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How Does Being a Debtor Affect You?

While the growth of consumer debt in the UK has slowed down of late, it’s estimated that the average British household still owes more than £60,000 to creditors.

In total, people in the UK owed a combined total of £1.6 trillion at the end of September 2018, with this figure having risen slightly over a 12-month period.

Although this has left the household debt to GDP ratio in the UK hovering at around 86%, the concept of borrowing is inherently positive and has the potential to create numerous opportunities for households. So how exactly does being a debtor affect you and what are the positives of this?

Why Responsible Borrowing is Key

In simple terms, borrowing money has a significant impact on your lifestyle, while your ability to manage and repay debt will also determine your credit score.

However, it’s the behaviour of the individual debtor that determines whether or not borrowing is a positive experience. You develop a good credit history by adopting a responsible approach to borrowing and settling debts according to the pre-agreed terms, while also making regular repayments to reduce the impact of mounting interest.

Conversely, your lifestyle and credit score can be adversely effected through irresponsible borrowing.

In the case of secured loans, an unmanageable debt and missed repayments can cause you to lose your home or a car, while unsecured agreements usually carry inflated rates of interest that increase your debt burden considerably.

Improving your Credit Score Through Borrowing

If you’ve previously suffered with bad credit, taking out an additional loan or credit card may seem extremely counter-intuitive.

However, there are instances in which this can be beneficial to debtors, particularly if you seek out specialist or bad credit products with low limits and minimal rates of interest. This type of credit enables debtors to make their monthly repayments in full and on time, while also improving their standing in the eyes of lenders incrementally over time.

In this respect, there are instances in which borrowing can ease the emotional and practical burden of debt without forcing you to live outside your means.

Once again, the key lies with responsible borrowing and the willingness to seek out the best and most competitive financial products on the market. With type of proactive approach, you can achieve the best value deals and leverage borrowing as a way of realising your full financial potential in the future.

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