Let's Talk About Debt Baby

Let's talk about debt baby

By Laura Rettie, Personal Finance Journalist. Last updated 1st May 2024.

Laura Rettie

Millions of us are in debt in the UK, so it's important to know how to deal with it. Our guide helps you understand debt and how to get out of it.

To be in debt means you’ve borrowed money that you have to pay back. When we talk about how much debt someone has, we’re talking about the total amount of money you owe to a person or organisation.

If you’ve borrowed money from a financial organisation such as a bank, building society, online lender, credit union or retailer, you’ll usually be charged interest on top of the money you’ve borrowed. The higher your interest rate is and the longer you take to pay your debt off, the more expensive your borrowing becomes.

People typically borrow money for large purchases like a house, a car, furniture and tech or for significant life events such as going to university, getting married or having a baby.

Is it normal to be in debt?

Almost everyone is in debt at least once in their lifetime, using credit cards, overdrafts, taking out a loan, car finance or getting a mortgage.

It’s estimated that over half of adults in the UK are in some form of debt.

At the time of writing, the average UK adult has £34,570 worth of debt - not including student loans. The average total debt per household, including a mortgage, is £65,479.

I bet you’re thinking - woah…I had no idea! You and me both. That’s because we’re dreadful at openly talking about our finances in the UK; let’s face it - we’d much rather discuss the weather.

Money - and debt, in particular - has historically been taboo and viewed as an impolite thing to ask people about. Therefore, most people in debt feel isolated and alone, not realising that most people around them are in debt too.

But that’s got to change.

Looking after your money is just as important as looking after your mental or physical health. Your financial health should be a top priority.

The cost of living crisis is forcing everyone to put their debt front and centre of everyday conversation as uncomfortable and as awkward as that might feel to some people.

Is being in debt bad?

Well, it depends entirely on your personal circumstances, and what you’re using the money you’re borrowing for.

If repaying your debts means you don’t have enough money left to buy basics like food and energy to power your home, then yes, your debts are bad, and you need to get yourself out of debt as fast as possible or seek help from a debt charity such as Step Change or Citizen’s Advice.

Bad debts are when you’ve used borrowed money to pay for things that lose their value. Using a high-interest-rate credit card to pay for a holiday is an example of bad debt.

If you’re comfortably affording your debt repayments, with money left over to cover all your essential outgoings, then your debts aren’t bad, providing you’ve been sensible with what you’re buying with the money you’ve borrowed and the interest on your borrowing isn’t expensive.

Low-interest rate loans from reputable lenders may be considered ‘good’ debt when spent on things that will eventually offer you a good return on investment, for example, using a mortgage to purchase a property.

The idea is you’d purchase a property, knowing you’ll pay interest over the period of the loan, and by the time you’ve paid your mortgage off, your property will be worth more than what you paid for it plus the interest you paid on your mortgage.

This assumes there isn’t a property crash and interest rates on your mortgage don’t rise rapidly - which is sadly the daunting prospect millions of people are currently facing in the UK.

Which financial products should be avoided?

For many years, credit cards were deemed ‘bad’, and payday loans also had a bad reputation. These days Buy Now Pay Later schemes are the latest financial product being tarnished with the same ‘bad’ debt brush.

But it all depends on one crucial thing - how much interest you pay on your borrowing. When you’re looking at borrowing money from a bank, building society, credit union or online lender, the key thing you need to compare is the annual percentage rate (APR). APR is the interest rate for a whole year and includes any fees you’ll need to pay.

Essentially the higher your APR is, the more interest you’ll pay, and therefore the more your borrowing costs you.

Finance products vary significantly with the amount of interest they’ll charge. At the time of writing, the typical interest rate for the following financial products in the UK are:

  • Mortgages = Between 5.1% - 7.5%
  • Overdrafts = Between 34% - 39%
  • Credit cards = Between 21.9% - 34.9%
  • Loans = Between 4.3% - 13.2%

As you can see - the most expensive way to borrow is by using an overdraft; therefore, overdrafts should only ever be used in an emergency and never used regularly or for long periods of time if you can help it.

How much APR you’ll pay on mortgages, overdrafts, credit cards, and loans will also depend on your credit score.

If you’ve got a good credit score, you’re more likely to be offered lower interest rates by lenders than if you have a bad credit score.

Is it bad to use credit cards?

It depends. If you’re disciplined, using a credit card can help you build your credit score and earn rewards for your everyday spending.

You should only use a credit card if you can afford to pay back what you owe and make repayments on time to avoid interest charges. Being late with repayments may mean damaging your credit score.

Benefits of using a credit card

Building your credit score

If you have little or no credit score or you’ve damaged your score in the past, using a credit card is one of the quickest ways to rebuild it.

Credit card activity appears on your credit report and can help lenders assess your creditworthiness. As long as you don’t use more than 25% of your credit limit, make your repayments on time each month and don’t withdraw cash using your card, your credit card use will help build up your credit score.

Earning rewards

Credit card companies offer different deals in the form of cashback or points to redeem on things like travel or hotels.

If you use a credit card for everyday spending rather than your debit card and pay the balance off each month before the interest kicks in, you’ll benefit from paying for things you need to buy every day, simply by switching the way you pay, helping you to make your money go that little bit further.


All credit cards come with something called section 75 protection, which means if a retailer, airline or any company you buy goods or services from goes bust or doesn’t deliver and you’re unable to get your money back, your credit card must step in to investigate and help you get your money back.

Spread the cost of an expensive purchase

Using a credit card to help spread the cost of a large purchase like a bed, a wedding or a holiday is a good idea if you can secure a 0% interest introductory rate.

If you have a good credit score, some lenders will allow you to borrow on a credit card for free for up to two years or more, leaving you plenty of time to make repayments in instalments without needing to pay any interest.

But remember - you’ll be asked to repay a minimum amount each month, which you need to make sure you can afford before spending thousands of pounds.

Things to remember when using a credit card;

Your credit card limit is not a target

You need to remember that a credit card limit is not a target to hit. Credit cards might not be suitable for you if you’ve not been disciplined with your money in the past and have found yourself overstretched financially.

It’s crucial that you don’t max out your credit card for two reasons. Firstly you could find yourself struggling to repay your balance, mainly because most credit cards charge high-interest rates, meaning it will take you longer to repay.

Secondly, using more than 25% of your credit card limit will damage your credit score. That’s because lenders will assume you’re desperate for credit, and if you’re living beyond your means, you become riskier to lend to because you’re more likely to default and not be able to repay what you owe.

Don't use your credit card abroad

Using your credit card abroad, unless it’s specially designed for use overseas, will typically charge you a fee for every transaction you make.

Don't withdraw cash with your credit card

Withdrawing cash with a credit card is a big no-no. Not only will you damage your credit score, but you’ll be charged expensive fees for doing so. Avoid doing this at all costs.

Make your minimum repayments on time

If you’re approved for a new credit card, set up a direct debit for the minimum repayment amount so you never accidentally miss it or are late paying.

Being late to repay a minimum repayment will damage your credit score. If you’re ever in a position where you don’t think you can make your repayment on time, contact your credit card provider instantly to explain.

They may be able to help the first time it happens, but you want to avoid this if you can because you’ll be charged a fee, and your credit report will be damaged for up to seven years.

In summary, using a credit card is only bad if you misuse it. If you’re disciplined with your credit card use, they can be a cheap way to borrow, offer you more protection and earn you cashback and rewards on your everyday spending.

If you have self-control using a credit card, have a good credit score and can secure a decent 0% interest deal, using one could be a savvy move financially if you want to borrow cheaply or earn cash back or rewards on your weekly groceries.

You know yourself - if you can’t trust yourself or suspect you’re addicted to shopping or gambling … walk away. Credit cards are not for you; using them could land you in trouble.

Is it bad to use Buy Now Pay Later?

Buy Now Pay Later (BNPL) is a type of short-term borrowing designed to make a purchase and pay for it later, often interest-free - meaning you won’t pay any more than the goods or services you’re buying.

BNPL arrangements are becoming a popular payment option, especially for goods and services bought online.

Here are the pros and cons of using BNPL:


  • A convenient way of buying goods you can’t afford at the time but know you can pay over time
  • Zero interest charged or lower interest charged than most credit cards or overdrafts
  • You don’t need a good credit score to qualify to use BNPL
  • Fast approval


  • Missing or late payments result in late fees
  • Late payments will damage your credit score
  • Payments may continue even if the item you bought is returned
  • Payments can be hard to track

Ultimately BNPL was designed to allow you to get things you want immediately but give you a little extra time to pay for them.

But if you use BNPL too frequently, your debts will quickly add up, and you could risk overstretching yourself. Using BNPL isn’t bad, so long as you keep up your repayments, much like all borrowing products.

How much debt is serious?

We won’t put a figure on this because it all comes down to affordability.

Some experts say more than 40% of your annual income is too much - but that’s not a particularly helpful figure if your income isn’t constant - for example, if you’re self-employed.

Ultimately you need to budget for an entire year. Work out all the money coming your way and then subtract all your monthly expenses - such as your mortgage, rent, energy bills, water bills, phone and internet, transport costs, food, etc.

Only once you’ve done this will you truly get the bigger picture of your long-term finances and work out if you can truly afford to borrow money.

If you’ve done your sums and don’t have any wiggle room, then it’s time to do one of two things. Work out a way to up your income or lower your outgoings.

Borrowing to give yourself additional income isn’t sustainable unless you plan to pay it back or you know your circumstances will change in the future - for example, you’re guaranteed a bonus at Christmas, or you’re getting a new job that pays more money.

Debt becomes serious when you’re feeling overstretched and can’t afford the basics like paying for your accommodation and food. Budgeting, planning out your finances a good year or two in advance, using financial products with low APRs and not borrowing for things that aren’t a good investment should help mitigate serious debts.

How can I get out of debt?

If you’re struggling with your debts, the absolute worst thing you can do is bury your head in the sand and allow your debts to pile up.

Your next step will depend largely on what type of debt you have, the total amount you owe and how much you can realistically afford to pay going forward.

Talk to your lenders

First things first - if you don’t think you’ll be able to make a repayment, talk to your lender before you’re late paying or miss a payment. You might be able to reach an agreement that gives you longer to pay back what you owe them.

Apply for Breathing Space

If your lenders aren’t able to offer you help and you’re not ready to use one of the debt solutions below, you could apply to the government-backed Breathing Space scheme to give you some time to weigh up your options.

If eligible, you’ll be given 60 days of breathing space which means your lenders cannot contact you, take any action to make you pay or add interest or fees to your balances.

Research debt solutions

Before looking into debt solutions, write down everything you owe and prioritise them. If any of the following apply to you, they’re your priority debts:

  • You can’t make your mortgage repayments
  • You’re struggling to repay a secured loan
  • You’re behind with your rent payments
  • You’re unable to pay your gas or electricity bills
  • You’ve been ordered to pay a court fine but don’t have the money
  • Your council tax payments are behind
  • You owe money to HMRC for unpaid income tax, National Insurance or VAT
  • You can’t afford to pay your internet or phone bills
  • Your TV licence fee has gone unpaid
  • You pay child maintenance but are behind with your payments
  • You’ve been overpaid tax credits, and HMRC have asked you to pay them back, but you can’t pay
  • You’ve bought items on hire purchase, but you can’t make the repayments

The above debts are your priority debts because if you don’t pay them, depending on the scenario, you may face eviction, lose your home, be cut off, be fined or, in the worst case scenario, be sent to prison for not paying.

The following debts have less severe consequences and should be dealt with once you’ve prioritised the above;

  • Unsecured loans
  • Payday loans
  • Credit or store cards
  • Catalogue debt
  • Overpayment of benefits
  • Parking fines
  • Water bills
  • Money owed to family or friends

After you’ve listed your priority debts, you should spend time working out if you can increase your income and reduce your outgoings.

Once you’ve done that, there are several different debt solutions you may want to explore, depending on your circumstances.

Debt management plan (DMP)

A debt management plan is a solution that might be able to help you repay what you owe at a more affordable rate. DMPs won’t allow you to pay your priority debts, though, and your lenders don’t have to agree to the plan.

Individual voluntary arrangement (IVA)

An IVA typically lasts five years and allows you to pay off all your debts in one monthly payment.

Your IVA would need to be arranged by a specialist who’d charge you a fee, which makes this debt solution the most expensive. Not all your lenders have to agree to an IVA, but it means those who do can’t contact you.

Debt Relief Order (DRO)

If you settle for a debt relief order, you won’t pay anything towards certain debts for 12 months. At the end of the 12 months, you’ll no longer owe those debts - but this wouldn’t include debts like student loans, child maintenance or court fines.

A DRO costs £90 to set up, and you won’t be able to set up your own company or be a director of someone else’s company without the court’s permission.


If you owe more than the value of everything you own and you can’t pay your debts, you might be able to declare bankruptcy. You’ll need to pay £680, and your name and address will be published on the insolvency register, which can be viewed online. A bankruptcy will appear on your credit report for six years.

For more detailed information on any of the above debt solutions, visit the Citizen’s Advice website.

Being in debt and your mental health

Your mental and financial health are closely related. Poor mental health can make earning money more complicated, and being in debt can trigger or worsen anxiety, stress and depression.

Not knowing how to provide for yourself and your family can have life-defining consequences.

If you’re reading this nodding along, take a deep breath. We understand what you’re going through - this guide has been written by someone who’s been there, done that, and got the t-shirt, so we empathise with what you’re going through.

You’ve made excellent progress by taking steps to find out what you can do to help yourself.

The only way is through, but if you need additional help with your mental health and need to speak to someone right now, you can call the Samaritans for free.

Samaritans Helpline: 116 123 (24 hours, seven days a week)

The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.