have had low borrowing rates. And isn’t it great that you can get a mortgage with an interest rate of less than 2% and a personal loan for not much more than that?
Or maybe it isn’t good news. Even if it is cheap to repay, debt is a burden. Borrow money and you have to pay it back eventually and even low interest adds to your debt - particularly if you've taken advantage of low rates to boost your borrowing. And in these uncertain times, who can say that interest rates will always be low? While you might be easily managing your debt now, would you if the interest rate went up? Or what would happen if your income fell and you couldn’t afford debt repayments?
I am not in debt and I do everything I can to ensure that I never fall into the red. I simply can’t afford debt. If you’re wealthy and have a regular income then you can be clever and play with debt – moving money around on 0% deals, for example. But that doesn’t work if you are short of money. Not only will you find it hard to get a low or no interest deal but you have got to have the cash around to clear the debt eventually.
And debt is a growing nightmare for many. Figures just out from debt charity StepChange found that last year it had nearly 658,000 contacts from those worried about debt – up from just under 620,000 in 2017. What’s interesting is that StepChange says that 23% of those who sought debt advice were single parents and 85% of them were women. As single parents (of which I am one) account for just 6% of the population then they are over-represented among those experiencing debt.
StepChange says that the top three reasons given for problem debt were unemployment or redundancy; injury or illness or other reduced income. Credit card debt was the most common debt StepChange clients had, although pay day loans were also causing problems for many.
I have a credit card and I do use it every month. But I’m really careful with it. I use it as a way of delaying payment – time it right and you can get six or seven weeks before you have to pay for something. I also always use my credit card if I’m paying for something big because I then get protection under the Consumer Credit Act. I pay my credit card off in full every month by direct debit. If I can’t afford to, then I dip into my savings account. After all, I’m only getting 1.5% or so on my savings while the APR on my credit card is around 18%. Obviously this scheme only lasts as long as my savings do: but I’m not extravagant and am good at pulling in my horns when needed. Going without sometimes is better in my book than worrying about a burden of debt.
See our guide to credit cards here