Would you credit it? Why not all debt is bad.

Would you credit it? Why not all debt is bad.

The British owe £1 trillion to banks, building societies and other lenders, according to economic forecasters. That's more than the debts of entire African nations. But are we hurtling toward Armageddon?

Not according to the Consumer Credit Counselling Service. They say that, even including those seeking debt counselling, people are keeping up regular repayments more easily than five years ago. Research by Mori suggests that 70% of people with credit or store cards pay off their balances in full every month. That means that more than half the £50 billion owed on plastic is temporary debt.

Controlled borrowing has become an acceptable fact of modern life. However, being able to repay debt on time doesn't mean heavy borrowing is a good long-term strategy. If you are carrying a lot of unsecured debt, it's unlikely you'll be saving. That means temptations like a last-minute holiday could end up on your plastic rather than out of your current income or contingency nest egg.

So just how much debt is OK?

One common guideline is that monthly repayments of unsecured debts should not exceed 20% of your monthly disposable income or 1/3 of your annual disposable income. If this sounds rather complicated or confusing, don't worry. We explain it in the following section.

Budget before you borrow


Yes, it's a bore. But when you take the time to work out how much money you bring home versus how much goes out every month it can be a real eye-opener. So make a cuppa, sit down and write down how much you spend every month and where.

This should not just include essentials and regular bills like food, household, clothing, rent or mortgage payments, insurances, utilities and car expenses. Include all those little things too, like video rentals, meals out, shopping trips that invariably lead to impulse purchases, newspapers, magazines, treats for the kids, toys for the pets, the odd gizmo from a catalogue. They all get a share of your income; they all have to be budgeted for.


List your monthly income after tax and after any other deductions have been made. Include how much you earn plus any child benefit, maintenance, pensions and any added benefits or dividends that apply.


Write down all the money you owe that you haven't included in list one. This includes repayments for personal or unsecured loans, credit or store cards and finance arrangements. Write down how much you do or should pay back every month, noting how much is in interest. Subtract the monthly total from your total monthly household income.

The truth revealed

The amount of money you have left is how much money there is available to pay for all the essentials, incidentals and the little luxuries itemised in list number one. This is your disposable income.

The amount of disposable income will reveal whether or not you're living within your means. It will also show you how much extra debt you can afford to cover an unexpectedly high bill or a major purchase. (Generally speaking, anything you finance with a loan or credit card should have a useful life at least as long as the time it will take to repay the debt.)

Smart credit

If you decide to make a purchase on your credit or store card, determine (or ask) what the monthly repayment will be and figure it into your monthly budget immediately. Review your budget to see where you'll have to cut back to afford the repayments.

Make the cutbacks and reserve these funds (no dipping into them, please) to apply toward your next credit card repayment.

Remember, the more you can afford to pay monthly toward clearing your balance, the sooner your debt will be paid.

A little discipline goes a long way

With some careful budgeting and planning, your credit cards or loan arrangements will make purchasing easy and won't cause you financial worries. For help creating a budget, there are several helpful websites you can access on Google.

Stick to your budget. That way a little credit really can ease the financial hiccups that life may throw your way.

Val Valentine, advertising and direct mail copywriter

Copyright 2005 Val Valentine

Val Valentine is a B2C and B2B advertising and direct mail copywriter based in the Midlands, UK. With over 25 yearsí experience, she also writes commercials for TV and Radio, brochures, sales letters, articles, web content and has broad experience of strategic brand planning and development. You can reach her at +44 (0) 1684 772 021 or +44 (0 )7802 959 009. For further information, please visit www.valvalentine.co.uk

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