June 12, 2025 • 18 mins
Debt has become a fact of life for many, but that doesn’t mean it’s easy to navigate or talk about.
In this episode, our host Iona Bain is joined by Claer Barrett, Consumer Editor at the Financial Times and a passionate advocate for financial literacy. Together, they tackle the reality of debt among young people in the UK - from student loans and credit cards to the rise of buy now, pay later.
Claer breaks down how credit scores work, the traps of high interest borrowing, and why ‘negative wealth’ is an emerging issue for millennials. You’ll learn practical advice on managing repayments, understanding your options, and where to turn for help when things feel overwhelming.
So get ready to feel on top of your finances and stay there.
Claer mentioned a free guide and organisations which offer support on debt. More details are here.
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Follow Claer Barrett on Instagram
You can play the podcast and find other useful content on L&G’s website:
https://www.legalandgeneral.com/podcasts/a-little-bit-richer
Iona and her guests share their own personal thoughts and opinions in this podcast. These might be different from Legal & General’s take on things. They give financial guidance for a UK audience that’s relevant at the time of recording. It’s general best practice, not the kind of personalised advice you’d get from a financial adviser.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This series is brought to you by L&G, helping you
build a future that's a little bit richer.
Iona Bain (00:06):
Hello, I'm Iona Bain and welcome along to A Little
Bit Richer, brought to you by Legal and General. From
credit cards to car finance and buy- now- pay- later,
debt has quietly become a normal part of life for
our generation. But just because its common doesn't mean it's
easy to deal with or talk about. Whether you're just
about keeping on top of repayments or starting to feel
(00:27):
the pressure, living with and managing debt can be a struggle.
Debt is a fact of life, something we all have
to deal with, but hopefully we can do that without shame.
That's why I'm so pleased to be joined by an
incredible woman who's done loads of work to help raise
awareness of debt and the support available for those struggling
with it. That's Claer Barrett. Claer is the consumer editor at
The Financial Times, a columnist, broadcaster, and the force behind
(00:51):
the FT's financial literacy and inclusion campaign. Welcome, Claer.
Claer Barrett (00:57):
Thanks for having me, Iona.
Iona Bain (00:59):
Claer, how common is it for Millennials in the UK
to live with debt? How has society's attitude towards debt
changed over the years?
Claer Barrett (01:07):
Well, debt is a fact of life. The reason for
that is because life has become more expensive for subsequent generations.
Before we go any further, let's just say if you
have debt, whether it's good debt or bad debt, it's
not a personal failing. This is something that is affecting
all of us. But also, it's not something that eating
(01:30):
fewer avocados can necessarily resolve. There are all kinds of
reasons for that. Salaries stagnating, particularly for graduates who have
got ever- higher amounts of student loan debt that they
need to repay coming off their salaries every month. So
much so, that there's a new term that I've become
aware of. Negative wealth. Have you ever heard of this?
Iona Bain (01:51):
I can't say I have.
Claer Barrett (01:52):
Okay. Negative wealth is where your debts, which include student loans,
but also overdrafts, credit cards, any buy- now- pay- later
add up to more than the value of your assets.
Things that you own that are worth money, like a
car or a property, say. So much so, around one-
third of 25-to- 34- year- olds in the UK, it's said,
(02:17):
are in negative wealth. Now this is a survey by
the Fairness Foundation, so this is proper research. The biggest
reason why one group of people might be in negative
wealth compared to positive wealth is, guess what? Being on
the property ladder. If you've managed to get on the
property ladder, you will have an asset. But for those
(02:37):
of us that didn't have that helping hand, be paying
extortionate rents in the private sector. The big takeaway for
me here is that education and knowledge about debt so
that we can minimize the wrong type of debt and
be aware of the problems that we can get into
if we take out too much debt is embedded in
(02:59):
us at an early age because that is going to
make the biggest difference for when the negative will hopefully
turn positive later in life.
Iona Bain (03:07):
Give us a sense of the kinds of debts that
young people are leaning on in order to get through life?
Claer Barrett (03:14):
Well, people talk about good debts and bad debts. Let's
start with the good. The most obvious example is probably
student loans and mortgages. This is why we need to
understand how debt works, how things like credit scores affect
how much money we can borrow in the future. It's
those forms of so- called bad debts that could put
(03:36):
you down the rankings in terms of your credit score.
Things like credit cards, if not managed well. Things like buy- now- pay- later.
If you take out too many, then you're going to
have to rely on credit cards or your overdraft to
pay the bills, because overdraft is typically 40% interest annually,
credit cards typically 20% interest annually. But one- in- five
(04:00):
people in the UK have an impaired credit score, which
mean if they want to borrow using a credit card,
it's even more expensive. Typically, an interest rate per year
of around 40 or even 50 percent if you want
to borrow money. There's some common forms of bad debt
and bad practices managing debt. It's often unfortunately, Iona, young
(04:24):
people who don't understand what they're getting into who make those mistakes.
Then they can hang around and blight your credit file
for six or seven years.
Iona Bain (04:33):
Well, let's get into why that can turn into such
a problem for young people further down the line. Just
explain what your credit score is and what it's based on?
Claer Barrett (04:44):
Basically, your credit score is an indication that lenders will
look at at how creditworthy you are. If I were to
lend you money, would you pay it back on time
and would you make those repayments regularly? Because if you can,
then I'll be more likely to reward you with a
lower rate of interest. Whereas somebody who has paid bills
(05:05):
late or has borrowed more than they can afford, has
got into difficulty paying that money back, you can see
that they've had problems in the past because lenders can
look through your credit file, and they might charge you
then a higher rate of interest if they're going to
let you borrow. Or they might decide not to lend
to you at all. Let's say you apply for a
(05:25):
credit card. The credit card company says, " Here you go,
here's a card. You've got a credit balance of £ 10,000." Technically,
you could take that card, you could go out, and you could
buy something for £ 10,000. But the reason why you shouldn't
do that is because of something called credit utilisation. Now,
this is really big issue with people's credit scores. If
(05:47):
you borrow more than 30% of what your credit limit is,
that's not going to trouble the lender too much. But
if you were to borrow over 50% of the limit they think, " Oh,
they're utilising quite a lot of credit. This is making
them a higher risk." If they want to borrow any
more money maybe further down the line for a mortgage,
(06:07):
all of those repayments are going to eat away into
their monthly pay packets. It's going to make their affordability
look much worse if they're applying for a bigger loan
because more of their money is going towards servicing their debts.
That could also start to pull down your credit scores.
If you've got a really high rate of interest on a
(06:28):
credit card, commonly 20%, often much higher, over time, the
magic of compounding is going to work against you. The
amount of time it will take you to pay off
that balance and the amount of interest that you'll repay
on top of the money that you've actually borrowed could
really surprise you. If you know that before you took
out the credit card, would you have taken it out?
Iona Bain (06:49):
It feels like a hidden trap, whereby if you don't
know that you're not really supposed to spend over 50%
of the credit available to you, and yet you're punished
for it later, I would imagine a lot of young
people would say, " That's really unfair." If people are feeling
like they have to take our a credit card in order to
improve their credit score, but don't really want to for
(07:10):
all the reasons we've discussed, what are the alternatives?
Claer Barrett (07:14):
People think that it's going to boost my credit score
if I do this, it can actually end up getting
people into deeper financial doo- doo because they can end up spending
more money and have a bigger debt to repay and
affect their affordability levels going forward. I would say go
to your credit report, check first of all that there
aren't any mistakes on there that need to be corrected.
(07:35):
But Experian, one of the credit file people, they offer
a service whereby with open banking, you can share your
details with them. They can count regular payments that you're
making towards household bills, which could include paying your rent
on time, paying our council tax on time that could
boost your score by as much by 100 points just by
(07:56):
linking up your data.
Iona Bain (07:57):
It's just about getting the basics right, that'll do an
awful lot for your credit score?
Claer Barrett (08:01):
Absolutely. Then when you do come to apply for a mortgage,
going through a mortgage broker who will do a detailed
breakdown of your outgoings. The crucial thing that mortgage lenders
are looking at is affordability. How much money do you
have left at the end of month after meeting your
other commitments? Of course, those commitments include debt repayments. Student
(08:23):
loans are a factor of that. But if you've got
a big credit card balance, even if it's on a
naught percent interest, that's hanging around you. They can see
eventually you're going to have to pay that off and
that's the sort of thing that could count against you
when you come to apply for more credit. It's a two-
way street.
Iona Bain (08:41):
How can people distinguish between good and bad debt? We've
talked about some examples, but what are the key questions
that people need to ask themselves when they're taking out
debt in order to make sure that they're going to
use it in a responsible way?
Claer Barrett (08:54):
Well, I think if you're taking out any form of
debt to pay off another debt, that is a red flag.
You should be thinking to yourself, " Hang on a minute.
Are things getting out of control here?"
Iona Bain (09:06):
What about buy- now- pay- later? That's grown in popularity massively,
but what are the risks with that?
Claer Barrett (09:11):
Okay. Buy- now- pay- later, the big attraction of it
of course is that the payments are interest- free and
they can be split over three months. Frankly, if you're
on a tight budget, that could be a godsend rather
than paying 20%, 40% or more to borrow money on
a credit card. But let's step back a bit and
think about how the business model of buy- now- pay-
(09:33):
later actually works. Why is it that they don't charge
us interest? How, therefore, do these gigantic businesses make money?
The answer is the retailers pay them. If a retailer
offers buy- now- pay- later on its website, it knows
it will sell more stuff. We will feel like we've
(09:54):
been given magic permission to spend more money. We might
have bought a pair of jeans, but now we know
that we can pay in three. Then we'll buy a
pair of jeans, a top, and a pair of shoes.
It can make us spend more.
Iona Bain (10:06):
Spend more than we necessarily would have wanted to.
Claer Barrett (10:08):
At the moment, we have to self- regulate. A thrifty
tip that I've used for years is whenever I find
myself doom- scrolling online, putting items into the basket, I
just leave them there for 24 hours. The amount of
times I think, 24 hours later, " Actually, I've got a
top exactly like that in my wardrobe already." Or, better still,
(10:28):
I can find one on vintage. Better for the planet,
better for your pocket. But the amount of psychology that
these websites, the lifestyle they're selling, it's very, very hard
to resist.
Iona Bain (10:40):
It's about building up that awareness of how the business
models of credit card providers and buy- now- pay- later
providers operate so that we can then make informed decisions.
Claer Barrett (10:50):
Absolutely, Iona.
Iona Bain (10:52):
What are some practical steps that people can take to
get on top of their debt repayments and reduce their
debt over time?
Claer Barrett (10:58):
I think the biggest thing is the bigger picture. Now,
a lot of the time, people lose track of how
much debt they've actually got because it's spread across multiple cards, overdrafts,
different accounts, different sources of debt that they're frantically trying to
keep on top of. I think facing up to it
and setting out what you've got where, but also having
(11:20):
a bigger think about how has that debt been created.
How has it built up? What have you actually spent
the money on? Looking back at your statements will give
you an idea, but often it's the cost of the
interest which is the biggest factor in there pushing up
the payments. We talk about often two methods for clearing debts,
the avalanche method and the snowball method. Briefly, the avalanche
(11:43):
method is listing all your debts, working out which one
has got the most expensive interest rate. There will be
one on there that's quite killer. You say, " Okay, I'm
going to prioritize paying off that debt. I'll pay the
minimum repayment on all of the others so they're cheaper,
lower interest rates. But the one that's got the real sky-
high interest rate, it's in my interest to clear that
(12:04):
the fastest." I'm going to avalanche any spare money I've
got into killing that card. The other method, the snowball method,
is that you target the smallest debt first. You might think, " Okay,
well what's the point in doing that?" But psychologically, if
you can say, " I've now cleared that store card, that's gone,"
that could give you the momentum to then go on
(12:25):
and tackle the next one. Maybe you do a snowball first,
and then you do an avalanche. But the key with
all of these things is get rid of the credit
card when you've paid it off. All too often, I
see people clearing debts on cards, they keep the card open.
That's why I said look at why those debts built
up in the first place, because whatever habit or problem
(12:48):
that was caused for you to build this up in
the first place, if you haven't closed off the card,
then it's easy sadly for that to build up once again.
Iona Bain (12:54):
Then you're right back to square one.
Claer Barrett (12:56):
Exactly.
Iona Bain (12:56):
Which you don't want. What can someone do if they
already have debt issues, they feel that that debt is
getting out of control, what solutions or organizations can they
turn to?
Claer Barrett (13:08):
Okay. If you are listening to this podcast and you
have even a glimmer of a feeling that you might
benefit from speaking to somebody about your debts, maybe you
don't know how much they add up to. That's quite common, denial. Thinking, " Right,
I'm not going to look at this. They're still saying
I can borrow. I think I might borrow more money
(13:29):
to pay off that card." Or you've had debt that's
been hanging around for a long time that you're only
paying off the minimum payment on so the interest costs, again,
are getting higher and higher. If you find that the
value of your debt isn't really falling anymore, it seems
to be growing, these are all signs, take it from me,
that you would benefit from talking to a debt charity. Now,
(13:51):
most people would say, " I don't need help from a
charity! I'm not a charity case." But the reason why you should is, number one,
most of the funding for debt charities comes from the
finance industry.
Iona Bain (14:03):
Ah.
Claer Barrett (14:03):
Because they have a legal and regulatory obligation to help
customers who are in problem debt. A certain percentage of
customers will fall into problem debt, no matter how big
the warnings are. The second big fact is that it is
never too early to ask for help if you're worried
about the debts you're in. As human beings, we're hard-
(14:25):
wired to try and sort these problems out for ourselves. Typically,
we'll look for solutions online. But the problem with that
is is that the kind of things that come up in internet search engines,
the sponsored ads are often organizations that profit from selling
people in problem debt a particular kind of solution.
Iona Bain (14:43):
Like a debt management plan?
Claer Barrett (14:44):
Exactly. An IVA is another one, a form of insolvency
where you pay a fee to enter into an arrangement. Now,
that might be the right solution for you. But if
you're going to a provider who only offers that as a solution,
something else including a debt relief order where they can
wipe off some of your debt, you never have to
pay them back, you're not going to find out about
(15:06):
those kinds of solutions until you speak to an independent
debt charity who can work out what the best solution
is for you. It doesn't have a motivation to put
you in one kind of plan or another. When you've
done that, you've got a much better chance of getting
out of debt and getting your finances back on track. The
(15:28):
final tip I'd say, you don't have to talk to a
debt charity on the phone. A lot of people find,
because there's a shame attached to debt, wrongly attached to
being in debt, sometimes people just can't face having a
conversation about it. But all of the big debt charities
tend to do web chat now, which I think is
a fantastic innovation. I would say Step Change, they're one
of the biggest debt charities in Britain. Citizen's Advice, particularly
(15:50):
good if you've got problems with bills that you can't pay,
things like council tax which can get quite nasty very quickly.
Then if you've got any sort of intermingling of business
debts and personal debts, maybe you're self- employed, Business Debt
Line are the place to go. All of these places
are free to contact and the advice that they give
(16:10):
you is free.
Iona Bain (16:11):
That's really good to know that you could even do
this on your lunch break at work. Or when you
get home from work and you've got the TV on,
you could just drop them a line, reach out. Claer,
what are the three tips that you would give to
someone listening who wants to reduce their debt and make
sure that they are debt smart in the future?
Claer Barrett (16:30):
I would say just have a great awareness generally of your finances, what's
coming in, what's going out. You don't need to sit
down and do a formal budget. There are lots of
apps nowadays, like Snoop and Emma, that use open banking
to go through your income and expenditure and make suggestions.
But just be aware of what you've got. And also,
the interest rates that you're paying on some of these
(16:51):
debts and being super on top of when repayments for
things like buy- now- pay- later are due. If you
don't meet them on time, you'll get a fine. It
might be interest- free, but that is going to cost
you money ultimately. Finally, I would say go online. There
are so many good free resources online from the main
debt charities themselves. Step Change, Citizen's Advice, and also Business
(17:15):
Debt Line if you're self- employed. There's a wealth of
information out there. We've also go my charity that I'm a
trustee of, FLIC, the Financial Literacy and Inclusion Campaign. We've
made a free guide to managing debt containing all kinds
of help, resources, links to further sources of support and information.
I believe, Iona, that you have helpfully attached it to
(17:38):
the show notes of today's episode.
Iona Bain (17:40):
Well, there we go. A good first step for people
to check out. Wonderful. Thank you so much, Claer.
Claer Barrett (17:46):
Thank you for having me.
Iona Bain (17:49):
Thank you so much, Claer, some really great advice there. Next time,
friend of the show and financial advisor Emmanuel Asuquo will
be here to help us put good friction in our finances.
This podcast is brought to you by LNG. You can
keep up with the show on YouTube, TikTok, and Instagram @legalandgeneral. I'd love
it if you could follow the podcast, leave us a review,
(18:10):
and help others get a little bit richer, too. Thanks
for listening. Until next time, see you soon.
This series is brought to you by L&G, helping you
build a future that's a little bit richer.
Iona Bain (00:06):
Hello, I'm Iona Bain and welcome along to A Little
Bit Richer, brought to you by Legal and General. From
credit cards to car finance and buy- now- pay- later,
debt has quietly become a normal part of life for
our generation. But just because its common doesn't mean it's
easy to deal with or talk about. Whether you're just
about keeping on top of repayments or starting to feel
(00:27):
the pressure, living with and managing debt can be a struggle.
Debt is a fact of life, something we all have
to deal with, but hopefully we can do that without shame.
That's why I'm so pleased to be joined by an
incredible woman who's done loads of work to help raise
awareness of debt and the support available for those struggling
with it. That's Claer Barrett. Claer is the consumer editor at
The Financial Times, a columnist, broadcaster, and the force behind
(00:51):
the FT's financial literacy and inclusion campaign. Welcome, Claer.
Claer Barrett (00:57):
Thanks for having me, Iona.
Iona Bain (00:59):
Claer, how common is it for Millennials in the UK
to live with debt? How has society's attitude towards debt
changed over the years?
Claer Barrett (01:07):
Well, debt is a fact of life. The reason for
that is because life has become more expensive for subsequent generations.
Before we go any further, let's just say if you
have debt, whether it's good debt or bad debt, it's
not a personal failing. This is something that is affecting
all of us. But also, it's not something that eating
(01:30):
fewer avocados can necessarily resolve. There are all kinds of
reasons for that. Salaries stagnating, particularly for graduates who have
got ever- higher amounts of student loan debt that they
need to repay coming off their salaries every month. So
much so, that there's a new term that I've become
aware of. Negative wealth. Have you ever heard of this?
Iona Bain (01:51):
I can't say I have.
Claer Barrett (01:52):
Okay. Negative wealth is where your debts, which include student loans,
but also overdrafts, credit cards, any buy- now- pay- later
add up to more than the value of your assets.
Things that you own that are worth money, like a
car or a property, say. So much so, around one-
third of 25-to- 34- year- olds in the UK, it's said,
(02:17):
are in negative wealth. Now this is a survey by
the Fairness Foundation, so this is proper research. The biggest
reason why one group of people might be in negative
wealth compared to positive wealth is, guess what? Being on
the property ladder. If you've managed to get on the
property ladder, you will have an asset. But for those
(02:37):
of us that didn't have that helping hand, be paying
extortionate rents in the private sector. The big takeaway for
me here is that education and knowledge about debt so
that we can minimize the wrong type of debt and
be aware of the problems that we can get into
if we take out too much debt is embedded in
(02:59):
us at an early age because that is going to
make the biggest difference for when the negative will hopefully
turn positive later in life.
Iona Bain (03:07):
Give us a sense of the kinds of debts that
young people are leaning on in order to get through life?
Claer Barrett (03:14):
Well, people talk about good debts and bad debts. Let's
start with the good. The most obvious example is probably
student loans and mortgages. This is why we need to
understand how debt works, how things like credit scores affect
how much money we can borrow in the future. It's
those forms of so- called bad debts that could put
(03:36):
you down the rankings in terms of your credit score.
Things like credit cards, if not managed well. Things like buy- now- pay- later.
If you take out too many, then you're going to
have to rely on credit cards or your overdraft to
pay the bills, because overdraft is typically 40% interest annually,
credit cards typically 20% interest annually. But one- in- five
(04:00):
people in the UK have an impaired credit score, which
mean if they want to borrow using a credit card,
it's even more expensive. Typically, an interest rate per year
of around 40 or even 50 percent if you want
to borrow money. There's some common forms of bad debt
and bad practices managing debt. It's often unfortunately, Iona, young
(04:24):
people who don't understand what they're getting into who make those mistakes.
Then they can hang around and blight your credit file
for six or seven years.
Iona Bain (04:33):
Well, let's get into why that can turn into such
a problem for young people further down the line. Just
explain what your credit score is and what it's based on?
Claer Barrett (04:44):
Basically, your credit score is an indication that lenders will
look at at how creditworthy you are. If I were to
lend you money, would you pay it back on time
and would you make those repayments regularly? Because if you can,
then I'll be more likely to reward you with a
lower rate of interest. Whereas somebody who has paid bills
(05:05):
late or has borrowed more than they can afford, has
got into difficulty paying that money back, you can see
that they've had problems in the past because lenders can
look through your credit file, and they might charge you
then a higher rate of interest if they're going to
let you borrow. Or they might decide not to lend
to you at all. Let's say you apply for a
(05:25):
credit card. The credit card company says, " Here you go,
here's a card. You've got a credit balance of £ 10,000." Technically,
you could take that card, you could go out, and you could
buy something for £ 10,000. But the reason why you shouldn't
do that is because of something called credit utilisation. Now,
this is really big issue with people's credit scores. If
(05:47):
you borrow more than 30% of what your credit limit is,
that's not going to trouble the lender too much. But
if you were to borrow over 50% of the limit they think, " Oh,
they're utilising quite a lot of credit. This is making
them a higher risk." If they want to borrow any
more money maybe further down the line for a mortgage,
(06:07):
all of those repayments are going to eat away into
their monthly pay packets. It's going to make their affordability
look much worse if they're applying for a bigger loan
because more of their money is going towards servicing their debts.
That could also start to pull down your credit scores.
If you've got a really high rate of interest on a
(06:28):
credit card, commonly 20%, often much higher, over time, the
magic of compounding is going to work against you. The
amount of time it will take you to pay off
that balance and the amount of interest that you'll repay
on top of the money that you've actually borrowed could
really surprise you. If you know that before you took
out the credit card, would you have taken it out?
Iona Bain (06:49):
It feels like a hidden trap, whereby if you don't
know that you're not really supposed to spend over 50%
of the credit available to you, and yet you're punished
for it later, I would imagine a lot of young
people would say, " That's really unfair." If people are feeling
like they have to take our a credit card in order to
improve their credit score, but don't really want to for
(07:10):
all the reasons we've discussed, what are the alternatives?
Claer Barrett (07:14):
People think that it's going to boost my credit score
if I do this, it can actually end up getting
people into deeper financial doo- doo because they can end up spending
more money and have a bigger debt to repay and
affect their affordability levels going forward. I would say go
to your credit report, check first of all that there
aren't any mistakes on there that need to be corrected.
(07:35):
But Experian, one of the credit file people, they offer
a service whereby with open banking, you can share your
details with them. They can count regular payments that you're
making towards household bills, which could include paying your rent
on time, paying our council tax on time that could
boost your score by as much by 100 points just by
(07:56):
linking up your data.
Iona Bain (07:57):
It's just about getting the basics right, that'll do an
awful lot for your credit score?
Claer Barrett (08:01):
Absolutely. Then when you do come to apply for a mortgage,
going through a mortgage broker who will do a detailed
breakdown of your outgoings. The crucial thing that mortgage lenders
are looking at is affordability. How much money do you
have left at the end of month after meeting your
other commitments? Of course, those commitments include debt repayments. Student
(08:23):
loans are a factor of that. But if you've got
a big credit card balance, even if it's on a
naught percent interest, that's hanging around you. They can see
eventually you're going to have to pay that off and
that's the sort of thing that could count against you
when you come to apply for more credit. It's a two-
way street.
Iona Bain (08:41):
How can people distinguish between good and bad debt? We've
talked about some examples, but what are the key questions
that people need to ask themselves when they're taking out
debt in order to make sure that they're going to
use it in a responsible way?
Claer Barrett (08:54):
Well, I think if you're taking out any form of
debt to pay off another debt, that is a red flag.
You should be thinking to yourself, " Hang on a minute.
Are things getting out of control here?"
Iona Bain (09:06):
What about buy- now- pay- later? That's grown in popularity massively,
but what are the risks with that?
Claer Barrett (09:11):
Okay. Buy- now- pay- later, the big attraction of it
of course is that the payments are interest- free and
they can be split over three months. Frankly, if you're
on a tight budget, that could be a godsend rather
than paying 20%, 40% or more to borrow money on
a credit card. But let's step back a bit and
think about how the business model of buy- now- pay-
(09:33):
later actually works. Why is it that they don't charge
us interest? How, therefore, do these gigantic businesses make money?
The answer is the retailers pay them. If a retailer
offers buy- now- pay- later on its website, it knows
it will sell more stuff. We will feel like we've
(09:54):
been given magic permission to spend more money. We might
have bought a pair of jeans, but now we know
that we can pay in three. Then we'll buy a
pair of jeans, a top, and a pair of shoes.
It can make us spend more.
Iona Bain (10:06):
Spend more than we necessarily would have wanted to.
Claer Barrett (10:08):
At the moment, we have to self- regulate. A thrifty
tip that I've used for years is whenever I find
myself doom- scrolling online, putting items into the basket, I
just leave them there for 24 hours. The amount of
times I think, 24 hours later, " Actually, I've got a
top exactly like that in my wardrobe already." Or, better still,
(10:28):
I can find one on vintage. Better for the planet,
better for your pocket. But the amount of psychology that
these websites, the lifestyle they're selling, it's very, very hard
to resist.
Iona Bain (10:40):
It's about building up that awareness of how the business
models of credit card providers and buy- now- pay- later
providers operate so that we can then make informed decisions.
Claer Barrett (10:50):
Absolutely, Iona.
Iona Bain (10:52):
What are some practical steps that people can take to
get on top of their debt repayments and reduce their
debt over time?
Claer Barrett (10:58):
I think the biggest thing is the bigger picture. Now,
a lot of the time, people lose track of how
much debt they've actually got because it's spread across multiple cards, overdrafts,
different accounts, different sources of debt that they're frantically trying to
keep on top of. I think facing up to it
and setting out what you've got where, but also having
(11:20):
a bigger think about how has that debt been created.
How has it built up? What have you actually spent
the money on? Looking back at your statements will give
you an idea, but often it's the cost of the
interest which is the biggest factor in there pushing up
the payments. We talk about often two methods for clearing debts,
the avalanche method and the snowball method. Briefly, the avalanche
(11:43):
method is listing all your debts, working out which one
has got the most expensive interest rate. There will be
one on there that's quite killer. You say, " Okay, I'm
going to prioritize paying off that debt. I'll pay the
minimum repayment on all of the others so they're cheaper,
lower interest rates. But the one that's got the real sky-
high interest rate, it's in my interest to clear that
(12:04):
the fastest." I'm going to avalanche any spare money I've
got into killing that card. The other method, the snowball method,
is that you target the smallest debt first. You might think, " Okay,
well what's the point in doing that?" But psychologically, if
you can say, " I've now cleared that store card, that's gone,"
that could give you the momentum to then go on
(12:25):
and tackle the next one. Maybe you do a snowball first,
and then you do an avalanche. But the key with
all of these things is get rid of the credit
card when you've paid it off. All too often, I
see people clearing debts on cards, they keep the card open.
That's why I said look at why those debts built
up in the first place, because whatever habit or problem
(12:48):
that was caused for you to build this up in
the first place, if you haven't closed off the card,
then it's easy sadly for that to build up once again.
Iona Bain (12:54):
Then you're right back to square one.
Claer Barrett (12:56):
Exactly.
Iona Bain (12:56):
Which you don't want. What can someone do if they
already have debt issues, they feel that that debt is
getting out of control, what solutions or organizations can they
turn to?
Claer Barrett (13:08):
Okay. If you are listening to this podcast and you
have even a glimmer of a feeling that you might
benefit from speaking to somebody about your debts, maybe you
don't know how much they add up to. That's quite common, denial. Thinking, " Right,
I'm not going to look at this. They're still saying
I can borrow. I think I might borrow more money
(13:29):
to pay off that card." Or you've had debt that's
been hanging around for a long time that you're only
paying off the minimum payment on so the interest costs, again,
are getting higher and higher. If you find that the
value of your debt isn't really falling anymore, it seems
to be growing, these are all signs, take it from me,
that you would benefit from talking to a debt charity. Now,
(13:51):
most people would say, " I don't need help from a
charity! I'm not a charity case." But the reason why you should is, number one,
most of the funding for debt charities comes from the
finance industry.
Iona Bain (14:03):
Ah.
Claer Barrett (14:03):
Because they have a legal and regulatory obligation to help
customers who are in problem debt. A certain percentage of
customers will fall into problem debt, no matter how big
the warnings are. The second big fact is that it is
never too early to ask for help if you're worried
about the debts you're in. As human beings, we're hard-
(14:25):
wired to try and sort these problems out for ourselves. Typically,
we'll look for solutions online. But the problem with that
is is that the kind of things that come up in internet search engines,
the sponsored ads are often organizations that profit from selling
people in problem debt a particular kind of solution.
Iona Bain (14:43):
Like a debt management plan?
Claer Barrett (14:44):
Exactly. An IVA is another one, a form of insolvency
where you pay a fee to enter into an arrangement. Now,
that might be the right solution for you. But if
you're going to a provider who only offers that as a solution,
something else including a debt relief order where they can
wipe off some of your debt, you never have to
pay them back, you're not going to find out about
(15:06):
those kinds of solutions until you speak to an independent
debt charity who can work out what the best solution
is for you. It doesn't have a motivation to put
you in one kind of plan or another. When you've
done that, you've got a much better chance of getting
out of debt and getting your finances back on track. The
(15:28):
final tip I'd say, you don't have to talk to a
debt charity on the phone. A lot of people find,
because there's a shame attached to debt, wrongly attached to
being in debt, sometimes people just can't face having a
conversation about it. But all of the big debt charities
tend to do web chat now, which I think is
a fantastic innovation. I would say Step Change, they're one
of the biggest debt charities in Britain. Citizen's Advice, particularly
(15:50):
good if you've got problems with bills that you can't pay,
things like council tax which can get quite nasty very quickly.
Then if you've got any sort of intermingling of business
debts and personal debts, maybe you're self- employed, Business Debt
Line are the place to go. All of these places
are free to contact and the advice that they give
(16:10):
you is free.
Iona Bain (16:11):
That's really good to know that you could even do
this on your lunch break at work. Or when you
get home from work and you've got the TV on,
you could just drop them a line, reach out. Claer,
what are the three tips that you would give to
someone listening who wants to reduce their debt and make
sure that they are debt smart in the future?
Claer Barrett (16:30):
I would say just have a great awareness generally of your finances, what's
coming in, what's going out. You don't need to sit
down and do a formal budget. There are lots of
apps nowadays, like Snoop and Emma, that use open banking
to go through your income and expenditure and make suggestions.
But just be aware of what you've got. And also,
the interest rates that you're paying on some of these
(16:51):
debts and being super on top of when repayments for
things like buy- now- pay- later are due. If you
don't meet them on time, you'll get a fine. It
might be interest- free, but that is going to cost
you money ultimately. Finally, I would say go online. There
are so many good free resources online from the main
debt charities themselves. Step Change, Citizen's Advice, and also Business
(17:15):
Debt Line if you're self- employed. There's a wealth of
information out there. We've also go my charity that I'm a
trustee of, FLIC, the Financial Literacy and Inclusion Campaign. We've
made a free guide to managing debt containing all kinds
of help, resources, links to further sources of support and information.
I believe, Iona, that you have helpfully attached it to
(17:38):
the show notes of today's episode.
Iona Bain (17:40):
Well, there we go. A good first step for people
to check out. Wonderful. Thank you so much, Claer.
Claer Barrett (17:46):
Thank you for having me.
Iona Bain (17:49):
Thank you so much, Claer, some really great advice there. Next time,
friend of the show and financial advisor Emmanuel Asuquo will
be here to help us put good friction in our finances.
This podcast is brought to you by LNG. You can
keep up with the show on YouTube, TikTok, and Instagram @legalandgeneral. I'd love
it if you could follow the podcast, leave us a review,
(18:10):
and help others get a little bit richer, too. Thanks
for listening. Until next time, see you soon.
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