Shrink avoidable debt 


“Avoidable debt” versus “productive debt”

Avoidable debt can result from borrowing (often on high interest rates) to pay for items which are likely to lose value, and won’t do anything to help you earn income - such as paying for an exotic holiday or a jet ski on credit.

It can also happen through the way you manage your debt. For example if you pay only the minimum repayment amount of your credit card debt,  the following month your debt will increase by the interest on the balance. If you miss a repayment, you’ll probably also be charged a late fee.

Productive debt is the debt you incur from borrowing to pay for assets. These are items which are likely to keep or increase their value, and/or help you earn income.  It’s wise to only borrow to pay for these things, because in the longer term you are likely to be financially better off as a result of having them. If you can, it’s still better to try to save up at least a portion of cost of the item.

Examples of assets include:

  • a home or rental property
  • a course of study towards a trade or professional qualification
  • Premises, equipment, and other costs to start or grow your business

Although a car might be essential for your work (and therefore an asset), it will lose value as soon as you’ve bought it and will continue to lose value over time. So if you borrow to buy your car, you could find that it loses value faster than you can pay it off.


Mantras for avoiding debt

  • Borrow to buy an asset.  Save up to buy anything else.
  • Pay off your high-interest debts first.
  • Use your spare cash to pay off debt (not for shopping sprees).
  • Only spend what you can afford to pay/pay back

Much unnecessary and expensive debt comes about through the over-enthusiastic use of credit cards or hire purchase payment plans.


Credit cards 

  • If you’re getting a new credit card, shop around for the best deal.
  • Try not to have more than one credit card.
  • Review your credit card limit. It should be based on how much you can afford. If it’s too high you risk getting into greater debt which is then harder to pay off.
  • Aim to pay off your credit card debt each month.
  • Don’t use it to make cash withdrawals, as you’ll probably be charged high bank fees for this service 
  • If your credit card debt does become unmanageable, talk you your credit provider about your options. And stop using it.

Read more about this on our Credit cards page.


Hire purchase 

  • Before you enter a hire purchase agreement, make sure you know what all the relevant fees are.
  • If it’s a 0% interest deal, find out what the interest rate will be if you don’t pay it off by the end of the interest-free period – and aim to pay it off before then.
  • Ask for a copy of the disclosure statement – the law requires that you be given one before you sign the hire purchase agreement, or within five days of signing. You have three working days from the time you receive the disclosure statement, to change your mind and withdraw from the deal (but you will still have to pay for the goods or services)  
  • Try not to have several hire purchase accounts going at the same time, as it will be hard to keep track of them all


How old will you be by the time your debt is paid off?

You can get an idea of how much your debts are costing you, and how long it will take to pay them of, by using the Sorted Debt Calculator


Financial Support

If you are struggling to pay for the essentials it’s worth checking that you are getting all the Government assistance you are entitled to. Check out our information on tax credits, family assistance and benefits.

If you want any help with this contact your local Citizens Advice Bureau.


Help with budgeting

If you are struggling to pay off your debts then it might be worth seeking budgeting help. Your local Citizens Advice Bureau can help you find a budgeting service that can assist you.