Managing your borrowing
While we may read or see many alarming stories in the media, debt can be positive and useful when it’s necessary. And if managed carefully, making sure you don't become over-burdened and that you make all of your monthly repayments, it can be affordable.
Common types of debt are: a mortgage for buying a house; a loan on a car; or using credit cards for larger items or for regular purchases to gain rewards.
Even if you have your debts under control, it's vital to understand what you owe and how much it's costing you. This will help you make sure your borrowing remains affordable and also enables you to identify where you may be able to make savings. All of which can help you feel more in control of your money and help you build your credit profile.
Is paying off debts one of your long term financial goals?
We found that 72% of people we asked say paying off debt is one of their long term financial goals. *The Fidelity Global Sentiment Survey, 2021
How does debt work?
Simply put, debt is when you borrow money – usually from a bank or a credit provider – under the condition that it must be paid back at a later date, normally with interest. The interest you’ll pay will usually be expressed as a percentage (the Annual Percentage Rate or APR), and this is the cost you pay each year to borrow the money, including any fees or other charges. It’s important to make sure that you can afford to make the repayments, including the interest, before you borrow money.
Different types of debt
Secured debt is money that is secured against an asset you own – so things like your home or your car. Secured loans can be used to borrow larger sums of money. And because the loan is secured against your assets, the interest rates tend to be lower than what you’d be charged for an unsecured loan. As this type of loan is secured against your assets, if you do not keep up with your repayments, you face losing it – so it can be a riskier option.
Unsecured debts are riskier for lenders, as they have no guarantee of getting their money back. That’s why you’ll tend to pay a higher interest rate for borrowing the money.
With this type of loan, you agree to repay the money you’ve borrowed and any interest in regular installments, until it’s repaid in full. If you are late or miss a repayment altogether, you may incur additional charges and it could damage your credit rating.
Personal loans and credit cards are a common form of unsecured debt. For many people credit card debt isn't a problem, because they pay off the full balance at the end of each month. But if you fail to do so, you could pay a significant amount of interest on the money you borrow – which can add up quickly and have an impact on your disposable income, savings and credit profile.
Get help if you're struggling
Seeking help if you're struggling with debt is a difficult, but incredibly brave thing to do. It can feel overwhelming if you're struggling and people can get to a point where they think it's easier to ignore the problems mounting up and put them off for another day. But, this can lead to a cycle where the more you delay action, the worse the problem gets.
So, the most important thing is to stop that cycle and to say "No, I'm not going to put it off. Maybe today isn't the optimal day but to be honest, no day will be the perfect day to deal with this."
Getting help is one way you can take your first step towards stopping the cycle. By having a conversation, with an expert, friend or relative you can start that journey towards greater peace of mind, as well as solvency.
A quick summary on debt
- Understand your debts and list them out by the amount you owe and the interest you are paying
- Ensure you're meeting all the minimum requirements and then prioritise your debts
- Seek help immediately if you are having difficulty with repayments.
Learn more about financial wellness
*The Fidelity Global Sentiment Survey, 2021.
The sample consisted of respondents with the following qualifying conditions: aged 20-75; either they or their partner were employed full-time or part-time; a minimum household income of: Australia: A$45,000 annually; China: RMB 5,000 monthly; Hong Kong: HK$15,000 monthly; USA: US$20,000 annually; Canada: CA$30,000 annually; UK: £10,000 annually; Mexico: $4,500 MXN monthly; Ireland: €20,000 annually; Germany: €20,000 annually; Netherlands: €20,000 annually; France: €20,000 annually; Italy: €15,000 annually; Spain: €15,000 annually; Japan: 3m yen annually; Brazil: R$1,501 monthly; India: ₹55,001 annually. The data collection, research and analysis for the above markets was completed in partnership with Opinium, a strategic insight agency. Data collection took place between July 2021 and August 2021. Reporting and analysis took place between August 2021 and October 2021.