Debt

External Help

Amidst the ongoing surge in interest rates, the BBC has been facilitating access to independent organizations, offering valuable information and guidance on managing debt effectively. These include:

• Information and support on debt

• Information regarding the rise in interest rates

How does Debt Negatively Affect your Credit Score

Your debt needs to be managed and paid off, as around 30% of your credit score is based on the amount of debt you have. For example, if the level of debt is similar to the limit set by your lender, this can bring your credit score down. To avoid this, you must not reach your spending limit. Paying off and managing your debt(s) in a timely manner will also positively impact your credit score, and is ideal.

The types of debt include Instalment accounts - a fixed timetable and set amount for the amount of repayment, e.g. mortgages, student loans. There can also be revolving accounts, where you can borrow against a credit limit multiple times, e.g. a credit card.

Ways of Paying off your Debt

Key ways of paying off your debt include:

• Make your payments more frequent - Rather than paying off a debt monthly, making repayments every 2 weeks or so can aid your credit score, even if you are repaying less amounts; you may be able to clear your total debt sooner if you repay more often.

• Increase the amount of payments - If you are in the correct financial position to do so, paying the full balance each month, or close to it is beneficial. You may need to discuss with your lender to see whether higher repayments are possible depending on your loan. Similarly, you can make an overpayment, where if you recieve money from a bonus for example, you can use this to overpay your debts; again you must check with the terms of your loan to see if there are any fees alongside this.

It is important to keep in mind that there is no quick fix and that it may take months to recover your credit score. Please contact us for further detailed advice on your credit score.

What is Persistent Debt

Persistent Debt occurs when over the past 18 months you have paid more towards the interest and charges, than you will have repaid, towards the amount you have borrowed. To avoid this, paying some more will reduce your balance and so the amount of interest you pay will decrease. Having a repayment plan can help you in making more and frequent repayments, such as a fixed amount of your statement balance monthly to be paid.