‘Consider need’ when borrowing money

Consumers need to be confident they can cover their repayments before borrowing money.

This is according to financial expert Martin Lewis, who cautioned against rushing into major decisions concerning money. Instead, he encouraged people to take a considered and responsible approach.

He compared debt to fire, in the sense that it can be a fantastic tool when used correctly, but without careful handling can quickly get out of control.

When it comes to borrowing, he encouraged consumers to ask themselves if they can save the money up rather than taking out a loan, or if the purchase is even needed.

"Provided the loan and interest are minimised, and the repayments budgeted, it can be an enabling choice. Yet if you borrow willy-nilly to fill shortfalls in your monthly income, that's usually a nightmare," Mr Lewis remarked. 

Recent research conducted by MoneySuperMarket discovered Britons owe nearly £139 billion in unsecured debt, with two-thirds of those questioned admitting it has now become a problem for them. 

Credit cards were the most popular form of debt, as 46 per cent of respondents have some form of unsecured borrowing on their plastic. 

Mr Lewis pointed out there are some debts people should do everything in their power to avoid, such as payday loans and store cards – he described the latter as the "devil's debt" because of the high interest rates associated with them.

If individuals do use a credit card, setting up a direct debit is a good idea, as it eliminates any possibility of a late payment through carelessness. It only has to be set to cover the monthly minimum.

As always, budgeting is also essential. Consumers should be aware of their incomings and outgoings, as this is the only way to have an accurate idea of how much disposable income they will have each month. 

By Joe White