An estimated 8 million U.K. residents are struggling with some form of excessive debt and routinely miss payments for obligations. Projections from PwC show that by 2020 each household will have accumulated £12,500 in unsecured debt. It is estimated that only about 20% of these individuals faced with large debt seek advice from others. Those faced with too much debt are encouraged to create a practical plan of action. Response Funding Limited is a lender in the U.K. that provides short-term loans to those with an immediate need for cash. We encourage consumers to responsibly manage debt and understand the best practices for protecting their long-term financial stability.

How Younger People View Debt

A Cambridge University study suggests that younger people often lack proper guidance about debt. They believe that attitudes regarding debt begins to develop during childhood. Roughly 70% of those between the ages of 15 and 17 expect to use credit for purchases before they are 19. The majority of people have more debt than they should. The key is to create a plan for debt reduction that is realistic and then, adhere to it.

Understanding Secured vs Unsecured Debt

  • Debts classified as unsecured are not supported by an “underlying asset”, often referred to as collateral.
  • Common examples of unsecured debts include medical bills, credit card debt and forms of personal loans.
  • Lenders are generally taking a greater risk with unsecured debt, which results in higher rates of interest in most cases.
  • Common examples of secured debts are home mortgage loans and car loans.
  • Assets such as homes or cars may be repossessed by the lender if the loan is not repaid.
  • Lenders generally consider an applicant’s past credit history, current income, and other factors for both secured or unsecured loans.
  • Since secured debts tend to carry less risk for the lender, they may offer lower rates of interest.
  • Many secured lending agreements, such as those for home purchases, have lengthy terms that often extend for 20 to 30 years.

Assessing Your Debt

The first step to becoming debt free is to organise your approach and formulate a plan. You should compile a list of each debt and note the amount and rate of interest. Many consumers are reluctant to take this crucial first step because of the sobering reality of the amount owed. It is important to stay positive and understand that reducing and eliminating debt is a process that takes time.

Creating a Budget

When beginning to form a budget, you should list all sources of regular income and all current expenses. Next, you must eliminate unnecessary expenses. These commonly include entertainment, vacations, restaurant visits, and health club memberships. The key is to significantly reduce your outgoing income and redirect it toward your debts. Keep in mind that these measures are only a temporary sacrifice. Many people resist this process because the commitment to eliminating debt requires a change in lifestyle. You must transition with these changes and remind yourself of the importance of doing so. It is also critical not to acquire any new debt.

Understanding Minimum Payments

When you review your credit card statement, you will see that the company establishes a minimum payment amount. If you pay this amount each month on time you will not hurt your credit score. However, if you miss payments your credit score will suffer. Merely paying the minimum lengthens the payback period until the debt is paid and increases the amount of interest you pay. Credit card companies tend to set these minimums low, typically between 2 and 5%. Part of your goal should be to pay more than the minimum whenever possible. We will illustrate this in a chart calculation below.

Priority on High-Interest Debt

Your debts with the highest interest rates should be prioritised because they are more costly. You will want to be sure that the monthly payments for other debts are kept current. Try to pay slightly over the minimum payments so they continue to diminish. Direct monthly debits may be scheduled for the lower interest debts to avoid any potential late fees. Once the debt with the highest interest rate is paid, you simply redirect those funds to the next one. You will gain more momentum toward paying off your overall amount of debt when each higher interest account is paid in full.

This chart shows the clear impact that the interest rate has on your ability to pay off a debt. It is based on making the minimum payment of 3.5% each month.

Balance OwedInterest Rate (APR)Months to PayoffInterest Paid
£ 100018%55£ 439.67
£ 100015%51£ 333.65
£ 100012%48£ 245.41
£ 10009%45£ 170.51
£ 10006%42£ 106.00
£ 10003%40£ 49.70

It is apparent how increases in the rate of interest lengthen the time needed to reduce the debt. In addition, interest rates have a dramatic effect on the total amount of interest that would be paid.   

Balance Transfers

Many credit cards offer 0% or very low interest rates on balances transferred from other cards. Take advantage of this when possible, as you will be able to reduce the principal balance owed more rapidly. You may also be able to negotiate with lenders. Often, you simply need to contact them and express a desire to reduce rates on existing accounts.

Debt Consolidation

Consider opportunities to consolidate your debt, particularly when a consolidation affords you a lower interest rate. It is also more convenient to make one monthly payment instead of managing various accounts and due dates. One potential debt consolidation strategy involves using a personal loan with a better interest rate to merge debts and pay them faster.

Boost Income

Another way to pay off debt more rapidly is to increase your income. This is best done in conjunction with the other strategies. Consider part-time opportunities or seasonal jobs. If you have unwanted possessions that are valuable, you may consider selling those as well.

Marital Considerations

One of the most common reasons why consumers find themselves with enormous debt is divorce. A divorcee may be moving to a new home and may be transitioning from a two-income household to a single-income. Those amid these turbulent times may “justify” using credit to purchase new high-priced items such as new furniture. Sometimes, married couples seek to eliminate their mutual debts. In these instances, the strategies are basically the same. One potential problem is ensuring that both parties are equally committed to eliminating the debt.

Student Loan Debt

The average yearly cost for university students in English schools is currently £9,250. The government currently sets the interest rate for student loans at 3% above the current rate of inflation. You should plan to pay about 6%. Once these students enter the workforce and begin earning a minimum of £25,000 a year, they will begin repaying the balance. The payments will continue for a period of up to 30 years when any remaining balance is forgiven.

Staying Motivated

Those who are committed to reducing and eliminating their debt may fall into negative patterns similar to dieters who are trying to lose weight. The individual may begin a program of healthy eating and regular exercise to reach a healthy target weight. After meeting this goal, the person may begin to relax their dietary regimen and exercise less frequently. Ultimately, the same problem will surface again shortly by reverting to the same decisions and behaviours.

Learning From Mistakes

Those who are successful in reducing or eliminating large amounts of debt should recognise their prior mistakes. The key is to live “below” your financial means and begin to save money for an emergency fund. Approximately 12% of U.K. consumers have no savings—many of which rely on credit for unexpected expenses. Limit your usage of credit in the future and avoid “impulse” purchases.

Paying Debt Quickly

Proper planning is necessary to maximise the reduction and elimination of your debts in an efficient manner. The process should employ a combination of the various strategies outlined. You must identify and understand the debts you have. Lowering interest rates by transfers, consolidation, and negotiation is effective. Making the decision to cut unnecessary expenses is hard, but is critical to aggressively paying off debt. Identifying and creating opportunities for earning extra money will allow you to get results.

Lending Practices

The Financial Conduct Authority (FCA) oversees licensing and regulation of lending as part of their overall management of the U.K. financial sector. The organisation says their intent is to promote competition among lenders and maintain the integrity of the market to protect consumers. If you think a lender is charging you unfair interest levels or fees, you can verify compliance using the Consumer Credit Register tool.

Financial Benefits of Short-Term Loans From Response Funding

  • Unlike many credit purchases, our online loans have a defined period for payback that does not exceed three months.
  • Our repayment schedule is designed to allow borrowers to continue to satisfy their other financial obligations.
  • The fees and interest charges are clearly presented (not exclusively revealed only in the fine-print of the agreement terms.)
  • Under responsible lending practices, our underwriting staff ensures applicants are in a financial position to feasibly repay the balance.
  • Although you may receive the funds quickly, our loans are far less likely to be used for unneeded “impulse” purchases than credit cards.
  • We employ a state-of-the-art platform for data and information security. Sensitive data such as your personal identification and bank account information is protected in real-time using advanced encryption and authentication.
  • Those with past credit problems may still qualify for our personal loans.
  • We are properly registered and approved in the U.K. under FCA requirements.

Borrower Requirements

Our loan products are designed as a short-term solution and are not suited for individuals that are currently unemployed or experiencing longer-term financial problems. You must be an adult resident of the U.K. and have an active bank account for processing transactions electronically. The initial maximum loan amount is £125. Our loans rates are a 0.8% daily rate of interest, a 1304.41 APR, and a fixed annual rate of 292%.

Provider of Personal Loans in the U.K.

Did you know that borrowers with less-than-perfect credit may still be approved for a fast loan from Response Funding Limited? There is no collateral required or guarantor needed for approval. We offer an application process that is quick and simple. You may apply 24-hours-a-day from the comfort of your own home using any internet accessible device. This is a much easier option than having to visit your local bank or credit union to initiate the process. Our loan representatives may be able to approve your loan application in as little as one day. Those in need of quick cash should get started today.