Your money journey: Looking into your debts
You’re thinking of getting involved and starting investing your money? Great! I am all for it. Don’t let your money collect dust in a savings account, or even worse your current account 😱!
But before you start investing, you need to make sure you have a couple of priorities sorted.
In my previous post, I discuss the steps towards financial awareness. First of all, you should get a picture of your current financial situation.
If this is taken care of, well done! You have achieved an important milestone on your financial awareness journey! 💪
Now that you have established where you are at, one important step is to look into your debts.
Dealing with debt problems
First of all, if you have a debt emergency, or you’re struggling to cope with your debt problems, please reach out to charities and organisations that provide FREE ADVICE about dealing with your debt problems. There is no shame in getting help. These are safe and non-judgemental places where you can discuss your debt problems with people trained to provide debt advice.
Debt problems are often linked with mental health issues, so it is important to face these issues with the help of people you trust and/or professionals. It will only get worse if you’re not dealing with them.
Also, you should always pay off “priority debts” first: council tax, gas and electricity bills, fines, child maintenance, mortgage payments, rent, taxes. Missing payments can have serious consequences like losing the roof over your head. If you struggle to make these payments, there are ways to address these issues.
For help, check out and contact:
- StepChange Debt Charity (www.stepchange.org )
- Debt Advice Foundation (www.debtadvicefoundation.org)
- The Money Advice Service (https://www.moneyadviceservice.org.uk/en/tools/debt-advice-locator)
Why paying off debt is so important?
Here I am referring to the high interest debt. So, not mortgages or student loans. Why? Because they typically have a low interest rate, and so are quite cheap. In other words, this is what you need to worry about:
- Credit cards, store cards, payday loans, personal loans, any other debt with very high interest.
There is no investment that will reliably allow you to recoup the losses you’re making from paying a very high interest rate. Sure, you might double your investment if you “invest” (more like bet) on bitcoins when they’re low, but how likely is it?
These numbers should be self-explanatory:
- Mortgage: a 5y Fixed mortgage at HSBC has an interest of 1.66% (As of 21st of July 2020)
- Credit card: British Airways American Express credit card has a representative 22.2% APR variable.
- Stock market: Expect a 5–7% annual return over the long run.
How to pay off your debts?
Presumably you have listed your liabilities. Now, put together a table to summarise the following information:
- Credit card name
- Outstanding balance
- Minimum amount to be paid off monthly
- Interest
- Maximum monthly repayment & penalties for early repayment (If applicable)
If you’re in any doubt about this information, CALL your lender. They will help you understand the terms of your agreement.
You should always pay the Minimum Amount. It’s usually the interest payment on the balance of your credit card and other potential fees. If you don’t, the lender might notify the credit agencies and it’ll impact your credit score for up to 7 years.
Then, start paying off the most expensive (highest interest) debt you owe first. Be careful with any potential penalties linked to early repayment.
Also, you might want to consider a balance transfer credit card or a consolidation loan. But, please, do get advice on that before taking any decision.
Check Your Credit Report
I mention this at the end, but I could very well have put this section at the beginning. Why? Because it’s FREE and checking your credit report will provide you with a wealth of information:
- List of credit cards, loans and other credit agreements that are in your name (including any open joint accounts, for example with your ex)
- Unused credit cards that you might want to cancel
Also, but less relevant in this context, if you’re looking to get a mortgage or a loan, the credit reference agencies might provide information to lenders. Hence, it’s good to check your credit score, and to start taking measures to improve it if necessary. For example, you might want to cancel unused credit cards.
You can order your Statutory Credit Report online for FREE. The credit agencies basically hold this data on you anyway. Go on the below links:
- Experian: https://www.experian.co.uk/consumer/statutory-report.html
- Equifax: https://www.equifax.co.uk/Products/credit/statutory-report.html
- TransUnion: https://www.transunionstatreport.co.uk/CreditReport/AboutYou
You may get more information, like your credit score, by signing up to these websites. If they ask for a payment card, make sure you cancel before the end of the free trial!
Final word, if you don’t have debt problems per se but you don’t feel happy with the way you’re handling your money and the level of debt you have, a financial coach might be helpful for you. They can coach you on your money journey and help you reach your financial goals. However, they are not regulated financial advisors.
I hope this will help you move forward on your path to financial awareness and to a HAPPIER you! Please leave me a comment if you have any thoughts on this.
