We’ve become a nation of borrowers and debt is a real problem for a growing number of people.
Last year, the Citizen’s Advice Bureau says 1.4 million individuals rang its helpline to discuss their money woes. Debt education charity CreditAction calculates the average household owes around £7,796 of unsecured debt and £47,546 including mortgages.
And it seems debt is a particular issue in the travel industry, according to consultancy Thomas Charles. In a recent survey of over 2,000 workers, almost a third (31%) of those in the travel sector said they regularly struggled to make repayments on loans. A frightening one in seven said they faced taking out an individual voluntary arrangement (IVA) or declaring themselves bankrupt.
But if you are facing money worries, particularly at this time of year, or are an employer who has staff with financial concerns, what can you do? And how do you prevent yourself from getting into debt in the first place?
What employers can do
An increasing number of employers are offering debt management services to their employees, recognising that staff with money problems will be unable to give their best at work.
Many provide debt counselling as part of an employee assistance programme (EAP) which employers can buy in. EAPs can also offer counselling services in areas such as legal advice, drug and alcohol dependency and stress management.
One EAP provider, called Payplan, works with major retailers such as Boots and Asda, and public sector union UNISON.
Managing director John Fairhurst said Payplan advisors act as intermediaries to devise debt management plans or IVAs that are both acceptable to the creditors and affordable for the employee.
According to information services manager James Bradley at another EAP provider, Accor, a good debt counsellor will get to know their clients and understand what is going on in their lives.
Debts, he claims, are often caused by other personal problems, such as a drug habit or a breakdown of a relationship.
There are also examples of companies that have established credit unions for their staff. Credit unions work by transferring money from an employee’s wage into a savings account each month.
Evidence shows that in many cases employers who are proactive in these areas will be rewarded with staff who are more dedicated and less likely to leave.
Tips on avoiding debt
- Keep your own accounts and always check your bank statement.
- Work out your income and spending and see if there is any room to cut back.
- Work out how much you can spend each month and stick to it.
- Use standing orders and direct debits for bills. It’s often a cheaper way to pay.
- Try to save something every month – set up a standing order to a savings account.
- Aim to have three to nine months of your expenditure tucked away for unplanned events like pregnancy or redundancy.
- If you can pay for goods outright, don’t take out credit.
- Pay at least 10% of your balance every month on your credit cards.
- If you are taking out new credit, think how you would manage the repayments if interest rates start to rise, or if you lose your job.
- Spend time shopping around before borrowing – never borrow money on the spur of the moment.
Tips on dealing with debt
- Don’t ignore the problem.
- Don’t keep the problem to yourself.
- Don’t take out more credit or put more on existing credit.
- Let your creditors know you are having problems.
- Prioritise payments and pay the most important ones like mortgage or rent and utility bills first.
- Check if there is anything you are entitled to that you are not getting, such as tax credits.
- See if there is anything you can cut down on, but be realistic.
- Work out how much you can afford to pay back each month.
- Think twice about taking out a loan to pay off all your debts, because interest rates can be high.
- Don’t pay for advice. The Citizen’s Advice Bureau is free to use.