Debt - information & guidance

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Health Assured team

17 September 2019

There are many reasons people can fall into debt. Society tends to believe that those having debt problems are living outside of their means or just lack financial control.


In reality, there are many common triggers for sudden problems with personal finances, even when managing finances reasonably well.


Some common causes are loss of employment, a breakdown of a relationship or unexpected expenses, such as replacing a home appliance or vehicle.


Money worries & mental health

There is a strong relationship between money worries and ill mental health. Mental health charity ‘Mind’ indicates that poor mental health makes managing money more difficult and in turn, worrying about money makes mental health worse.


This is a difficult cycle to break as people struggle to open up about mental health issues. Many argue that having debt is negative however, loans can be necessary when purchasing costly ‘big ticket’ items. Very few people earn enough money to make large and important purchases without the support of a loan; therefore, it is important to distinguish between ‘good debt’ and ‘bad debt’.


Good debt & bad debt

Good debt is seen to be an investment that is good for your future and may generate long-term income or grow in value over time. An example of good debt in most instances is a mortgage. By taking on a mortgage, you are working towards building equity in an asset whilst also providing the security and stability of owning your own home.


When considering taking on good debt, it is important to note that there are no guarantees that the investment will be successful. For example, an expensive degree or educational course will not always guarantee a great job after graduation. However, with careful planning, borrowing in the cheapest manner and seeking professional advice if needed, it is possible to mitigate some of the risks.


On the other hand, bad debt can emerge in a number of different ways and is generally seen as anything that funds your current lifestyle as opposed to potentially bringing you future income or wealth.


One of the most prominent examples of bad debt is payday loans. Payday loans are relatively small amounts of money, borrowed at an extremely high-interest rate. As the name suggests, payday loans are generally expected to be repaid when the borrower receives their next wage. These can be a convenient, quick fix to money issues; however, this convenience comes at a cost. Borrowers who have not been able to remedy their financial situation by the time they get their next wage may find themselves unable to repay the loan, thus incurring more debt through default or extension charges. About a quarter of payday loans in the UK are rolled over to a new loan term and typically charge £24 a month for every £100 borrowed.


Alternatively, if a borrower does manage to meet the payment with their next wage, they may find themselves unable to afford other necessities throughout the month such as food and living costs. In some cases, a borrower may feel pushed into covering any financial deficit with a second payday loan, thus pushing them further into ‘bad’ debt.


Available support

If you find yourself in a situation where you are struggling with debt, free support is available through services such as StepChange Debt Charity. When dealing with debt issues it’s important to remember that you’re not alone, 23% of people have said that money worries have seriously impacted their mental health at some stage. Being in debt can cause problems in all areas of your life, such as causing arguments in the home or reducing productivity at work.


If you would like to find out more information on any of the topics mentioned in this article, please call our free, 24-hour helpline on:

0800 030 5182

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