This podcast isn’t personal advice. If you’re not sure what’s right for you, seek advice. Tax rules can change and benefits depend on personal circumstances.
They also share practical steps for tackling debt, including prioritising repayments, choosing between the avalanche and snowball methods, cutting costs, and using balance transfers carefully, alongside the importance of emergency savings in avoiding future debt.
Use the player icons above to listen on your favourite podcast app, or read the full transcript below.
This podcast isn’t personal advice. If you’re unsure what’s right for you, seek financial advice. Tax and pension rules can change, and benefits depend on personal circumstances. Investments can fall as well as rise in value, so you could get back less than you invest.
Full podcast episode transcript
[0:10] Sarah Coles: Hello and welcome to the Switch Your Money On podcast from Hargreaves Lansdown. I’m Sarah Coles – I’m Head of Personal Finance.
[0:15] Helen Morrissey: And I’m Helen Morrissey – Head of Retirement Analysis.
[0:18] Sarah Coles: And I dunno about you, Helen, but I’ve finally reached the point in January where I’ve run out of Quality Streets. So, it feels like I’m kind of ‘Over the hump’ of Christmas – and most of the festivities have died down – but there is one area where I am still feeling some of the pain, and that’s the financial side.
So, for anyone who’s wrestling with maybe some festive debt hangover – or maybe they perpetually carry some debt – we did want to offer a little bit of a New Year refresher.
[0:43] Helen Morrissey: It’ll be the perfect start to the New Year for many people – I think, Sarah – so I think what we need to do is start at the very beginning and get a bit of a sense of just how much debt people are carrying.
[0:53] Sarah Coles: Yes – so it’s actually a lot more than you might think.
So, the HL Savings and Resilience Barometer data, in September last year, showed that the average household with debts has total monthly repayments of £1,034 – now that does include the mortgage. So, this fluctuates during the year – and, obviously, Christmas and summer holidays, people are borrowing a lot of money and, therefore, you’re gonna find these debt repayments really go up at this time of year.
Now, one of the really interesting things about debt is people tend to associate debt with people who don’t have terribly much money – and are trying to make ends meet with debt – but, actually, the wealthier people are, the more money they borrow – and, actually, the more money they borrow as a percentage of their income. So, actually, the people who are carrying really huge debts will be people on much higher incomes.
[1:35] Helen Morrissey: So, I think that’s a really interesting point that you make – that debt... it’s not just an issue that’s affecting people on the lower incomes, then?
[1:42] Sarah Coles: Yeah, that’s right. So, actually, those in the top-earning fifth of households... they actually got just over £1,500 a month in terms of repayments – and there’s loads of reasons for this.
So, the more people earn, the more comfortable they feel. So, they might think, ‘Well, I’ve got a large wage packet, so I’m pretty secure in the fact that I’ll be able to pay this debt back’ – so that’s one of the reasons why they take more on.
In terms of the actual figures – in terms of how they are coping with those debts... actually, they’re doing really well. So, they actually have very low levels of arrears – so it’s not necessarily a problem for them as long as they can continue to afford to pay it back.
The thing that does make them very vulnerable though – because they’ve got to have income at a particular level in order to be able to maintain these payments – and you absolutely can never guarantee that. So, not being able to see into the future – not having those crystal balls and having the magical ability to guess what life is gonna look like... having these debts that you’ve got to keep repaying every month – it does give you that vulnerability if circumstances change.
[2:34] Helen Morrissey: So, that is a really big challenge, then, isn’t it? As you say, you might be comfortable paying that off – but then, if your income was to dip, you would be in trouble very quickly. But d’you think that people are worried about debt and the potential challenges there?
[2:48] Sarah Coles: One of the things that the Barometer does is it looks at how people see their debts – and whether they think they have debt problems. And, in terms of people who are higher earners, then they’re fairly comfortable with their level of debt. Even when you look very specifically at average earners – so their debtor issues are a little bit more pressing, but about 8% are in arrears – and, when asked to evaluate their debt position, about 15% – so there is some sort of debt issues.
So, one of the things that does tend to happen is that people have very different approaches towards debt. So, some people who have very small amounts of debt might be really worried about them, and other people are carrying large amounts and they’re just not that bothered – and there’s loads of reasons around this.
So, sometimes, people will focus on whether they can pay their monthly bills – so that’s things like sticking to the minimum repayments on their credit card. And, if they can, they might think, ‘Well, I’m completely secure – I’m not gonna have anything to worry about’ – what they’re not looking at is how those debts are building in the background, and the fact that they’re actually building themselves a bigger problem over the long term.
They might also not really look at the direction their debt is moving in. So, they might not be thinking, ‘Actually, if I’m borrowing to make ends meet this month, then I’ve gotta pay that debt back on top of everything else – and then, therefore, I’ve got to borrow more next month in order to...’ – and you might end up with these debts growing and growing – and people might miss that bigger picture because they’re just too busy running to catch up with themselves. So, I think those things are really key.
And also, people will often focus on the fact that borrowing’s really common. So, they might chat to their friends and say, ‘Oh, I’ve got a credit card – have you got a credit card?’ – and everyone goes, ‘Yeah, yeah – we’ve all got credit cards – it’s all fine’ – but they’re not drilling into the detail and realising whether or not they’re actually carrying more debt than other people.
So, there’s quite a lot of bits going on that’s got little to do with money and lots to do with opinions and personalities!
[4:25] Helen Morrissey: Yeah – so that’s a really important point that you make there, I think.
So, how can people tell if their debts are something that they need to be worrying about?
[4:34] Sarah Coles: That’s a great question!
So, one of the really interesting things about debt is that, when you talk to people about debts in general, they will often talk about ‘Good debt’ and ‘Bad debt’ – and I think that’s really focusing on why people are borrowing.
So, debt really isn’t inherently a bad thing – there are some really good reasons why households need to borrow – so, for example, taking out a mortgage, or a student loan – or something like that – and these things help build their financial resilience for the future. That’s why – in a lot of ways – people call this ‘Good debt.’
Now, on the flip side, there are some less positive reasons why people borrow – so, essentially, to spend on stuff that they consume – and that’s, traditionally, what’s considered the ‘Bad debt.’
Now, I would say, it’s not as simple as that – because, obviously, if you’ve got a mortgage that you can’t afford – and that’s helping to build bigger problems in your broader finances – you can, very clearly, see that’s not good for you – and, similarly, people might think about ways in which they think that they’re building their resilience. So, one of the things, for example, is people look at things like Buy-to-Let – so they’re borrowing in order to invest, and they think that they’re building an asset.
Now, that, in itself, is true – but what they may not be aware of is the risk that they’re taking – ‘cause they’re quite heavily geared – they’ve got quite a big exposure then to property – and there are a lot of maybe risks that they’re not aware that they’re running into when it comes to these things.
So, they might think, ‘Well, it’s a good debt because I’m building,’ but also really need to think about the deeper issues around that [ROI?? 5:52].
[5:53] Helen Morrissey: Okay – so, if someone is worried about their debt – you know, whether that’s specifically around Christmas or holidays, for instance – or more generally – what should they be doing?
[6:04] Sarah Coles: Well, the first priority... I mean, you’re not gonna come as any surprise here – is that you’ve absolutely got to meet those minimum requirements. So, whatever happens, you’ve got to make those minimum debt repayments – you can’t afford to fall short ‘cause then you’ll end up paying all sorts of fees and charges and penalties on top of your debts.
So, after that, you can then focus on the bigger picture and look at how you can pay those debts down as soon as it’s feasible.
Now, it is worth saying that one of the risks here is that you make a load of repayments at the beginning of the month, then you run out of money again and you end up borrowing. So, in order to avoid that, you’ve gotta be quite systematic about it – so you’ve gotta work out the costs that you can cut from your usual spending – and how much money you can free up from doing that – and then you can look at putting that towards your big priorities in terms of paying down your debts.
[6:46] Helen Morrissey: That’s great. So, what should people maybe focus on paying first?
[6:50] Sarah Coles: So, there’s a couple of approaches that are really common here. The first is what’s known as the ‘Avalanche Method’ – and that’s where you repay the debts with the highest interest rates first. So, it means you pay less in interest, and it means you can clear your debt faster – because, obviously, instead of putting your money towards the interest, you’re putting it towards debt repayment. So, that’s a really positive way of approaching your debts. But the other one is what’s known as the ‘Snowball Method’ – and that’s where you clear the smallest debts first and then build to your biggest debts.
Now, that, obviously, doesn’t help you in terms of absolutely maximising bang for your buck in terms of repayment – but, for a lot of people, it can actually be psychologically really important – because, rather than having all these debts that they’re worried about – and there’s a big load of them – they then start to narrow them down – so they get that sense of achievement. And, if that works for you... then, for some people, that can be more important than the pure maths, because it’s about not just making sure that you make your money go as far as possible, but also making sure that you can stick to a regime where you’re repaying.
[7:41] Helen Morrissey: And that’s really good – as you say – for your self-esteem – and making sure that you’re not up at night worrying about things as well, isn’t it?
[7:47] Sarah Coles: Yes, absolutely – although, having said that, I think... when you’re looking at this overall bigger picture, you’re not gonna solve your debt problems overnight. So, one of the things you might want to do is to move your loan somewhere less expensive.
So, if you can access a 0% credit card that has a period of time where you don’t have to pay interest on it while you pay your debts off – that, obviously, is gonna leave you financially better off than if you were paying interest on them. However, I would say, there is a really key proviso here.
So, one of the things that can happen is, if people consolidate their debts, they might suddenly think, ‘Oh, actually, hang on, I can spend some more on a credit card now!’ What you’ve got to do is say, ‘Now, this is it – I’m drawing a line in the sand – that’s the end of the debt – this is the period of my life where I’m paying it off.’ So, it’s really important that you do that.
I think also, it’s worth addressing the deeper stuff underneath it. So, there’s the practical... you know, there’s the sort of, ‘This is how I do it – I shall follow these instructions’ – but there’s also really understanding yourself and, actually, why you borrow.
So, for example, you may be over-committed – you may be doing your absolute level best, but you’ve just got too many regular expenses. So, in some cases, it actually means going back to your lifestyle and making – some cases – some small tweaks – some case, really big tweaks – because you’ve gotta make big changes to your lifestyle so you can actually afford it, and then you don’t have the worry of debt hanging over you all the time.
[8:58] Helen Morrissey: And so, you mention earlier on the conversation that mortgages are a debt as well – should people be paying those off?
[9:04] Sarah Coles: You’re absolutely right – they’re very different sorts of borrowing.
So, you’ve got your short-term borrowing – which is on a higher rate – and then you’ve got your longer-term mortgage borrowing – which really need to look at very differently.
So, when it comes to your long-term debts, the priority is actually just to have the kind of mortgage that suits you best and affordable repayments that provide the certainty you need. So, then, as long as you’re meeting your mortgage repayments each month – and you’ve got some wriggle room in your budget – you don’t need to have paid your mortgage off to start looking at building resilience in other areas of your finances. So, that’s things like pensions and investments – and mortgage can be part of a long-term picture as you build the rest of your finances out.
[9:38] Helen Morrissey: Okay – so should people be focusing purely on their debts for a while, then?
[9:43] Sarah Coles: Well, it really does depend on the position that you’re in.
So, for some people, repaying the debts is gonna be a short and painful experience – after which, you focus on your broader finances. But, for other people, short-term debts crop up quite regularly – and, if this is the case, and you’re thinking, ‘Well, repaying debts is the only thing I need to worry about,’ then actually, it can mean that you end up putting off other bits of your finances.
So, some people can spend their entire adult life dipping into the red – and putting some stuff on credit cards, and so on – and that cannot be an excuse to avoid building things like emergency savings – or investing in an ISA – or contributing to a pension.
So, I think, really, it’s important to look at the nature of your borrowing. It’s really important to look at paying it down as much as you can but also building out those other areas of finances alongside – and loads of people just put money into more than one pot at a time.
[10:29] Helen Morrissey: So, they are very wise words there, Sarah, for anyone looking to tackle their debts.
So, you’ve taken us through the maths, but money is never purely just about maths, is it?
[10:39] Sarah Coles: Yes, that’s right. I mean, one of the other things that you’ll find, very commonly, is people will assume, ‘Yes, I can afford to take on a debt’ – and they won’t think about the impact that has on them, personally, and emotionally – and I think it’s worth looking at what sort of debt suits you – and what you can cope with in terms of debt.
I – for one – know that, if I have a credit card, there is a risk that I will overspend – so I try to live my life without actually ever having a credit card, because I just think it’s much easier for me to live my life and stay on top of things if I don’t have that temptation in place.
There are millions of other people who manage perfectly well with a credit card – but I think, if you are that person, it’s really important to get to know yourself and think, ‘No, I can actually cope without it – or find other solutions to other problems that come up’ – and I think, if you’re in that position of knowing yourself, then it means you’re not gonna be making mistakes when it comes to debt.
[11:28] Helen Morrissey: You’ve given some real useful tips there for anyone looking to deal with their debt, but there are gonna be some people that will try to do these things – and, for whatever reason, it’s just not enough. Debt problems can be a lot worse, can’t they – and so what can people do if they are really struggling?
[11:46] Sarah Coles: Yeah – absolutely. So, for some people, problems are more serious than just managing your budget – and paying it gradually – and trying to tackle it on your own can be really overwhelming if it’s just too much of a problem. So, I would say, in those cases, it is really worth considering debt charities – so people like StepChange.
So, they can talk you through all of your options – and they can help you also talk to the companies that you’re in debt with. And it’s difficult to turn things around when you’re on your own doing this – and it can so help to have somebody on your side and helping all the bits of this process... putting them together.
[12:16] Helen Morrissey: Well, thank you. I mean, this was quite the whistlestop tour, but it has given plenty of food for thought, there. And I do know that you’re not gonna let me get away without the stat of the week – ...
[12:26] Sarah Coles: [Laughs]
[12:26] Helen Morrissey: ...and I think you’ve got a debt-related stat for me this time?
[12:29] Sarah Coles: I have – yes – and it’s actually ‘cause I like a bit of a gag at the end!
[12:32] Helen Morrissey: [Laughs]
[12:33] Sarah Coles: I could not find very much highly-entertaining, debt-related stats of the week – but I gave it a go! I looked in some of the longest debts in history, and I found one in France from 1738.
So, a financial advisor to the Duke of Bouillon persuaded him to pay a lump sum every year until the family died out. So, how long d’you think they ended up making payments for?
Was it 100 years – was it 200 years – or was it longer?
[12:59] Helen Morrissey: Wow – okay! I’m wondering how big his family was – ...
[13:04] Sarah Coles: [Laughs]
[13:04] Helen Morrissey: ...but, d’you know, I’m gonna go big – I’m gonna say, ‘Longer – longer than 200 years.’
[13:09] Sarah Coles: You’re right – which his impressive. If you are a Duke in France... obviously, the history of France has got quite a lot of peril for families of the gentry – ...
[13:16] Helen Morrissey: [Laughs]
[13:16] Sarah Coles: ...but yes – exactly right – it was longer. So, if you’re worried by a 25 or 30-year mortgage, then, hey, it’s nothing compared to this sort of timescale!
That’s all for this week – but, before we go, we should remind you this was recorded on January 6th 2026, and all information was correct at the time of recording.
[13:31] Helen Morrissey: Nothing in this podcast is personal advice – you should seek advice if you’re not sure what’s right for you.
[13:36] Sarah Coles: Tax rules can change and benefits depend on circumstances. Pension money can’t normally be accessed until 55, which is rising to 57 from 2028. All investments fall as well as rise in value, so you could get back less than you invest.
[13:47] Helen Morrissey: So, all that’s left is for us to thank our Producer, Elizabeth Hotson.
[13:51] Sarah Coles: And to thank you very much for listening – we’ll be back again soon. Goodbye!
[13:54] Helen Morrissey: Goodbye!