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Debt warning as payments can 'spiral out of control' with Brits owing thousands of pounds

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The rate of inflation is still above 10 percent with Britons facing rising prices for everyday essentials such as groceries and energy bills. The Energy Price Guarantee is increasing in April, with average energy bills to go up to £3,000 a year, increasing the pressure on already squeezed household budgets.

Rhiannon Philps, personal finance expert at NerdWallet warned millions of Britons are already affected by debt and it can “spiral out of control very easily”.

She said: “Long-term debt can arguably be one of the most harmful for individuals and families as the longer people are in debt, the harder it can be for them to get out of it, which could impact their current situation, as well as their future.

“The current cost of living crisis has exacerbated the issue. In fact, our own research shows that the average Brit is in debt by £2,141 and will take 13 months to pay it off.

“Furthermore, 47 percent believe they will have to take on more debt before they are able to pay off their current debt, meaning debt could, in fact, still be haunting them for years to come. And for those on low incomes, that figure is likely to be higher.”

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The analyst said mounting interest charges on debt can force someone into more borrowing to keep on top of their existing debits.

She explained how long-term debt can be difficult to manage, saying: “Long-term debt requires long-term commitment and dedication to pay off, and unlike shorter-term debt, doesn’t give you the same instant gratification that paying off shorter-term debt does as the end goal is further away.

“Long-term debt can also be more negatively impacted by life changes, such as job loss, which can have a huge impact on debt repayment.

“All of this could put people at a bigger risk of the debt not being paid off on time, and as such, impact their current, and future living situation.”

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People struggling with debt can reach out in the first instance for independent financial advice, such as from Citizen’s Advice.

They will be able to talk through a person’s options and direct them to support, such as food banks and other charities.

Ms Philps explained: “If you’re struggling with paying for things such as energy or your mortgage/rent, it’s important to speak to your supplier, provider, or landlord as soon as possible.

“Many energy companies have funds designed to help people who are struggling to pay their energy bills, while mortgage companies will generally prefer to avoid taking action at first, so are often willing to work with you to sort out a solution.

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“This could be taking a mortgage holiday or renegotiating your mortgage to reduce payments. However, it’s important to fully understand how doing this could impact you in the future, as extending your term or taking a payment holiday could end up costing you more in the long-term.”

Mortgage repayments have increased over the past year, as the base interest rate set by the Bank of England has continued to increase. The base rate is currently at 3.5 percent and is predicted to go up again.

Ms Philps said another good idea is for a person to make a list of all of their debts so a person can establish how much they owe and which debts are the most expensive.

She explained: “You could then see if you’d be better off consolidating your debt or moving to a different lender.

“For instance, you could be paying 24 percent interest on a credit card balance, but moving the debt to a 0 percent balance transfer card could help you to cut the interest you’re paying and allow you to pay off your debt faster.”

She said once a person has got a grip of their debt, they should run an audit of their finances.

Ms Philps explained how to do this, and said: “Go through three months’ worth of bank statements and work out how much disposable income you have left after bills and other essential spending, and how much you can cut back on.

“This could look like halving your subscription services, cutting out your weekly takeaway, or reducing the amount spent on clothes and other non-essential items.

“Once you know how much you have left each month, you can set up a standing order to pay off your debts directly.

“Working out how long it will take you to pay off your debts, and marking the months off on a calendar can help to keep you motivated.”



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