Debt

Learning Objectives To understand what debt is and how it can be a problem To appreciate the possible consequences of not managing debt responsibly

Debt = A sum of money that is owed What is debt? Debt = A sum of money that is owed

What is debt? As soon as you borrow money you are in debt – until you have paid it back in full including interest. We often need to borrow money to get the things we need and want. The problems start when you cannot repay the debt when you agreed to. Debt problems can make it hard for you to borrow money in future.

What do you know about debt? Total UK debt is: On average every person in the UK owes: On average each household in the UK pays this much interest in a year: How long would it take the average UK household to pay off all its credit card debt? How many people in the UK are struggling with their finances? £1.45 million £1.45 billion £1.45 trillion £2,800 £28,800 £8,000 £1,965 £1,000 £3,400 5 months 5 years 15 years 6,000 600,000 6,000,000

Credit or debt CREDIT is a type of debt. Someone, usually a bank or a credit company, has loaned you money to spend. They have ‘credited’ you with the money and of course you have to pay it back. Therefore credit (a loan) = a debt Don’t forget you will also have to pay interest to whoever has lent you the money you have borrowed.

Good debt, bad debt? Can you think of some reasons we might decide to go into debt? Do you think some of these might be good reasons to go into debt? Is all debt bad?

Putting it on the plastic A credit card is a form of credit that lots of people use Debts are easy to rack up – if you have a credit card it makes it very easy to spend money you don’t really have: 34 million plastic card purchase transactions were made every day in January 2015, with a total value of £1.57 billion*. Read ‘Putting it on the plastic’ and answer the questions. Total credit card debt in March 2016 was £64.3bn. Per household this is £2,381 – for a credit card bearing the average interest, it would take 25 years and 6 months to repay if you made only the minimum repayment each month*. * Source: www.themoneycharity.org.uk

What causes debt? Some people think that banks, credit card companies and shops encourage people to borrow money, even if they can’t afford to pay it back. Some people are just bad at managing their money. Unexpected changes can put you into debt. This could be because your income has gone down or because your expenses have gone up. This can be caused by things like unemployment, redundancy, ill-health, accidents, relationship breakdown, pregnancy and death.

What if you don’t pay off your debts? If you don’t pay your rent or mortgage you could be made homeless. If you don’t pay your gas / electricity bill, you could be “cut- off”. If you don’t pay your council tax, you could be sent to prison. If you don’t pay your bank loans you will get extra charges and may find it hard to borrow money in the future. You could be made “bankrupt” If you go into debt it is important to pay what you owe – before you take out any sort of loan make sure you will be able to afford to pay it back.

What if I have debt problems? If you are finding it difficult to pay your debts you should act as soon as possible. If you ignore the problem it won’t go away – it will only make matters worse. Contact the companies you owe money to and tell them you are in trouble. Prepare a personal budget to see what you can afford to pay back. There is plenty of help available …

Seek help immediately, debts escalate quickly Getting help Can you think of three places people might go if they had a debt problem? Seek help immediately, debts escalate quickly

Sources of help The Citizens Advice Bureau offers free, confidential advice and can help you get to grips with your debts www.citizensadvice.org.uk/ Also StepChange Debt Charity www.stepchange.org/  The National Debtline www.nationaldebtline.co.uk Debt Advice Foundation www.debtadvicefoundation.org/ Debt Support Trust www.debtsupporttrust.org.uk/ Money Advice Service www.moneyadviceservice.org.uk