Credit can be a useful tool to help you spread costs. But if you find you’re not meeting loan or credit card repayments or are using credit to pay for essential items like food, you need to take action.
These steps will help if you’re overloaded with credit from different sources, such as credit cards, loans, overdrafts and short-term credit products such as Buy Now Pay Later (BNPL), or you’re considering borrowing money from friends or family.
You need to take stock of where you are to get a picture of your true financial situation.
Follow these steps to work out what you need to do:
Write down all your credit commitments including payments and the day that the payment is due. Just getting them all down will help you understand where you are and keep track. Check all your accounts or bank statements to make sure you’ve captured them all.
If you bank online, your bank might offer a spending app that can do it for you quickly and easily.
If you are using lots of cards, our guide to Open Banking shows you how to see all your bank accounts in one app or online so you can see what you’re spending on credit.
While it’s important to take control of credit before you miss payments, some bills and payments are more important than others. Our Bill prioritiser helps you to sort out which ones you need to deal with first, so you can take care of your essential expenses, such as rent, mortgage or energy bills.
If you’re having to spend more on your credit payments, you need to have a look at where you can cut costs and maximise income by making sure you’ve claimed everything you’re entitled to.
Once you know where you are and what you owe, take these steps to improve your situation.
Follow these steps to work out what you need to do:
If you do have savings, even with higher interest rates, the rate you’re getting on them is likely to be less than the interest you’re paying on your credit cards. So it can be better to use some of the money to get your credit balances down.
When you’re back in control of credit again, make sure you build savings up. Aim for at least three months income to give you the buffer you need.
Cash withdrawals on a debit card are fine, but as soon as you take cash out using a credit card, your credit score takes a hit, which can make it more difficult to get credit in future.
And you get charged extra for taking cash out on credit as soon as you take it out because there is no interest-free period, like there is with purchases. You might also be charged a higher rate of interest for cash withdrawals compared with purchases made using your card.
Your best bet is to just not do it.
When you use your overdraft, you’re going into debt. Overdrafts are typically more expensive than credit cards and loans if you use them long term.
Used well, they can have a positive impact on your credit score. To do this, you need to:
Your credit score will be negatively affected if you:
So it’s best to go into your overdraft for short-term borrowing or emergencies only.
If you’re starting to rely on your overdraft rather than use it occasionally, ask your bank if you can have an interest-free buffer – some providers will offer up to £500.
BNPL is often presented as the easiest way to pay at the checkout, allowing you to buy something with just one or two clicks.
Before buying anything make sure you can afford it and know how you’ll pay for it.
BNPL products offered by some providers like Klarna, PayPal and Clearpay are now regulated by the Financial Conduct Authority (FCA), which gives you extra protection. It also means they have to check your financial situation before they choose to lend to you, to make sure you’re not borrowing more than you can afford to repay.
You can check if a BNPL provider is regulatedOpens in a new window on the FCA firm checker.
However BNPL products offered directly by the retailer usually aren’t regulated which means you might get offered more than you can afford to repay.
If you choose to use BNPL, make sure you understand how it works and what happens if you can’t afford to repay. For example, you could face late fees or the payment could be rolled into the next one.
If you’re struggling to keep up with payments, try to avoid taking out multiple BNPL agreements until you’re back on track as it makes it harder for you to keep on top of different repayment dates.
If you need to use credit to pay for everyday essentials because you’re struggling to keep up with debt payments, you’re not alone and can take steps to get help.
Talk to your provider about ways you can manage costs and repayments as there is lots of extra support out there.
Solutions could include negotiating a repayment plan you can afford or putting you onto a cheaper tariff.
If you’re struggling financially, gas, energy and water providers will often do a free benefits and grants check to make sure you’re getting everything you’re entitled to.
It can be tempting to ask relatives to lend you money. But you nedd to think carefully about whether you can afford to repay it and can cope with what might happen if you can’t.
Follow these steps to work out what you need to do:
Before you borrow from family it makes sense to look at all the alternatives first. Things to do include:
If you still want to borrow from a partner or family member, make sure you draw up a budget beforehand. This will help you see how much money you have left for repayments after paying your current living expenses.
It’s a good idea to get together your current account and credit card statements from the last three months (or longer, to take account of one-off costs) before you do your budget.
Before you borrow money from family, you need to have an honest conversation about how you will repay the money.
Think about:
It’s a good idea to get something in writing, clearly spelling out how much will be repaid and when.
Be very wary if you’re offered a loan by someone you know casually – for example, from having seen around locally, who’s a friend of a friend or who approached you online.
You should even be wary if someone you work with offers to lend you money, especially if they have lent money to a few other people.
They might be a loan shark who lends illegally and the loan could cost you a lot more than you think.
It’s always stressful if you can’t afford to pay back what you owe. But it can be even worse if you’re leaving family out of pocket, and it might harm your relationship with them.
That’s why it’s important to work out your budget and make a new repayment plan as soon as you find yourself in difficulties.
Make sure you let the person you borrowed from know what’s happening as soon as possible.
If you’re struggling with debts, there is help available. Read our guide on how to have a conversation about money.
It can be tempting to lend money to friends or relatives, or you might feel under pressure to help out. But you need to think carefully about whether this is the best option. Consider alternative solutions which might help instead, especially if you think they can’t afford to repay it as this will make the situation worse.
Follow these steps to work out what you need to do:
If a friend, partner or family member asks for financial help, it can be hard to refuse.
Try to have a conversation about why they need the money and if there are other options.
Work out your own budget before lending to anyone.
Don’t be embarrassed to encourage someone to look at their budget or seek debt advice if they’re really struggling.
Debt advice is free, impartial and confidential and if someone has missed payments it may be a better long-term solution to get them back on track.
You might be confident the person you’ve lent money to will be able to pay it back in full. But you still need to consider what you would do if they can’t.
Make sure you talk about, and agree, what would happen if the borrower lost their job and couldn’t pay the money back, or you needed it back in a hurry.
How you might deal with this type of situation is an entirely personal decision. But it’s one you need to think about before lending money to someone you know, no matter how sure you might be that they’ll repay you.
