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BLOG: How can consumers better manage their debt?

BLOG: How can consumers better manage their debt?
Your Money
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Your Money

As the cost-of-living crisis continues to take hold, a recent study has shown that nearly two million mortgage holders are struggling to cover their household bills.

With the price of daily essentials remaining high, families and individuals are increasingly turning to credit cards and payday loans to cover their bills, as inflation puts pressure on pay packets.

Households have also felt the effects of subsequent interest rate rises by the Bank of England, which now stands at 5.25%. Whilst interest rate hikes appear to have abated for now, and many lenders are in fact reducing rates on mortgage products, there’s no denying that many households on tracker mortgages, or those needing to remortgage onto a new fixed rate, will face higher monthly mortgage repayments.

The Bank of England estimates that around four million households will be exposed to rate rises over 2023, many of whom will not have experienced such high rates before as the past decade has seen mortgage rates at historic lows.

Brokers dealing with debt

Mortgage brokers are dealing with the effects of increased consumer debt and higher borrowing costs, as TMA Club’s Help Desk saw a sustained focus on queries regarding adverse credit, particularly on the residential side. Already, the industry is seeing a rise in those seeking advice around missed or defaulted payments, and County Court Judgements (CCJs) for debt, or those with arrangements to pay with creditors or paying into an active Debt Management Plan.

Whilst several of these queries pertain to CCJs from over three years ago, indicating that the consumer debt crisis has been bubbling away for some time now, it’s clear that the pandemic, inflation, and the cost-of-living crisis has only compounded these issues.

With this trend set to continue, how can consumers better manage their debt?

Three ways to cope better with debt

  1. Prioritise debt payments

When managing multiple debts, it’s essential to prioritise which debts to pay off first. Firstly, creating a comprehensive list of debts, including credit cards, council tax, personal loans and mortgage arrears, and noting the type of debt, the outstanding balance, and the interest rate. Individuals can either choose to pursue two types of debt relief strategy – the debt snowball or the debt avalanche.

With the debt snowball method, individuals start paying off debt with the smallest balance first, whilst making minimum payments on other debts. Once the smallest debt is paid off, the money previously paid towards it can be applied to the next smallest debt. This creates a snowball effect, gradually eliminating debts.

With the debt avalanche method, outstanding payments with the highest interest rates are targeted first, since they accumulate interest faster. As with the snowball method, once this debt is paid off, the money is put towards the next highest interest rate debt.

  1. Pay more than the minimum where possible

Whilst this may not always be possible, taking advantage of seasonal ‘downtime’ when it comes to spending, or unexpected incomes such as bonuses or gifts, to pay more than the minimum on debts can be advantageous for several reasons. Paying more than the minimum on a debt accelerates the reduction of the principal amount, which in turn reduces the total interest paid over time.

Paying more than the minimum consistently also shows responsible credit management, and can positively impact credit score.

  1. Speak to a financial adviser or mortgage broker

Speaking with an independent financial adviser is a great starting point for those who are concerned about debt, as they can help assess customers’ personal situations and highlight rights held by an individual when dealing with creditors, bailiffs and debt collectors.

They can also signpost strategies, such as debt consolidation or active Debt Management Plans.

Likewise, mortgage brokers have a deep understanding of the ever-evolving rate landscape, and can signpost consumers to the most affordable and suitable products to meet consumer needs, whether they are first-time buyers with a history of adverse credit, or those looking to remortgage onto a new rate.

The UK’s largest mortgage lenders, along with the financial watchdog the Financial Conduct Authority, have agreed with the Chancellor a set of standards that they will adopt when helping residential mortgage borrowers who are concerned about higher rates.

Lenders have agreed that anyone who is concerned about mortgage repayments can contact their lender for assistance, without any impact on their credit file. Lenders will also offer tailored support for anyone struggling, which could include extending their mortgage term to reduce payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or a part-interest, part-repayment.

Such solutions show the importance of seeking out expert advice when struggling with debt or mortgage repayments, as both brokers and lenders are both aware of the affordability challenges that consumers are facing and will do their upmost to assist borrowers where possible.

By working together with financial advisers and leveraging these options, consumers can better navigate the complexities of the mortgage market and find solutions that help them manage their debt more effectively.


Lisa Martin, Development Director at TMA Club