As of January 2021, every household in the UK holds on average £61,000 of debt, in total, the population of the UK is in debt to the sum of £1.7 Trillion. This is an astounding figure, and the vast majority of people who owe money find themselves in this situation long before they realise it is a problem.
They’re just perpetuating a debt cycle their whole life, making common mistakes that keep them in debt. Experts agree that the following eight reasons are the primary causes that help keep people across the UK in debt.
#1 They are in denial of the debt
The most common mistake that people make when dealing with debt is that they hide from it. By sticking their head in the sand, they leave themselves with a growing mountain of consumer debt.
Thousands of people are unable to repay their monthly bills, never mind their electricity and rent. They simply ignore overdue notices and even stop checking their post. Others even hide from their postman! Unfortunately, hiding from debt isn’t going to make it go away. It’s simply going to make it worse as interest and fees just continue to mount.
#2 People start feeling sorry for themselves
Not dissimilar to denial but another common mistake that debtors hear from people who owe money is that it wasn’t their fault, the credit card company lied to them. Of course, people will indulge occasionally and make purchases that they regret. However, if you’ve got £20,000 worth of credit card debt this can’t be explained the way by tricky fine print or a fancy credit card commercial.
Many of the issues are down to a refusal to acknowledge you’re not a victim. It’s time to stop feeling sorry for yourself and start paying it off. focus your anger on yourself and start working hard and before you know it, you’ll find yourself financially better off.
#3 You don’t know why you are in debt to begin with
Another common mistake that people make is that they completely fail to identify the root of the problem and acknowledge why they are in debt to begin with. I’m not talking about a broader problem with overspending. I’m talking about going right to the source and identifying specifically why you’re in debt. If you cannot identify the issue, making the necessary adjustments to take you out of the situation will prove difficult.
#4 Not prioritising debt repayment
It’s important to understand that there’s such a thing as good debt, for example investing in yourself by taking out a student loan, investing in your future by purchasing a house, will hopefully create a scenario where your investment offers a return. However, there’s nothing good about credit card debt. It falls firmly under the “bad” category because you’re purchasing something with money you don’t own, and usually, the value of the product you purchased depreciates. By ignoring the debt on top of this, you’re just increasing the amount you must repay in the long run.
#5 Making minimum repayments
Credit card companies have become increasingly smart, and more people get trapped in the debt cycle. By offering what known as minimum repayment requirements to their customers, they are ensuring that a significant percentage of people only pay off 2 to 3% of their credit card debt every month.
This practice allows their interest and balance to increase. For example, if you are £20k in debt and this is all on one card with an APR of 16%. Your credit card company now has a minimum repayment requirement of just 1% of the balance plus interest. If you take advantage of this, you may only have to pay about £200 in the first month. If you continue to pay this rate, it’ll take you 25 years plus to clear off your debt, and during that time will have paid nearly £12,000 in interest alone, never mind paying off the balance. Servicing just your minimum repayments is another way of ignoring your debt repayment priorities and, is just a step above outright denial.
#6 The need to keep up with the Joneses
FOMO (Fear of missing out) spending and the desire to keep up with the Joneses has been perpetuated by the rise of social media including Instagram, Facebook etc. It’s created, for want of a better word, a virtual competition between people living in an online world.
Outside of social media if you work in a competitive atmosphere your office can be a breeding ground for unhealthy financial behaviour as you feel the need to overextend your finances to make material purchases that do nothing to help your career.
If you can avoid the need a desire to keep up with the Joneses, it will help you keep a lid on your debt.
#7 Refusal to acknowledge they have a problem
Outside of not wanting to repay your debts or even acknowledging that you are in debt, another huge mistake that people in the UK commonly make is that they will never acknowledge they have a problem.
Finances are rarely discussed between family and friends. They are taboo subjects and for you to reach out and ask for help is often a huge task. Hopefully, there are many free services available that will help you by walking you through your debt problems and even suggesting avenues where you can consolidate your debt to dramatically reduce your repayments and get even lower interest rates. Talk to financial services, or citizens advice bureau and ask for professional help. Even look online and you’ll find numerous debt counselling services available across the UK.
#8 People aren’t SMART with their finances
One of the major reasons that people across the UK find themselves making common mistakes that keep them in debt is that they have no plan for their financial futures. If you don’t have a plan, how could you possibly track your finances or work towards having a retirement fund or pot? If you don’t have any goal to work towards, your financial future is always going to be uncertain and there’s no way you can adequately manage your finances. If you find yourself in a mountain of debt, the first thing you need to do is to stop spending then seek help, set specific goals that are achievable and, you’ll quickly find yourself out of that hole.