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FOOL'S EYE VIEW
A few years ago a clumsy new word was invented for people who have borrowed rather more than they can afford. Over-indebtedness. It's a word I have yet to find in the dictionary although it's seems to be a favourite with the Government who use it almost as much as that irritating phrase 'hard-working families'. It surfaced again last weekend when the Government published one of the largest surveys to be conducted on over-indebtedness in Great Britain. Thankfully, it revealed that the vast majority of people in the Britain don't consider their debt repayments to be a problem despite an increase in consumer borrowing in recent years. However, the survey of nearly 10,000 people was conducted during the last five months of 2004 and consumers were still spending confidently during that time. It's really only been in recent months that people have been tightening their belts by a notch or two and, to my mind, there's little room for complacency yet. Strangely, there's no agreed definition of over-indebtedness although the DTI believes that people who would answer 'yes' to all the following questions fall into the category of being seriously over-stretched financially: To my mind, anyone who says 'yes' to the second question must be flying by the seat of their pants - and 9% of those in the survey fell into this category - even if they answer 'no' to all the others. As it happens the evidence is that it's the first - the unsecured borrowing repayments - that are causing more problems than secured borrowing repayments. No doubt this is because people realise the importance of paying the mortgage first and, in the main, it's domestic bills such as Council Tax and utility bills that a small minority are falling behind on although rent is a problem for people who don't own their own home. It won't take you long to work out if you fit in to any or all of the categories outlined above and if you are, regard it as a warning shot and do something about it before it's too late. For a start, make sure you are living within a clearly defined budget. Obviously, you can't operate on a budget if you don't know where you spend your money, so a good move is to write down a list of all your essential outgoings such as rent/mortgage, council tax, utility bills etc. Make a separate list of any loans or credit card debts you've got. This is only the beginning though. You'll end up with a list of what all these cost but you still won't know where you actually spend the rest of your money. For this reason it's also a good idea to keep a diary of your spending for a month. After all, you've probably taken money out of the cash machine and then wondered where it's all gone before. Now's your chance to find out and you can see how to do it by looking at a spending diary that was kept by a Fool for a series of articles we wrote on the subject. When you know where you spend your money you'll be able to check it against your income. If you're overspending then you'll know it's time to tighten your belt, cut back on the non-essentials and get out of debt. The important thing to remember is that while the percentage of those who find their debts unmanageable is still relatively small (around 5%), failing to recognise a debt problem can result in serious consequences. Circumstances such as job loss and illness can be insured against (although most people don't bother to do so), but the breakdown of a relationship cannot. And it's these three unexpected things that are usually the main cause of debt problems. To that end, if your money problems are pushing you towards the edge of financial disaster, take the bull by the horns and deal with them. If they're merely giving you a slight itch then perhaps now is a good time to head off possible problems in the future. Find out how to Get Out Of Debt and make your debts cheaper by transferring them to a 0% credit card.