It’s Debt Awareness Week – a campaign led by debt advice charity StepChange to raise awareness of problem debt and the help available to those who need it.
When talking on the topic of debt, it’s important to consider the misguided labels that often can arise. Many mistakenly consider debt as a point of shame or moral failing: a stereotypical indication of someone who has poor money management skills is an impulsive spender or is facing financial hardship.
Yet this is not the reality of the situation. Taking on debt is not inherently negative. It comes in many forms and is a necessary part of life for many. In fact, the majority of Britons have debt; in 2019, 63% of UK adults had some personal debt.
At My Pension Expert, we wanted to take this opportunity to discuss the situations in which debt can impact pension planners, and how they can manage their finances effectively.
What makes debt ‘good’ or ‘bad’?
Firstly, it is important to understand that there are two different types of debt: namely, good debt and bad debt.
“Good debt” is usually defined as money borrowed to generate wealth, such as student loans, mortgages, or a business loan. Meanwhile, “bad debt” typically refers to things like consumer debt that do little to improve one’s financial situation.
Despite this, even consumer debt can be a useful tool when it is managed effectively. For example, using a credit card could allow pension planners to cover unexpected expenses, without immediately taking a chunk out of their income.
Of course, without a solid management and repayment strategy, either kind of debt can easily grow out of control, leading to financial difficulty for retirees.
Tackling debt
Ultimately, any debt, whether ‘’good’’ or ‘’bad’’ can pose a risk to financial well-being if an individual loses a firm handle on their repayments. As such, Britons must calculate exactly how much they owe to develop a solid strategy and timeline for tackling debt and making repayments. And for those approaching retirement, the thought of managing debt, whilst considering a pension plan can seem like a daunting task.
However, help is always on hand in the form of independent financial advice. Speaking to an adviser, like a member of our team at My Pension Expert, can make the process much simpler to navigate. An adviser will analyse a client’s individual financial situation and will develop a tailored plan aiming to help them get to grips with their current situation, whilst strengthening their financial future.
Ultimately debt, much like any aspect of one’s personal finances, must be managed carefully. And as such, before taking on debt it is important to consider how doing so might impact one’s future financial goals. And of course, for those who are ever unsure about how taking on debt might impact them, it is important to seek independent financial advice.
In doing so, pension planners will have the tools to ensure that they remain in control of debt, and remain on track to the retirement they want.
When it comes to debt, remember it’s important to talk to the experts. If you are struggling with debt, contact: