Debt is not a fun experience for anyone to have – and yet it is something that a vast majority of us deal with on a daily basis. More and more people are falling into debt, too, with nearly 7 million people reported to be in financial difficulty in early 2024 – and with the collective debt of struggling people exceeding £2 trillion not too long after.
There are many reasons for which people can fall into debt, and many different ways in which debt can damage a life. Here, we will talk more specifically about high interest debt – what it is, how to reduce it and how to lead a life free of debt thereafter.
Why High-Interest Debt Can Hold You Back
High-interest debts are as they sound: debts with high rates of interest attached, often a result of unfavourable repayment terms. The predatory practices of pioneering ‘payday loan’ company Wonga have recently been the subject of Netflix productions, and are an excellent – if extreme – example of the practices that can place vulnerable people in serious financial trouble.
The reason high-interest debts are so problematic is the same reason that high-interest savings accounts are so lucrative for savers. Some high-interest debts experience compound interest, wherein the rate of interest is applied to the entire balance owed (sometimes even daily) – the result is owing interest on interest, over and over until your debt balloons far beyond its initial size. This can not only ruin your future prospects, but also preclude you from safely utilising other necessary forms of debt, such as mortgages.
Effective Ways to Reduce High-Interest Debt
Managing debt is difficult, but not complex. Reducing the debt to zero is the obvious simple aim, but there are ways of achieving this that are more efficient than others.
For instance, where debt is spread across multiple creditors, debt consolidation loans are particularly useful; these financial products allow you to pay off all outstanding debts at once, essentially combining them into a single debt with a single set of repayment terms. These repayment terms will be more favourable than the terms experienced before, and repaying the debt will be far simpler overall.
Budgeting and Assistance
The importance of budgeting is obvious, and not something that needs to be outlined here; there are dozens of online resources you can use to assist you in tightening up your expenditure and ringfencing money for debt. If your debts are too complex for you to understand, there is also the option of consultation with a debt charity, which can help you apply for Breathing Space in order to formulate a proper plan.
