You work hard, you pay your bills, perhaps you drive an old car. You donít have much of a taste for designer labels and youíre certainly not extravagant. So how come you owe so much money?
The answer is likely to be stealth debt ñ and you arenít alone. With the Institute of Fiscal Studies announcing that families are currently experiencing the biggest fall in living standards in 30 years, more and more people are finding themselves slipping into the financial shadowlands of soaring credit card bills and bottomless overdrafts ñ often without even noticing.
ìIt doesnít take much to push yourself over your spending limit, especially in these inflationary times. A bit extra here and there can soon add up and before you know it, youíre struggling to make ends meet,î says Peter Turner, managing director of Experian Interactive.
ìBut with a bit of careful lifestyle management, you can get your finances back on the straight and narrow ñ and keep them there.î
Here are some tips on how you might be able to turn your back on stealth debt.
Face facts – First things first ñ you need to know the size of the problem, so get out your bank and card statements and really look at where your money is going. Then go through your credit report, which lists your credit accounts, from mobile phones to credit cards and your mortgage. Lenders use it to assess whether you are a reliable borrower, so it needs to be accurate and up to date.. You can see your credit report and Experian Credit Score for free with a 30-day trial of CreditExpert.
Try to set a budget – Jot down your monthly income and note every penny you spend, from your lunchtime sandwich to the electricity bill. Youíll soon know how much you need to cut back. If youíre a true stealth-debter, itís not going to be the must-have handbag or smartphone that hurts your bank balance, but those regular little indulgences. Too many glossy magazines, take-away lattes and supermarket impulse buys may eventually take their toll, so always ask yourself whether you really need something. Price comparison sites like Money Expert could offer a painless way to save on regular outgoings, from gas and electricity to home contents and car insurance. You might even be able to switch existing borrowing onto cheaper deals.
Work on your financial CV – When you apply for credit, lenders want to know that youíre a responsible borrower and can comfortably afford your repayments, so they look at your credit report to see what you owe and whether you make your payments on time and in full. That makes it crucial to ensure that your report is up to date and accurately reflects your circumstances. Schedule in a check every month and challenge any errors or unfamiliar entries. Even a minor inconsistency could bring down your credit score ñ and cost you the deal you want. If you have debts, begin paying them off, starting with the ones charging the highest interest. Itís also best to register to vote at your current address, as lenders use the electoral roll to make sure you live where you say you do.
Skipping a payment is not a saving – If youíre thinking of missing a repayment, donít ñ as you could lose a good deal and incur charges. Missed or late repayments stay on your credit report for at least three years, warning lenders that you can be unreliable. Instead, talk to the relevant lender, who may be able to reschedule your debt so itís more affordable. If past problems have a reasonable explanation ñ for example, you missed a repayment because of an accident ñ add a note to your credit report. Repaying the full balance each month will help you avoid interest charges, and at least the minimum payment would help you to protect your credit history.
Think before you apply – Every time you apply for credit, it triggers a search of your credit report that leaves a trace, known as a footprint. Lots of them could lead lenders to think youíre desperate or even to suspect a fraud.
Keep up the good work – Check your credit score regularly to monitor your progress. Itís free to see your Experian Credit Score with a 30-day trial of CreditExpert and you can check it as often as you like.