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Managing your debt | bad debt

Bad Debt Management

When looking at your overall credit record, lenders consider different types of debt in different ways.


Debts that you’ve incurred, that comprise some sort of investment, for example a mortgage used to finance a home that will then appreciate in value over the period that you own it for, are generally considered good debts.


Bad debts on the other hand, are those that basically cost you money without offering any benefit to your financial position as a whole. A typical example would be using a credit card for your shopping, and not paying the balance at the end of the month so that you end up paying interest on it.


One of the most common types of bad debt is indeed from credit cards, with many of us finding ourselves in the position where we pay only the minimum payment amount each month. In most cases, the minimum payment will barely cover interest on the credit that you’ve had, so that the debt isn’t any smaller after you’ve paid your bills at the end of the month. This way you could easily end up paying towards a debt indefinitely that will never go away – this is definitely a bad debt.

Bad Debt Management

Managing any debt can be a tricky, complicated business, but when it comes to bad debt it can be even more of a minefield. Bills in which you pay large amounts of interest often promise to act as a drain on your resources for the foreseeable future. There are a few different strategies for tackling these problems.


Many people choose to obtain additional borrowing in some way, paying off their debts and instead paying off the cost of this new borrowing. Depending on your circumstances you may have only a limited set of options when it comes to getting more lending, but in any case a consolidation loan will only be worthwhile if it does actually ease your financial strain.

You should therefore take the time to calculate whether or not a consolidation loan will actually help you in the long run. Work out how long it’s likely to take to pay back, how much it’ll cost each month and overall, bearing in mind any changeable interest rates. If the loan is going to be secured in any way, think very carefully about whether it’s worth putting this at risk.


Debt management services, some of which operate for free in the UK, can help you to draw up a plan to best tackle your debts. If you target any funds that you can pay towards the debt in an effective way you can save yourself a fortune in the long term.

Local and national debt management organisations can also give you advice, and mediate between you and your creditors if you’re having trouble with them. If your finances are in a really bad state, and there’s a chance you won’t be able to pay the debts at all, the creditors will realise they’re better coming to some arrangement with you rather than having to write your debts off, as they do in extreme circumstances.