Amara walker November 22, 2023

Consumer debt is on the rise, thanks to soaring levels of inflation. It is easy to take out a loan. You just need to fulfil minimal formalities, and the loan is processed within a few minutes online, but the settlement of the debt is not a cinch at all. When you borrow money, you are at risk of falling into debt.

In order to keep up with payments in tough times, you start robbing Peter to pay Paul, and this is how you start spiralling up debt. Eventually, you find yourself stuck in an avalanche of debt that seems to take years to get rid of. This situation is called problem debt.

In other words, you are in problem debt when you cannot afford to keep up with payments of your debt. You are in problem debt even when you feel that your debt is a burden that results in compromising on other essential expenses and you are struggling with your debt payments. As long as these situations are temporary, they cannot be described as problem debt, but if you have been facing this problem for over a year, the state is declared as problem debt.

Why do people get into problem debt?

Youngsters are highly likely to get stuck in problem debt, but anybody can get into it regardless of their age. Jobseekers and couples with children are most likely to get into problem debt. Here are the reasons why people get into it:

  • Insensible use of credit cards

Credit cards are very convenient, especially when you are struggling with it to buy anything. Suppose you want to buy a laptop, and you find that you do not have enough to pay upfront. You decide to use your credit card. You will pay down smaller payments every time, so you can easily manage to own a laptop.

Unfortunately, you cannot be so sure about your finances in months to come. You may lose your job, or you may be caught up with a big expense or some emergency. If so, you will certainly find it a bit difficult to make payments. Once you fall behind on payments, interest will be accrued, and then you will end up with an endless debt spiral.

Credit cards are expensive debts if you do not clear the dues within the interest-free period. Data has already revealed that indebted people find it much more difficult to get out of debt when they have outstanding credit card bills. So, you should try to use your credit card in a more sensible way.

Use them to boost your credit rating occasionally but not regularly. Using a credit card is not a good sign when you do not have the cash to pay for your item outright, and your income is inconsistent. Keep an eye on the monthly instalment. You must be able to pay for it even if you face ups and downs in your financial condition.

  • You take out a loan more than your affordability

Though a lender is responsible for assessing your repaying capacity level, it does not mean that you will be utterly dependent on your lender’s decision. It is your duty as well to figure out whether you are fully prepared to handle a debt. You should consider your financial situation carefully. Try to find out whether you will be able to clear the dues despite changes in your financial condition.

You are given some time to evaluate the contract before accepting the terms. Think carefully in that time whether or not to sign it. Most of the people fall into problem debt because they take on more than their affordability. Loans are not like candies that you can easily digest. You need to understand your financial condition before applying for any loan.

  • Borrowing from unregistered lenders

Several lenders are selling the same sort of financial products. It is always advisable that you borrow money from legitimate lenders. Lenders that are registered and have a licence to deal in products they provide should be consulted as it enables you to get legit loans in Ireland.

A few lenders provide no credit check loans to attract gullible subprime borrowers. You should avoid borrowing money from lenders that are not registered and promise to lend you money without a credit check. It is crucial for a lender to run a credit check as part of affordability checks. No registered lender is authorised to lend money without running a credit check.

Finding registered money lenders in Dublin is not difficult at all. You can find their association with a regulatory authority and registered number on their website. Unregistered lenders charge outrageously higher interest rates to extortionate money. This is the biggest reasons why you fall into problem debt. Be careful with the lender you borrow from.

  • Sometimes lenders encourage bad behaviour

It is not common that convenient lending practices often result in debt problems for borrowers. Though lenders are supposed to loan money only after an affordability check, some prefer running a soft credit check rather than a hard credit check.

This does not give clear picture about the financial condition of a borrower and chances are you get approval for a loan that you do not deserve to get in case of a hard credit check run.

Credit limit extension is another factor that leads bad behaviour among borrowers. They tend to overuse their cards and eventually they find themselves into deep debt.

To wrap up:

Problem debt cannot be taken lightly. If you are struggling with payments of debts, you should immediately contact your lender and find a solution to avoid worsening your situation. However, bear in mind that it is not easy to deal with problem debt. You should try to borrow money only when you can afford to repay. Be careful with the use of credit cards and other small loans like payday loans, doorstep loans and the like. Do not apply for a new loan unless you have paid down the previous one.