I would like to introduce this post a little bit, I am not really one for posting content like this, but actually, I know more people who are in debt, than I do who aren’t. And, it is a strange thing – that debt is seen as shameful, and that if you have a debt of any sort – you’re a little bit less of a person. I have seen first hand what debt can do to families and mental health, and I believe that if that is going to change then being more open about debt, would be a great start.
So, I post the following – a not paid for with cash, vouchers or product or anything else post. And I honestly hope it makes a difference to someone out there.
John Ellmore, Director, KnowYourMoney.co.uk
Debt. The majority of us have it, many of us struggle with it, yet few are confident to talk about it with our loved ones.
In fact, debt is far more common than some might assume – almost two thirds (62%) of Britons have some form of debt, according to recent research by Know Your Money. Yet the same study revealed that 41% of people in debt do not feel comfortable talking to their friends and family about the money they owe.
So why is it that, as a nation, we’re hesitant to broach the subject of debt, and how can we encourage people to have open discussions about it?
Why are we hesitant to speak out?
It’s difficult to pinpoint exactly why some people are reluctant to discuss money problems; however, the stigma surrounding debt and a desire to protect loved ones from these issues certainly play a role. Indeed, shame and fear of judgment are two factors that can prevent frank and open discussions about debt, particularly as it’s very hard for some people to admit to struggling with financial hardships.
But we cannot deny the negative impact of suffering in silence with debt worries; for one, keeping concerns bottled up can have a significant impact on a person’s mental wellbeing. A quarter (24%) of Britons with debt say they lose sleep over the amount of money they owe, according to the aforementioned Know Your Money research. An inability to confide in others risks exacerbating the problem.
At the same time, not talking about debt can prevent the sharing of knowledge and good practices when it comes to borrowing and budgeting. Without any guidance, those with debt can instead find themselves falling into a downward spiral of worsening practices.
Managing your debt
For those keen to improve their practices and make it easier to speak to others about debt, there are a number of simple ways to get a better grip on your finances.
Do you know your DTI ratio?
The first step is to ensure you have a strong grasp on your financial situation and how much you can realistically stand to spend and borrow without falling into unmanageable debt. There are a number of ways you can do this, including enlisting the help of an online debt-to-income (DTI) calculator. And for those who are unaware of what this means – don’t worry, almost half of Britons (44%) don’t know what their DTI ratio is!
In the simplest terms, the DTI ratio serves as a guideline for those who are seeking clarity about their current financial standing or else are thinking of taking on debt. The calculation consists of dividing your total debt by your income, and the final figure will indicate the proportion of your earnings being spent on repaying debt – this, in turn, will help an individual assess how much debt they can reasonably manage. There are plenty of online calculators available to help you do this.
Good versus bad debt – what is the difference?
It’s important to know the difference between good and bad debt. Indeed, debt – while often carrying a negative connotation – can be necessary to enable us to reach long-term goals such as purchasing a property.
But before taking on debt, it is helpful to consider the type of debt that a person is about to take on; good debt is manageable, offers long-term value, and will not have a negative impact on your overall financial position. This means it will not eat into your other necessary expenditures such as household and grocery bills, and will not drastically impact your current financial standing.
Bad debt, meanwhile, is debt used to purchase things that quickly lose their value and do not generate or support long-term income. Acquiring one form of debt to pay off another is also an example of bad debt.
Most importantly, I would urge people to have conversations about debt. Being honest and transparent about your money habits can help wipe out any bad spending behaviours, and people would be surprised to learn how many others are in similar situations to themselves – we can learn from one another and share advice.
There are plenty of alternative avenues of support available, however, for those who remain hesitant about discussing their debt with friends or family. Charities like StepChange offer tailored advice to those currently struggling with their finances, and provide guidance to help them improve their practices.
While coping with debt can make people feel isolated, it’s important to remember it is a common issue that many are facing. I would encourage everyone to speak more openly about money concerns and help make personal finance a more approachable subject to talk about in inner circles.
John Ellmore, Director, KnowYourMoney.co.uk