Arguably most debt is unnecessary and should be avoided. However, life isn’t quite that simple and it’s difficult to differentiate between a debt which is necessary and one which isn’t.
1: Everyone needs somewhere to live and the cost of property is too high for most people to just write out a cheque! Therefore, debt in the form of a mortgage is essential, as in the long term, buying is cheaper than renting. The mortgage becomes an unnecessary debt if the house purchaser takes out a mortgage too high for him/her to realistically be able to afford. To avoid an unnecessary mortgage debt it is essential to evaluate whether your salary will allow you to keep up with repayments. It is also important to buy as cheaply as possible. The current financial climate means that property is much cheaper to buy at present, especially if you are a first-time buyer.
2: To keep finances on track and debt at bay, organise your finances by completing a simple spreadsheet. Have a column entitled INCOMING and one OUTGOING. List all regular incoming payments, such as Salary, Benefits, Child Tax Credits, Interest from savings accounts etc. Total at the bottom of the column and do similar with your Outgoing list. For example, mortgage repayments, council tax, food, childminder fees, utilities, telephone, mobile etc. When each column has been totalled check how much money is left each month, leaving a sum to cover extras such as Birthday presents and such. To avoid debt always allow for any emergencies which might crop up, such as car repairs. If you keep control of your spreadsheet you are much less likely to get into debt.
3: When you can see how your finances work, check how you can cut down. It’s amazing how much of our salary is spent unnecessarily. Debt can be avoided by cutting down on essentials such as utilities and phone bills. There are many websites where you can check whether you are getting the best deal for gas and electric. One example is uSwitch. All you do is enter the approximate size of your property and number of bedrooms. If you have bills for the past year handy, enter the kilowatts used and your Post Code, and request a search. The search will list fuel companies who will work out more cheaply than the amount you are paying. There is no fuss or paperwork, it can all be done online. You can save £200 or £300 per annum, making a great saving.
If you also check comparison websites for telephone services you may find a better deal by packaging your landline, mobile line and TV service. There are many good packages offered by companies such as Tiscali, Virgin and Talk Talk.
4: Another way to avoid unnecessary debt is to only spend on ‘the bare essentials’ and manage without luxuries of any sort. It is easy to be swayed by bargain prices in High Street sales and glossy window displays, only counting the cost when the credit card statement arrives on the mat at the end of the month. Leave the credit card at home and only carry cash. When you are spending ‘real’ money that you have to take from your purse and count out, it brings home to you the money that you are actually spending.
5: If after following these measures you still have a small amount of debt, you can reduce it by taking out a new credit card which offers no interest repayments for a fixed period of time. Your debt can be transferred to the new card making it cheaper to repay. To obtain a nil interest card it’s essential to have a good credit history. Also, never be tempted to spend on this card as the zero interest rate only applies to the money transferred and not to new debt.
If you follow this advice unnecessary debt will be a thing of the past.
