Transcript: How to get on top of your debts in 2024

This is an audio transcript of the Money Clinic podcast episode: ‘How to get on top of your debts in 2024’

Claer Barrett
Hi, it’s Claer here. You’re used to hearing me on Money Clinic, but now you can find me in your inbox, teaching you everything you need to know about money with my new Sort Your Financial Life Out course. Over six weeks, I’ll help you to make smarter money decisions with tips on budgeting, tax breaks, property, pay rises, and investing. In short, everything you wanted to know about managing your money but were far too busy to ask. To find out more and sign up for the series, visit FT.com/moneycourse. That’s FT.com/moneycourse.

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We all know the feeling. The magic of Christmas is over and the reality of credit card bills is sinking in.

Sara Williams
For a lot of people. It’s seeing that the debts have got to the point where they are now getting really, really uncomfortably high.

Claer Barrett
Maybe you’ve resolved to pay down debt or cut your spending in the new year. Both admirable goals, although easier said than done.

Pamela Roberts
The process of change is going to take effort. It absolutely is.

Claer Barrett
So if you could do with some insightful, practical and non-judgemental advice about how to deal with your debts in the year ahead, this episode is for you. Welcome to Money Clinic, the weekly podcast about personal finance and investing from the Financial Times. I’m Claer Barrett, the FT’s consumer editor. This week’s episode is devoted to helping listeners tackle their credit card debt on a practical and emotional level, no matter how big or small they might be. Lots of you have sent in questions about the best ways of tackling debts, finding the best balance transfer deals and where to get help and much more, which we’re going to tackle with our three fabulous experts. They each provide insight into different areas of credit card borrowing and spending. So let’s meet them, starting with Sara Williams.

Sara Williams
Thanks, Claer. I’m Sara Williams. I write a blog called Debt Camel, debtcamel.co.uk. And I’m on Instagram as @DebtCamel.

Claer Barrett
And I would urge everybody listening to the podcast to follow Sarah because her posts are excellent and informative. Then down the line, we have Dr Pamela Roberts.

Pamela Roberts
Hello, I’m Pamela. I’m a psychotherapist. I work with the Priory Hospital, particularly in Woking, and I work with addiction, very interested in shopping addiction and the links with trauma.

Claer Barrett
Well, thanks for joining us today. And regular listeners might remember Pamela from last year’s psychology of shopping addiction podcast. And last but not least, Helen Saxon, who is the deputy editor of MoneySavingExpert.com.

Helen Saxon
Hi, I’m Helen. I work for MoneySavingExpert.com, which is a personal finance website, and obviously one of the things that we cover on the site is debt, is credit cards, how to deal with them best, which best credit card for you might be and what to do if things go wrong.

Claer Barrett
Lots of education on your site as well as application. Well, thanks so much, experts, for joining me today. This show is all about tackling the shame and stigma of talking about debt, even though the pressure on household budgets from inflation and the cost of living crisis is making debt an even more common problem. Now, I want to start with you, Sara. Over the last 12 months, what are the biggest changes you’ve noticed from the people you’re speaking to?

Sara Williams
I think for a lot of people it’s seeing that the debts which were probably heading up in 2022, have got to the point where they are now getting really, really uncomfortably high, particularly when we’re talking about credit card debts. A lot of people are finding they now have too much credit card debt on 0 per cent deals to be able to refinance them when they’re ending. And overlapping with those group of people and often causing the most heartache is to worry about mortgage fixes ending.

Claer Barrett
Hmmm both big pressures on our budgets. And Pamela, how have you found things have changed over the last 12 months with your work?

Pamela Roberts
What I’ve noticed is more cost consciousness. A lot of the people I meet with are financially stable, I have to say. But there is a change. There’s the thinking about the cost of therapy or the frequency of sessions and the affordability of what once was a crucial part of their their wellbeing is now being questioned a little bit. Compared with Covid when I was seeing an increase in discussions about shopping and shopping becoming problematic, spending, addiction. So it’s been an interesting shift from my perspective.

Claer Barrett
And finally, tell us a little bit, Helen, about how the actual credit card market has been changing because Money Saving Expert is one of the biggest websites where people can compare apply for deals. What insights do you have?

Helen Saxon
I think the market has got worse over the last 12 months, probably two years. You’re looking at Sarah mentioned 0 per cent deals, which is something you can find on our site. And you know, whereas you might have got 35, 33 months at 0 per cent a year ago, you’re now looking at 29, 28 as the top deal.

Claer Barrett
Well certainly we’ve had question from listeners about that which we will tackle as the show goes on. But we’re going to have a huge range of people listening today. Some will have flexed the plastic a bit too much over Christmas and need to rein in their spending. But others could be finding dealing with debts really overwhelming. Sarah how would you reassure them?

Sara Williams
If this is the first time, you’ll really realising you have to tackle debts, there are probably quite a lot of small things you can do which can really help just going through your bank statements. It’s daunting to get going, but getting going is the key thing. Because if you don’t get going and you just try to muddle on for a few months, it’s always in the back of your mind and it doesn’t go away. So although it may feel hard to tackle the debts, it’s also hard to just try to ignore them and get through.

Claer Barrett
And Pamela, would you add any words of reassurance?

Pamela Roberts
I think it can be daunting. So actually, my worry is that it’s possible to change. Every day brings new opportunities for change and that we can find healthy options to feel better. And there is freedom from the stress of debt and spending.

Claer Barrett
Let’s start by examining the problem of how we run up these credit card debts in the first place. I mean, obviously the cost of living crisis is not helping this area, as Sara was saying. But what’s going on inside our minds when we pay on plastic?

Pamela Roberts
We talk about having the down days. We have this nice way of spending some money and we feel a little bit better. It works. It actually does what we want it to do. But as it becomes problematic, then we need to look at the bigger picture. What was driving that? Is this something that we’re trying to avoid or trying to escape? Is there a need for this spend right now and the how the wave and go, the flex of plastic, the storing in cars? There’s a new meaning to transaction denial. There’s no engagement with the real cost element of spending. And certainly as it becomes addictive and it gets into that kind of darker side of things, that it then becomes its own problem. It’s become something else.

Claer Barrett
Sara, one of the most common questions that I had coming in from listeners was people who were 18, 19, 21, maybe in their first job saying, should I get a credit card in order to build up my credit score? Now you cover that off very nicely on our last podcast. There’s a link in the show notes, but getting credit cards too young is a big problem often for many people.

Sara Williams
I think it is credit cards and indeed overdrafts. I don’t think 18, 20, 22 year olds’ brains, most of them, are very good at planning for the long term. You’ll always get a few really, really sensible old heads on younger shoulders.

Claer Barrett
Hands up. I was rubbish.

Sara Williams
So many people are. So you find out, you know, when you’re 20, 24, you’ve got this credit card debt and you can’t really remember buying anything apart from pizza, so you haven’t got anything to show for it. And in many respects, I think people get credit cards too young and that building up your credit score can wait. Certainly when you’re at university, don’t get a credit card. Wait till you’ve actually got a job, wait till you’re actually budgeting for everything in your life. And then think, what more do I actually need this credit card? Do I need it just for my credit score, so I’m going to pay it off every month in full. Or do I need to borrow on it? And don’t see it as free money. Too many people in their early twenties see it as free money and spend their late twenties and thirties trying to recover from that.

Claer Barrett
Helen.

Helen Saxon
So just a personal anecdote here. I went to uni, there was a credit card company in the student union. They, I think, they were offering a free camera if you signed up for a credit card. I duly signed up for a credit card. I, to be fair, I only got about £50 worth of spending on it. But you know, I didn’t understand it. I didn’t really know what they were and I didn’t pay anything back. I just thought, well, it’s a credit card and I can pay it back when I can pay it back. So I didn’t even pay the minimum payment. And I got a letter saying you didn’t pay the minimum payment. And I was like, but it’s a credit card. So yeah, I think you need to understand what you’re signing up to. And that goes just as much if you’re 18 as if, you know, you’re older.

Claer Barrett
Now, another kind of psychological trick credit card companies can play on us is offering points or cashback on our spending. Now, Sara, this is something that I’ve had more questions on Instagram about than anything else. What do you think about points? Are they a valuable perk or a slippery slope to higher spending?

Sara Williams
I think it depends what your overall finances are like. If you actually don’t have any debt problems at all and you want to put all your credit card spending through a certain card to get Avios points or whatever, well, good luck to you. Not a problem. But the problem comes where you are trying to get your debts down. But part of your brain is saying, oh yeah, but if I buy it on this card, I get cash back or points or whatever. If you have decided that you want to get your credit card balances down, the answer is to stop spending on your credit cards. Don’t be fooled by cashback points. Any forms of those offers, you can go to banks. Chase will give you 1 per cent cashback on debit card spending. So don’t be fooled by points. Just say no to credit card spending. If that is what you want to do and what you need to do.

Claer Barrett
Helen, anything to add on credit card points?

Helen Saxon
Look, I’d echo that. The most important thing is that you’re going for points and you’re putting all your spending through that card to get the points, that’s fine as long as you pay it off every month and you know, you can afford to do that because if you’re paying interest, it’s absolutely wiping out the gain you get from those points. And it’s just pointless.

Claer Barrett
And the interest on some of these points cards is really high. You know, 70 or 80 per cent APR annual percentage rate for the ones especially that offer Avios or airline incentives. Now, some of them even charge a fee. You pay an annual fee and then you get double points. Could that ever be worth it?

Helen Saxon
Again, you know, it depends on your finances and what you could get from a free credit card or a free debit card. You know, measure it. Measure what you’re getting from the card that charges you a fee that you couldn’t get from a card that doesn’t charge you a fee. And if it’s not worth at least the value of the fee, then it’s definitely not worth it.

Claer Barrett
I mean, my feeling as a financial journalist is that firms, themselves, wouldn’t offer these deals if they didn’t make a profit from them. So let that be a warning to you. I’m going to talk now a little bit about what people could expect if they approached a debt advisor like Sara or a therapist like Pamela for help with bringing down their spending and tackling their debts. Pamela, if somebody approached you for professional help with their spending problems, what kind of things would you be doing together?

Pamela Roberts
The one thing you can’t expect is to be able to continue this self-defeating behaviour and get rid of the consequences. So I think quite often people would like that. They’d like to be able to carry on and not have any problems. But I think some of it is a little bit of reality therapy says let’s sit down and look at what is really happening here, what’s working, what’s not working. If we look at values, what really matters in life, are you living to that best version of yourself? What are your finances looking like? What’s happening in your social life to be looking at what? What’s actually possible to change, making small changes, whether the behaviour is matching the belief. If we believe nothing is wrong, then we carry on with the behaviour. But also importantly, everyone gets to a point where they can change and so looking at how do you want to invest your time? What are the areas that you really want to start building and progressing? How do we get that drive and motivation to keep making these changes? So many things. And it is exciting. It can be really exciting. It’s self-exploration. What can be more exciting than that?

Claer Barrett
Well, that’s one way of talking about it. I mean, the emotional side of tackling money problems is something that I find fascinating. But Sara, when people approach you, a qualified debt advisor, for help, they’re often looking for much more practical measures. Talk us through the kind of things that would happen.

Sara Williams
What happens when you talk to a good debt advisor is the first thing they want to go through is to get a picture of your current situation, which is a list of your debts. All of them, including things like the overdraft and the old buy-now, pay-later, as well as your big credit card debts, your income and your expenses. When you’re being asked about this, it’s easy to feel that the person asking you is going to say, well, can’t you switch to eating more porridge and baked beans and not put so much on food or something? That is not what a good debt adviser wants to do. A good debt adviser wants to find out what is a realistic budget for you and your family to live on for a prolonged length of time. So when you talk to a debt advisor, be very realistic about what you’re actually spending on food. You may have been used to spending £300 a month on food about a year or so ago. You probably can’t manage that anymore because prices are going up. So don’t say, I’m sure we ought to be able to cut back to 300. So I’ll say 300 because they might criticise me if I spend more. Just be honest and also think about what you’re not spending money on which you need to spend money on. So you’re not putting by any money every month for car problems when they do happen. That doesn’t mean you’re not going to get any car problems. It is when they come up you’ve got a crisis coming forward and you may be reaching for the credit card. So think about the erratic things which happen in your life and be really realistic because that’s what a debt advisor wants to hear to get the proper picture of your situation.

Claer Barrett
Well, a very interesting insight. And thank you, Sarah, for teeing us up nicely for the second part of the podcast. Now we’re going to move on now to the more practical aspects of tackling debt, shifting debt between cards. And there are tips in here that we can all learn from. So if listeners have resolved to tackle their debts in 2024, where should they start? I mean, the budgeting plan that you set out there is something really that we should all be doing.

Sara Williams
Budgeting, I think, could help almost everybody unless they have so much money they don’t even really notice. Budgeting is a plan for what you want to spend your money on. It’s not restrictive. It’s you making positive choices rather than getting to the end of the month and finding that it’s all just sort of gone away, you’re not quite sure some of it was spent on. So budgeting helps almost everybody. Look for those small wins and talk to your partner. You and your partner really do need to be on this journey together. It won’t help if you decide you want to cut back on the number of takeaways and three days a week you say, well, let’s just get a pizza.

Claer Barrett
Yeah, it’s very true. They’ve got to be on board. What other practical budgeting tips would you share, Helen?

Helen Saxon
You’ve got to budget across the year, not just for the month, for the car that might break, for the holiday, for Christmas, for whatever it happens to be that you spend your money on, even if you’re not spending it in that month. And I think the other one that a lot of people find useful is putting money into pots. And then so, you know, you might have a pot for all your household bills or indeed each one for each bill individually. And then you might have a pot for spending money. You might have a pot for an emergency fund. And it can help just to be like, right, all the bills have gone out of there. So what’s in here is my spending money and I can’t go there or there because that’s committed to something else.

Sara Williams
Often the one single thing that can help transform people’s finances is to get a separate account for all of your bills where you move that money into that account when you are paid, then all the bills go out by direct debit or standing order from that account and you don’t have to worry about that. What is left in your other account is all the money you have to spend for the rest of the month. It’s really simple and it clarifies your position a lot.

Claer Barrett
And it’s so easy to do that now with digital bank accounts and the ability to set up these systems that control things for yourself. Pamela, I’m sure that you’ve probably got some tips for people who want to change their habits.

Pamela Roberts
Habit is strengthened through repeated performance in association with reward. So if it is the wave-and-go pattern, then limit that to only small items and no more than three to five times per day in some cases. Actually change the pattern and buy larger items in a different way. Weighing up pros and cons. So then looking at the times of day that you shop. If it is the weekly food shop, for example, do it with somebody else so that it’s not just buying and flicking through things or walking down aisles. Take somebody with you. Not always easy to do, but the process of change is going to take effort. It absolutely is. It’s creating new rituals. We are creatures of habit so we can undo the unhealthy ones and introduce new habits. It’s like a muscle. You have to build a new muscle and it takes a bit of time to do this.

Claer Barrett
Hmm. Well, we’re going to discuss balance transfers for the next part of the show, because this is something that people have had a lot of questions about. So first, Helen, just give us a breakdown of what a balance transfer actually is, why people are doing it, and why they’re coming to MSE to look for the best deals.

Helen Saxon
OK. So at its very simplest, a balance transfer is where you get a new credit card, which has a 0 per cent deal for a certain number of months.

Claer Barrett
So no interest.

Helen Saxon
No interest. Usually there’s a small fee, anything between one and three, even 4 per cent.

Claer Barrett
Of the balance.

Helen Saxon
Of the balance that you’re transferring to do this. And then supposing you get accepted for this card, you then say the details of the existing balance you have on a different credit card and then the new company will transfer the balance over. You will owe the new company and you will have a certain time at 0 per cent to pay it off. But it’s worth saying that interest-free, 0 per cent doesn’t mean nothing to pay. You still need to make the minimum payment at least and obviously pay as much as you can because the idea of this is you get a respite to pay off your debt rather than just putting your death off for a couple of years and then wondering what to do about it then.

Claer Barrett
Now, Sara, you were saying earlier that some people have kind of surfed the 0 per cent wave for many years. They’ve had a balance, they’ve transferred it to a 0 per cent deal, they’ve done it again, but now they’re perhaps getting to the stage where the balance is so high. Credit card companies are not saying yes.

Sara Williams
I think credit card companies are, themselves, getting a bit tighter on their offers. Helen talked earlier about how the offers tend to be a bit shorter and the fees tend to be a bit higher as well. And also the limits you’re given can tend to be smaller. It is the combination of that with an individual’s seeing their credit card balances increase over time. So their situation is getting worse and the credit card companies are tightening up can just mean that people are facing that they have got two or 3 nought per cent balance transfers expiring in the next six months or so, and it doesn’t look like they’re going to be able to get another one. So from just about managing many people, paying the minimum payments on these, when the 0 per cent ends, the minimum payment when interest is being added is going to be a lot higher. And for many people this is the tipping point at which they realise they actually have to take action to get those balances down.

Claer Barrett
Now, if listeners wanted to shift the balance, Helen, what tips would you give them about going about finding a deal and boosting their chances of being accepted? Because the more you are applying for things and being knocked back, the more damage could be done to your credit score.

Helen Saxon
Yeah, well, I’d say the first thing is to make sure you understand what a balance transfer is, how best to use it. If it is right for you, then on Money Saving Expert, we have what we call an eligibility calculator where we basically give you the chances of each lender accepting you. And obviously from there, you can kind of say, well, this lender’s much more likely to accept me than this lender who’s giving me a poor chance. So I’m going to concentrate my application there because of course, each application does have an effect on your credit report.

Claer Barrett
But the eligibility checker won’t.

Helen Saxon
Usually it won’t. So, yes, the eligibility checker works on soft searches, which you can see on your credit report but lenders can’t. Or if they can, they can’t use it to make any credit decisions. Whereas if you apply, whether you’re accepted or rejected, that does appear on your credit report and might make it slightly harder each time to get credit in the future.

Claer Barrett
Sara, what would you add about 0 per cent deals and do’s and don’ts?

Sara Williams
I think, well, what Helen said earlier is the ideal is that you get a 0 per cent deal and then you plan to clear that debt within the length of that deal by standing odd every month. But the other thing to do is that you should almost always, if you think you have got any form of spending problems at all, or you’re going to be tempted, close down the card that you’re transferring. This does make your credit score a bit worse. But the key thing is to remove that temptation, because most of the people I see with large credit card debts have done a balance transfer and then they have gone on to spend on the card that was cleared. So that’s the first thing. And the second thing is if you’re looking at consolidation loans, because you can’t get 0 per cent balance transfers, be very careful about this. You can think, well, 17 per cent loan is less than I’m spending on a credit card. A 17 per cent loan is really seriously expensive. If you can get really cheap loan, that’s great. But don’t get a secured loan that’s putting your house at risk. And if you can’t get a really, really cheap consolidation loan, take debt advice. Don’t take an expensive consolidation line first.

Claer Barrett
Well, very good advice. So if somebody is in that position where they’re thinking, my options are running out here, I need to get debt advice, what should they do?

Sara Williams
OK, start with what you shouldn’t do. Don’t click on any adverts on Google or social media, because most of those people there, even if they sound like they might be charities, probably aren’t.

Claer Barrett
It’s a big problem.

Sara Williams
They may be saying it’s free advice. Well, The advice may be free, but what they’re recommending may come with some extremely large fees. So I’m going to give you three recommendations for where to go to get good advice to start with. First of all, if you’re self-employed or you’ve got a small, limited company, your first call, in fact your only call, should be to Business Debtline. They are experts dealing with business debts and personal debts and how they are often intertwined for the self-employed. The second place is if you already have priority debt, so you’re behind on utility bills, rent, mortgage, council tax. In this situation, talk to Citizens Advice. And if neither of those apply to you, you can talk to StepChange. If you think a debt management plan will be good. That’s where interest is frozen on your debts. If you think that’s all you need, you can pay off your debts if they just stopped adding interest to those cards, talk to StepChange.

Claer Barrett
Excellent. And also important to point out that in the UK, debt advice is free. It’s something that is there for you. It’s something that you can access. And debt advisers, as you said, Sara, are not judgemental. They’re not going to tell you . . . 

Sara Williams
Certainly the the good ones aren’t.

Claer Barrett
Now finally, on the topic of credit scores, with so many people needing to refinance their fixed-rate mortgages, as you said, Sara, in the year ahead, how could credit card debts impact that?

Sara Williams
So credit card debts affect your ability to get a new mortgage in two different ways. First of all, they affect what you could actually afford to pay, and they also affect what a mortgage lender may be prepared to lend to you, which aren’t quite the same things. So if you’ve already got a mortgage and you’re coming up to a fixed ending, most people and we’re talking over 90 per cent, are with a lender, a mortgage lender who is signed up to the mortgage guarantee scheme, which started this summer. This says that if all you want is a new fixed, you don’t want to borrow more money, change the length of the term, change the people on the mortgage, anything like that, you just want a new fixed rate, almost all mortgage lenders, including all the ones that have signed up to the mortgage charter, which you can check your mortgage lender against, will not do an affordability check.

So they won’t look at you and say, well, you can’t afford this mortgage fixed at five and a half per cent. So we’re going to make you pay the standard variable rate of 8 per cent instead. Doesn’t really make sense, does it? They won’t do that. You will be able to get a new mortgage fixed no matter how much you’ve got on your credit cards or how poor your credit rating is. So the importance of this is that if you have got to unmanageable credit card debt or loans as well, it’s not just credit cards we’re talking about here, take debt advice. Look for a debt solution. This will almost certainly harm your credit score, but it’s not going to stop you getting a new fixed with your current lender.

Claer Barrett
I’m sure that would be a very reassuring thing for lots of people to know. Helen, anything to add?

Helen Saxon
I think a lot of people are rightly concerned they might be coming off even a sub 1 per cent mortgage. And while mortgage rates are coming down from recent peaks, people can expect to pay four or five per cent. And you know, especially if you have a large balance to pay off, that will be quite a lot more a month. I would say talk to a mortgage broker who will be able to advise you about what your best solution is.

Claer Barrett
And just have the confidence to look at all of your debts in the round and when things are going to run out and be engaged and planning ahead and looking at what the impacts are going to be. I mean, it’s easy to say often, but that’s hard to do, Pamela, isn’t it, when we need to have the courage to grasp the nettle of our finances?

Pamela Roberts
Yeah. And with that in mind, having a network of people to keep that encouragement going, because sometimes temptation going seem easier, especially if it’s feeling a bit too much effort. It’s important to be able to reflect what’s working, what’s not working, what could I have done better? What actually is positive and changing to keep that balance.

Claer Barrett
Sara?

Sara Williams
Pamela’s so right there, it’s lovely to talk to somebody in real life, particularly your partner or somebody you really trust about your money. But if there isn’t anyone you feel you can talk to, then you can get support from online communities. Because often being in debt can feel very lonely, even though half the country is in debt.

Claer Barrett
And the government too. Well on that happy note, I’d like to thank our experts. It’s been a really insightful show. How can people find you on social media, starting with Pamela? I think your dog is also on social media.

Pamela Roberts
She’s a happy soul. So well, I’m based at Priory Hospital Woking so you can find me there or I have my own website: Pamela Roberts Therapy.

Claer Barrett
And Sara?

Sara Williams
I’m @DebtCamel on Instagram.

Claer Barrett
And Helen?

Claer Barrett
I’m not a prolific poster personally, so the best way is to go to Money Saving Expert, which can be found @MoneySavingExp.

Claer Barrett
Exp. Well, thank you so much for joining us today.

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That’s it for Money Clinic this week. And I do hope this content has been useful. There’s much more information in today’s show notes, too. We’re always looking to chat with people about their money issues on the show so if you’re interested in being part of a future episode, then email us. Our address is money@ft.com. You could also take a peek at our website FT.com/money. Grab a copy of the FT Weekend newspaper or follow me on Instagram. I’m @ClaerB. Money Clinic was produced in London by Philippa Goodrich. The sound design is by Breen Turner, and our editor is Manuela Saragosa. You heard original tunes this week by Metaphor Music, and Cheryl Brumley is the FT’s global head of Audio. And finally, our usual disclaimer: the Money Clinic podcast is a general discussion around financial topics and does not constitute an investment recommendation or individual financial advice. For that, you’ll need to find an independent financial adviser. That’s all the small print for now. See you back here next week. Goodbye.