How Do You Know You Have Debt Problems?

Do you know what debt is? Sounds like a silly question right? But, you’d be surprised how many of us don’t understand the meaning of it enough to recognise whether it has become a problem.

A simple definition of debt  is a sum of money that is owed or due, a financial obligation that you are bound to pay back.

Words generally associated with personal debt are arrears, overdrawn, overdue payment, liability – all things we’ve all heard at some point in our adult lives going as far back as when we did a borrow from the bank of mum or dad.

Debt, contrary to popular belief, isn’t a bad word. It’s when debt becomes a bad debt’ that alarm bells should ring and we recognise there’s an issue that needs to be tackled.

So, is there such a thing as a good debt’? Well, believe it or not, yes there is! But, what should be considered a good debt and how do you know the difference?

In Layman’s terms, a good debt is a sensible investment in your financial future, should leave you better off in the long term and shouldn’t impact negatively on your financial position.

You should have a valid reason for taking it out and have a sound plan to pay it back, allowing you to clear the debt as quickly and as cheaply as possible, or by making a series of regular affordable payments – such as a mortgage.

Anybody with a good debt will have identified the cheapest possible way of borrowing the money by finding a lender with the best borrowing method. An interest rate, credit or loan amount with terms and charges suited to their needs.

Some typical examples of good debt are:

  • Student loans. Graduates typically earn better wages than non graduates so you can count a student loan as a good investment in your future. The interest rates are relatively low and you only start to pay the money back when you are in a financial position to do so.  
  • Mortgage. Taking out a mortgage allows you to buy a financial asset which is likely to grow in value over the years. It’s also better to pay your money into your own investment rather than paying off someone else’s.
  • Buying an affordable car. A car is not a luxury if you need it to get to work and can be considered a good investment if you do, if you have chosen substance over style that is. There is little need in buying a gas guzzling monster truck if all you need to do is nip up and down the motorway on your own five times a week!
  • Starting your own business. As the saying goes, ‘you never get rich working for someone else’. If you have a strong, realistic business plan, a loan to set up on your own should be seen as a sound investment in your future. If your business goes well, you should earn substantially more than the money you borrowed to get going.

Now we have an understanding of what good debt is let’s tackle the bad. Classic examples of bad debt are:

  • Borrowing to pay bills. It is a recipe for disaster. As you pay off one bill you’re creating another!
  • Brand new cars. New cars lose 20% of their value the minute it leaves the car dealership as the VAT you’ve just paid is already gone. Do you absolutely need a new car? If not, you’re running up unnecessary debt. If later down the line you can’t afford to run the car, you’re left with the decision to sell it for much less than you paid leaving you to cover the difference!
  • Luxury holidays. Borrowing to go on luxury holidays already indicates you can’t afford it. There is little point going on the holiday of a lifetime, if it takes a lifetime to pay it back. Nobody is saying never go on holiday, but choose one that is affordable to you.     

If you are already borrowing to get from month-to-month, you already have a problem with debt, whether it’s credit cards, utility bills or council tax you’re struggling with. But don’t worry just yet, because you can get out of debt.

How do I know if my debts are spiralling out of control?

You may be missing your utility bill payments, paying the minimum credit card payment or not keeping up with your rent and council tax and are left in arrears – all huge signs there is a problem.

You’re not alone, it’s estimated that the average person in the UK owes over £5,700!

A lot of people sit there, void of hope, thinking there is no possible way out of their debt. It’s just too much to handle right?


There is much you can do, taking back control is the first step. If debt has control over you, how can you possibly tame it?

What’s so bad about being in debt?

It’s rare for someone to never have money worries at some point in their life. Marriages fail, jobs are lost, people get sick, homes lose value and bills start to pile up.

No one is immune from debt. When it strikes we can find ourselves in the middle of a crisis, left to deal with a whole catalogue of material and psychological consequences.


Money problems can be self-inflicted though behavioural patterns that compel someone to spend with little thought for the consequences. Misusing money is self-defeating and can lead that person into debt and financial emergency.

Regardless of how someone get’s into debt, once there it can trigger unsettling emotional responses – especially if the debt appears to be unmanageable or overwhelming.

Yet, for some people their initial reaction to being in debt is denial. These debtors find it too difficult to face the terrifying financial facts, continuing to spend compulsively whilst ignoring their deteriorating financial well-being.

They put off dealing with the issue until an outside event strikes – being denied for more credit, a bailiff calling, the threat of legal action – forcing them to change their lifestyle and start tackling the long-overdue problem.


On the flip side. Many people find themselves all too aware of the financial trouble they have gotten into, leaving them constantly worried and restless. It leaves them unable to sleep as they can’t stop thinking about how they are going to pay back the money owed.

Eating habits are affected, and stress levels prevent them from being able to properly function at work, at home and in their everyday lives.

Persistent stress of this nature can lead to some serious physical and psychological conditions.

Fear and panic

For some, worry descends into fear and panic. Terrified to answer phone calls in case it is a creditor chasing payment.

Letters are left unopened for fear of it being another bill. You’re never home, regardless of who has come knocking. You feel as though you will never escape the weight of your financial obligations.  

Social contact is shunned for fear that your constant apprehension and paranoia will have a detrimental effect on relationships with family, friends and work colleagues.

Every aspect of your life becomes infested with anxiety.


Debt can make you extremely angry. Angry at yourself for putting yourself in this situation in the first place. Angry with your boss for not paying you enough. Angry at the harassment from your creditors and the never ending interest charges that continue to rack up.

You can get angry with loved ones due to the burden they place on you financially.

Why can’t I just win the lottery and put an end to the worry? It’s makes me so angry!


When debt has become the overriding problem in your life, sinking into depression is a very real possibility. You can be left in a state of of hopelessness, feeling your money problems cannot be fixed.

A depressed person may withdraw from the world, stay in bed all day, cry uncontrollably, or even turn to alcohol and drugs to numb the pain of perceived failure and disappointment.

Any of the above mentioned emotional responses could be serious enough to seek medical advice. In addition to dealing with your debt, it is also important to see a doctor about any physical or psychological problems that have developed.

How do I work out how much debt I’m in?

The quickest and easiest way to find out the full extent of your debt problems is to check your credit file. Anything you owe is going to be found in there, it can be daunting at first, but it’s crucial to get the full picture.

Not only will you know how much you owe, you’ll know exactly who you owe. As worrying as it can be to face just how much you owe, it is vital so you’re able to form and execute a plan of action.

There is no such thing as too much or too little debt, if it’s a worry to you then it matters.

You may want to consider talking to a trained debt adviser if you feel your debts problems have got out of control.

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Thinking Thrifty

David Naylor is the editor of the Thinking Thrifty blog. An award winning personal finance and lifestyle blogger, he shows how it is possible to live extremely well for less.
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