Money: borrowing money and managing debt

This section highlights some very important questions to ask before borrowing money. It also describes some types of borrowing, offers advice on how to borrow wisely and looks at what to do if your debt has become unmanageable. There is a lot of text in this section. Don't feel you have to read it all in one go.

We list details of useful organisations that can give you more information and advice on borrowing and debt (see the section 'Resources', linked to below). Please read our information sheet Managing your money before looking at this one, and keep them both together.

Introduction

You might think about borrowing some money if you really need some extra cash. This could be for a number of reasons, including:

a new life situation, such as moving home, starting a family or beginning a college course
helping you through difficult times, such as illness or losing your job
spreading the cost of a large item, such as a house or a car, which you could not afford to pay for in one go
tiding you over if you have irregular cash flow for example, if you know you are receiving a payment next month but need some money in the meantime.

However, borrowing is a big responsibility, so its essential to ask yourself some important questions before you borrow any money.

Do you need to borrow at all?

Borrowing money can lead to serious problems with debt if your income drops or you lose your job. So before you borrow, see if there are other options. For example:

Could you save instead? If you want to borrow money to pay for a holiday, or a large item, could you wait a few months and save up the money instead?
Is there anything you could sell? If you want to get a lump sum, do you have anything that you no longer use that you could sell? You could put an advertisement up in a local shop, run a stall at a local car boot sale or sell online through a website such as eBay.
Can you reduce your outgoings? Can you reduce any non-essential spending by, for example, going out less, walking instead of taking the bus or cooking from scratch rather than buying takeaways? Do a budget sheet listing all the money you might spend each month. For help with this please see Get a clear picture of your finances on page 5 and our information sheet Managing your money.
Can you increase your income? If you are in employment and need some extra money in the short term, can you do any overtime? If you need a longer-term solution, could you find a better-paid job or work longer hours?
Are you receiving all the benefits and tax credits youre entitled to? If youre not sure, contact the Autism Helpline on 0845 070 4004 to book an appointment with our Welfare Rights Service or contact the Benefits Enquiry Line on 0800 88 22 00 (if you live in England, Wales or Scotland) or 0800 22 06 74 (if you live in Northern Ireland).

Can you afford the repayments?

Borrowing is not a bad thing in itself, but it is expensive. It is important that you check you can afford the repayments before taking out a loan, and that you stay in control of your debt and manage it carefully. Use the budgeting information in our Managing your money information sheet to help you work this out.

What are the consequences of not managing your debt?

Remember, if you don't manage to keep up with the repayments for the money you borrow (known as the 'debt'), things can become unmanageable very quickly. This can result in three types of difficulty.

Financial When you borrow money, and especially if you dont keep up your repayments on your loan, the interest builds up over time. This means that the amount you owe can increase very quickly.
Practical If you dont keep up your repayments, you may receive a negative credit scoring or county court judgment, become bankrupt, or even have your home taken away from you. (We will look at each of these possible outcomes in detail later in the information sheet.)
Emotional When debt becomes unmanageable, people often experience feelings of fear, stress, guilt, shame or anger. If you are in debt, you may receive lots of phone calls and letters from the companies or people you owe money to, and you may be asked if you want to pay off the debt in one go on a credit card but that may just make matters worse. Some people say that worrying about debt stops them enjoying other things in life.

Tip: if you need to borrow money, make sure you can afford the repayments and that you are really well-informed so that you can get the best deal for your personal circumstances.

Also in this section:

The main ways of borrowing

Here, we describe some of the different forms of borrowing and the risks and responsibilities involved.

Borrowing wisely

If you do decide to borrow money, make sure you do it wisely. Here are some tips to make sure you get the best deal for you, and to prevent yourself from getting into difficulties.

What if you are struggling to make all your payments?

Understanding what happens if you don't pay will help you prioritise your bills - in other words, decide which are most important to pay.

What if your debt has become unmanageable?

If you are consistently struggling with debts and meeting repayments, you need to take action. If you are in this situation, try not to worry - many people find themselves in debt, and there is a lot of support and advice available.

Resources - borrowing money and managing debt