According to The Money Charity, a ‘debt’ is something that has to be paid back to the organisation or the person/people who lent it to you. In many cases, there are extra fees associated with a debt such as interest rates or penalties for late payments.
There are different types of debt, including a bank overdraft, a payday loan, council tax arrears, debts to utility companies, credit cards and car finance.
The Money Charity found that the average household has a credit card debt of £2,534, and a total average debt of £65,865. As a nation, we have personal debts of £1870 billion, and someone is declared bankrupt every four minutes.
What are the main causes of debt?
Although there is stigma that debt is a result of people’s own behaviour, in the majority of cases, debt is caused by circumstances beyond a person’s control – such as redundancy, illness or relationship breakdown.
Redundancy or loss of income – Changes to income affects everything, from luxuries such as holidays to upkeeping of your home. It can leave you unable to make repayments on existing debts and leave you short of enough money for general living costs. A loss of income can significantly impact your mental health, and lead to illnesses such as depression.
Illness – Ill health may mean you are no longer able to work, or have to reduce your hours, impacting your income. This can bring with it additional emotional stress and can cause debt problems to increase. The cost of treatment may also become a burden on your finances.
Relationship breakdown – After a relationship breakdown, it is possible that your income will drop by as much as 50 percent – or perhaps more. You might also have additional costs to manage, such as legal bills if you are going through a divorce, or child maintenance payments.
Low pay – If you have a low paid job, it can be difficult to make ends meet. Sometimes, there is just enough money to get to the end of the month until the next payday, leaving no extra funds to cover unexpected bills or unplanned situations that arise.
Poor money management – This can involve the buildup of credit cards to cover items you can not afford on your income. It also covers using overdrafts to cover payments as well as personal loans. These methods of covering costs can easily escalate and become unmanageable – so too can the interest as well as late payment charges.
Gambling/shopping addiction – A gambling addiction can lead to a build up of debt. It may tempt people into using payday loans to help cover accrued debt – which in turn can lead to more debt due to high interest rates. A shopping addiction can also leave people in a cycle of spending more than they can afford, and finding themselves in a loop of debt, interest and late payment charges.
Cost of living –The cost of living can be significantly more expensive in certain parts of the country than others. A higher cost of living can be caused by a number of different factors, including higher property prices, increased rental demand, and longer commuting times. Your daily spending will be impacted by all of these factors, which may result in you falling short when it comes to meeting other financial commitments.
How does debt affect people?
When debt becomes a burden, the consequences can be severe across physical and mental health, as well as your social wellbeing and employment situation. For example, debt can lead to:
- Mental health struggles
- A decline in physical health
- A greater risk of unemployment
- Increased stress levels
- Reduced productivity while at work
- Low mood and a reduction in energy levels
- Sleeping problems
How can I manage debt and get support?
Debt problems can sometimes put us in a state of denial, which can become a barrier to getting help and working through the problem. However, it’s important to remember that it is never too late to reach out for help, and there is always something that can be done to help your situation.
We have listed some steps you can try below, but if you are unsure where to start, you can call PayPlan for free confidential support on 0800 316 1833.
- Reach out for help – Asking for help is one of the best things you can do to deal with debt. Remember that you are not alone, and that many people across the country struggle with debt. As well as PayPlan, numerous other organisations and charities offer free debt advice and support (see bottom of article).
Debt support services can also give you advice for talking to your creditors. National Debtline have a library of sample letters you can use.
- Prioritise your debts – The repercussions of failing to pay debts can vary greatly depending on the type of debt that is owed. Priority debts are the types of debt that can cause serious problems if you miss payments. It includes things like your rent, mortgage, council tax, court debts and fines, penalty charges for parking, child maintenance, TV licence, and other household bills.
Non-priority debt includes things like an unsecured loan, loan shark debts, payday loan debts, private parking tickets and water bill arrears. The penalties for these types of debt are not as severe as those associated with priority debts.
- Set a budget: Fill out a budget planner to help get clarity on money coming in and money being spent. This will help you to organise your finances and stay on top of outgoings and existing debt. There are plenty of budget tools online to help – such as this one by Money Helper.
- Look at ways to minimise your outgoings: Get in touch with your energy provider to enquire about any payment flexibility alternatives. You could also check if any better deals are available to you elsewhere with regards to any existing credit cards or tariffs you are on. It’s also worth reviewing your monthly subscriptions and trying to identify if any are unused or no longer needed.
- Open your mail: If you’re struggling with debt, it’s important to open your mail and not try to avoid looking at bills or charges. It might not be easy to do this, but in the long-run it will save you more stress as well as further debt. Get a clear understanding of how much you owe and to who, so that a free debt support service can help you to work through it.
- Look at ways to maximise your income: For example, you could run a benefits check or a grant check. You could also check whether you’re eligible for help with school meals or uniform. Other ideas include asking for overtime or a pay rise, seeing if you can bring in a second income, selling unwanted items or renting out a room in your home.
- Speak to your employer to see if they can offer any assistance.
- Reach out to Employee Assistance Programme (EAP).
Where can I find extra support?
The MoneyHelper Service – Call 0800 138 7777 for free Monday to Friday, 8am to 6pm
National Debtline – Call 0808 808 4000 for free Monday to Friday, 9am to 8pm and Saturday 9:30am – 1pm
Citizens Advice – Information and signposting to support
Step Change – Debt advice charity
Sources:
The Money Charity
Ref: WPW0004 this information was reviewed January 2025.
