When does everyday borrowing become a problem?


young African American woman working on finances at home wearing purple jacket sitting at dining table.

Borrowing is woven into the fabric of modern life. While former generations might have lived by the rule that they never spend what they haven't already saved, for many younger people nowadays that's simply not an option. From university fees, to the rental deposit, and the small matter of being able to afford to eat before the first monthly paycheque comes in: often there's no alternative.

The question is, how can you spot when this borrowing becomes a problem, and how can you stop this having a long-term impact on your financial life?


The Think Tank Demos found that the majority of young people owe at least £2,000. It's hardly surprising when so many have paid their way through three years of education, and others have borrowed for their first car or for the rental deposit on their home.

For many of these young people, their debts have reached eye-watering levels. A fifth of 18-24-year-olds and a quarter of 25-34-year-olds have more than £10,000 of debt; and 55% of 18-24-year-olds and 48% of 25-34-year-olds say that their debts have increased in the past five years.

This, however, is not necessarily a problem in itself. If you have put yourself through three years of study, even working part time, there's a good chance you have £10,000 of debt. However, the terms of the student loans means you can pay this off over a long period of time, with no long-term damage.

Likewise, there are any number of people who need to borrow to meet one-off expenses that they have no way of paying for otherwise: this may mean a car you need in order to commute, or vital home repairs. As long as you have a real need for what you are buying, you have a plan for how you are going to pay it off, and you stick with that plan, there's no need for even a £10,000 debt to necessarily ring any alarm bells.

Warning signs

The issue is that for many people, unavoidable and manageable debt has tipped over into becoming unmanageable. While student loans are the most common reason for debts among the youngest age group, 28% of people cited unexpected expenses and 27% said they needed to borrow in order to afford the basics.

The fact that people need to borrow just to make ends meet is a classic sign that we're not just talking about debt among these groups - we're talking about debt problems. There are a number of warning signs. Ten of the most common are:

1. Borrowing in order to pay off other debts
2. Borrowing to pay bills
3. Buying basic necessities on your credit card because you don't have any cash
4. Paying your credit card bills on time but running out of cash before the end of the month
5. Spending more than a fifth of everything you earn on credit card bills
6. Paying only the minimum on your credit card - with no long-term plan to enable you to repay it
7. Carrying more than four credit cards
8. Borrowing as a short-term measure, and ending up carrying the debts for the long-term
9. Being turned down for credit. This isn't always a sign your borrowing is out of control, but combined with other factors it may well be
10. Borrowing from friends or family

If you see two or more of these signs more than once or twice, then there's every chance you have a debt problem. At this point there is a five step process you need to take immediately - to stop problem debts getting out of control.

1. Get hold of your credit report

This will let you know exactly where you stand, because every debt will be listed on here.
The report will also show how you are managing your debts, including how regularly you are struggling to make payments, how long you have carried each debt, and how long you have been making just the minimum payments.

It will show you how well you are doing in paying utility bills and any mortgage or rent - and how often you are late in paying each one. And it will provide a clear picture of just how much trouble you are in.

2. Draw up a budget

Look at the money you have to spend on the basic necessities - you may need to cut them to the bone - and see how much you have left over to make regular repayments to pay your debts down.
In some instances, sensible budgeting and a repayment plan may be all you need. Within a year of living within your means, your problem debts can be history.

If your budget will not balance, look at how much of your income is going on interest payments. If only a fraction is going on interest, then you need to look at your lifestyle. Often there are some horrible decisions to be made about where you can afford to live, and what you can afford to buy, but there's no avoiding these decisions and if you put them off now, they're only going to get harder later

3. Seek advice

If interest payments are crippling you, or you have more debt than you can handle and you cannot see a way out, you may need advice from a debt charity such as Stepchange or Citizen's Advice. They will talk you through your options. They may help you build a debt management plan, where lenders will agree to freeze the interest for a period so you can make repayments rather than just trying to stay on top of the interest.

If the problem is more serious, you may need to take the more drastic step of having an IVA or declaring yourself bankrupt. These are major decisions, and in the case of bankruptcy can have far-reaching effects on everything from your home to your job, so talk to a charity before you take this step.

4. Turn over a new leaf

It's not enough to get back on an even keel, you also need to change the habits that brought you here in the first place. This is never an overnight change, but unless you seriously consider why you were overspending and change the parts of your life which brought you there, then you will simply end up back where you started.

5. Rebuild

If your debt problems are going to avoid having a major impact on your future financial life, it's vital to devote some time rebuilding your credit record. Experian says that lenders will pay attention to past indiscretions - particularly if there's a bankruptcy on your record. However, they will lend the most weight to the most recent information, so you need to establish a routine where you pay all your bills on time, and meet all your debt repayments - without fail.

You may think that your credit record is the least of your worries when you are struggling to pay your bills, but a poor credit score makes it difficult to do everything from buying a car to getting a home of your own. Life won't always be so financially stretched, and one day, when your income goes up or your expenses fall, you'll want to have a spotless credit record and the world at your feet.