Why Debt Isn’t a Bad Thing—and How to Manage It Better

Debt often has a negative reputation, but it isn’t always a bad thing. When used wisely, debt can be a powerful tool to help you achieve your financial goals, whether that’s buying a home, investing in education, or starting a business. According to The Money Charity, people in the UK owed £1,860.6 billion at the end of July 2024, which is up by £25.76 million from the same period in 2023—an extra £477.14 per UK adult over the year. The rise of buy-now-pay-later schemes and the increasing cost of living have made debt more common, but it’s how we manage debt that makes the difference. Here are some strategies for managing debt effectively, alongside some resources that can offer support.

Understanding the Role of Debt:

1. Investment Opportunities: Debt can enable you to invest in opportunities that have the potential to appreciate over time, like property or education. For example, taking out a mortgage to buy a home can help you build equity as property values increase. Similarly, borrowing to fund education or start a business can improve your long-term earning potential.
2. Building a Credit History: Managing debt responsibly is key to building a strong credit history. A positive credit history can help you secure better interest rates on future loans, making it easier to achieve major financial goals like buying a car or securing a mortgage.

Strategies to Manage and Clear Debt:

1. Create a Budget: The first step in managing debt is knowing where your money goes. Create a budget that outlines your monthly income, expenses, and debt payments. Understanding your cash flow can help you identify areas where you can cut costs and allocate more funds toward debt repayment. Consider downloading the Free Roots to Froots budgeting excel template to simplify this process.
2. Prioritise High-Interest Debt: Focus on paying off high-interest debt first, such as credit card balances. High-interest rates can cause debt to snowball quickly, making it harder to pay down over time. By tackling these balances first, you can reduce the overall cost of your debt.
3. Consolidate Debt: If you have multiple debts with varying interest rates, consider consolidating them into a single loan with a lower interest rate. Debt consolidation can simplify your payments and reduce the total interest you pay. Platforms like MoneySuperMarket or Experian can help you compare consolidation loans.
4. Make Timely Payments: Avoid late fees and negative credit impacts by making payments on time. Set up automatic payments or calendar reminders to stay on track. Even a single missed payment can hurt your credit score and make future borrowing more expensive.
5. Communicate with Creditors: If you’re struggling with debt, don’t hesitate to reach out to your creditors. Many companies offer hardship programs or might be willing to renegotiate payment terms. This can give you some breathing room while you work on a longer-term plan.
6. Avoid Taking on Unnecessary Debt: Think carefully before taking on new debt, especially for non-essential purchases. Always evaluate if the purchase aligns with your long-term financial goals and if you can afford the repayments.

Resources to Help with Debt Management:

• StepChange Debt Charity: This free service offers tailored advice and debt management plans to help you regain control of your finances.
• National Debtline: A free and confidential service offering advice over the phone and online to help you with your debt concerns.
• Citizens Advice: A trusted resource that can provide guidance on managing debt and dealing with creditors.

By understanding the role that debt can play in your financial strategy and following these tips for managing it, you can turn debt from a source of stress into a tool for achieving financial stability and growth. Remember, debt itself isn’t the problem—it’s how you handle it that makes all the difference. If you need support, consider reaching out to us here and we will guide you to financial freedom, or connect with a financial coach who can guide you through your journey to becoming debt-free. At Roots to Froots, we believe in empowering you to take control of your financial future, helping you develop the skills you need to manage debt and achieve your financial goals. Let’s work together to create a brighter, stress-free financial future.