A sad side effect of the recovery from 2008’s global economic crash is the increased reliance on short-term, high interest credit for the average person worldwide. The average UK household now suffers from 150% debt to income ratio, meaning for every £100 of net disposable income, they have £150 of debt. To put that into an easily recognisable number, UK households have on average £13,000 of debt – and that’s without factoring in mortgages.
Chances are at least a few of you are in debt. Approximately 1 in every 6 people in the UK, in fact, according to a 2016 study. So what can be done?
The Avalanche
For multiple debts with multiple rates of interest, the logical and most cost-efficient way of fixing the problem is to tackle the highest rates of interest first. This way, you’re paying less money in the long-term. Psychologically, this works best for the analytical and patient type – keep plugging away and you’ll be out of the debt sooner and with having paid less money to interest fees.
The Snowball
However, with the looming threat of instability that debt poses, you more often than not end up feeling illogical, or having the bugbear of anxiety pulling the plug on your patience. To this end, there is the snowball method. This way, you pay off the smallest debt you have first. Not the smallest interest rate – the smallest amount. This defies common logic, of course. Why, given the income to tackle your debt, would you let the interest grow? But studies have shown that the positive reinforcement of achieving one milestone can set you on the road to more.
When The Debt Has Passed
High levels of personal debt often signal poor credit scores, hamstringing your future ability to secure credit in the future, for a house or a new car. As a result, credit score repair facilities are big business for those with newly disposable income.
There is, of course, the option to administrate your own score. In recent years, accessing your credit score has become far easier and simpler to administrate. Services such as Experian and ClearScore (Equifax) have offered to provide your credit score on a monthly basis and give pointers as well as simplified breakdowns, clearly showing the marks left on your credit record.
Third Party Help
There is also the option to allow third parties administrate your credit score for you. People who were previously heavily in debt have found a sort of fatigue from years of tackling credit issues and have understandably shied away from yet further involvement with the all-too-familiar creditors. Classic service providers such as Lexington Law have typically offered proactive, legally robust challenges to credit companies to earn concessions. Services like those discussed in The Credit People Review for 2017 have taken a more relaxed and customer-oriented pursuit.
Buying A Better Score
Finally, there is always the option of going back into the credit pool to try and re-spend your credit score back to a reasonable level, by using credit builder products. Be wary – these are a great idea in principle, where you effectively dodge interest payments by swapping your regular spending from your checking account to a credit card; but these offers often carry high interest rates, given the presumption that you won’t ever fail to repay. If you did allow interest to accrue, your payments would rise much quicker than on other typical products.
Household and personal debt is a taxing problem; but there is a way out, even for the less logical and more emotional people amongst us. Have a read of these methods – and your options for cleanup after – and you’ll have a brighter feeling future before you know it.
