We ask Jonathan Watts-Lay, Director, WEALTH at work some of the things that people should consider when taking out debt.
He comments; “Debt comes in many forms such as loans, credit cards or store cards. It is always something which needs to be carefully planned for and understood before it is undertaken, so it’s never a good idea to borrow on impulse. Debt always needs to be carefully managed, as it’s only when repayments become unmanageable or unaffordable that it becomes a problem.
Many people use credit cards and there are many different types available for different needs. Common offers include 0% finance on all new purchases, on purchases. Some money purchase cards allow you to pay off other debts, such as an overdraft, when you take out the card, and if you have an existing card with a high interest rate, it might be a good idea to transfer this balance to a credit card with a lower interest rate. It’s useful to know that if you’re making a purchase using a credit card, you get the added benefit of ‘section 75’ protection for purchases over £100 and under £30,000, which means if something goes wrong with your purchase, the credit card company is there to help.
Generally, many people may not realise the varying levels of interest that different debt providers charge. Credit cards and overdrafts may have rates as high as 40%, with payday loans having rates of 1,500% and more! By shopping around you may be able to move to a lower interest rate, and some credit cards even offer 0% on balance transfers. If you have multiple debts, it could also be a good option to consolidate these into a 0% or low-interest balance transfer card, as more money will go towards paying the debt off.