Like any tool, borrowing can be useful, but it needs to be handled with care. Most of us will borrow money at some point – whether for a mortgage, car, or unexpected expense. The key is understanding how to borrow responsibly while avoiding the spiral into problem debt.
Why people borrow
Hardly any of us are strangers to debt, and there are many cases where borrowing is normal, even essential. For homeowners, mortgages make property ownership possible. For one-off expenses like car repairs or home improvements, loans can spread costs into manageable monthly payments.
But many people avoid borrowing entirely because they fear falling into problem debt – where repayments become unmanageable and interest spirals out of control. Understanding how and when to borrow, plus recognising early warning signs, helps you borrow with confidence.
How debt problems develop
“How did you go bankrupt?” “Two ways. Gradually, then suddenly.” Ernest Hemingway, The Sun Also Rises
Staying on top of borrowing isn’t so different from keeping your home tidy. Picture a spotless living room. Then someone leaves a used tea mug on the table and no one bothers to clear it. Perhaps the next day a newspaper falls on the floor. Slowly but surely, things fall out of place until the room is a complete mess.
That’s how many people end up in debt spirals. Just like keeping a room tidy, managing debt can be straightforward – but if you let things slide, problems multiply quickly.
Smart borrowing strategies
Shop around for the best rates and understand what you’re signing up for. Store cards and payday loans might seem quick and convenient, but with some planning, you can often borrow the same amount at much lower rates through personal loans or credit unions.
Before applying for credit, create a realistic budget of your income and outgoings. This ensures you can comfortably cover monthly repayments including interest. Factor in a small buffer for unexpected expenses – if you can only just afford the payments, you’re probably borrowing too much.
Only borrow for one-off costs or genuine investments. If you’re regularly spending more than your income on day-to-day expenses, borrowing won’t solve the underlying problem. Loan interest will just add to your monthly costs, storing up bigger problems.
Warning signs to watch for
Be cautious about borrowing to cover existing debts unless you’re genuinely getting a better deal. Debt consolidation only makes sense if you’re borrowing at a lower APR than your current debts and you address the spending patterns that created the original problem.
Watch for these red flags that suggest borrowing is becoming problematic:
- Using credit for everyday expenses like groceries or bills
- Only making minimum payments on credit cards
- Applying for multiple forms of credit in short periods
- Feeling stressed or secretive about your debts
- Borrowing from one source to pay another
When things start slipping
If you find yourself falling behind, don’t ignore the problem. Review your budget to identify ways to reduce expenses so you can cover repayments. Sometimes small adjustments – cancelling subscriptions, switching energy suppliers, or meal planning – can free up enough money to stay on track.
If you’ve reviewed your budget and still can’t cover repayments while paying for essentials like rent and bills, contact your lenders immediately. The sooner you get in touch, the more options you’re likely to have. Most lenders prefer to work with borrowers facing temporary difficulties rather than pursue defaults.
Getting help when you need it
Free debt advice is available from organisations like Citizens Advice and StepChange. They can help you understand your options, negotiate with lenders, and create realistic repayment plans.
Credit unions take a community approach to lending, focusing on helping members use credit responsibly rather than maximising profits. This often means more flexible approaches when members face temporary difficulties.
The bigger picture
For most people, borrowing is simply part of modern life. Mortgages, car finance, and occasional personal loans help us achieve goals that would be difficult with cash alone. The key is approaching borrowing as a tool that serves your financial goals rather than becoming a burden that controls your choices.
By understanding the difference between useful borrowing and problem debt, you can make confident decisions that support your financial wellbeing rather than undermining it.
