What is short term debt?

When it comes the question of ‘what is short term debt?’, the term is usually used when we’re talking about a business who must pay back anything they have borrowed within a 12 month period.

However, when it comes to personal borrowing, many of us take on debt with the desire for it to be ‘short term’, or a quick fix. We don’t want to be tied up with debt repayments for years and years, especially if we’ve only borrowed a small amount.

Here we’ve looked into what ‘short term’ debt is and how you can keep what you borrow within the terms you initially agree.

What types of borrowing could be considered short term debt?

Overdraft

Your overdraft should only be used if you really need to, for example, in the event of an emergency. It’s there as a buffer if you find yourself unable to pay for a sudden big expense – it shouldn’t be used as ‘free money’. The idea is to pay off your overdraft as soon as you have some sort of income.

However, many people find it hard to avoid using their overdraft once they have dipped into it and, if your credit rating is okay, your bank will agree to increase the amount available to use if you ask (although there are still fees within an agreed limit).

Should you have an overdraft?

They can be a good idea but it’s important to be careful how you use it. Only take on an overdraft for a low amount or look to reduce what you already have to make you more conscious of what you can and can’t spend, and to make getting out of it easier if you do need to later.

Shop around for better deals as well. Banks offer varying interest rates on their overdrafts so it might well pay to switch your current account. Paying off what you have used up of your overdraft will be easier if the interest rate is lower. We have a blog post on how to get out of your overdraft here on the site, that can help if you want to work on removing your debt and get back in the black.

Payday loan

Payday loans are there to tide you over until your wages are paid into your account and are advertised as a quick fix if an emergency situation arises that month. However, many people discover the very high interest on payday loans makes it very tough to clear what you owe once that payday comes round, causing the debt to roll into the next month. More interest is then added and this rolled amount can then carry over to the month after that and so on. In short, payday loans can quickly spiral out of control.

Should you get a payday loan?

We do not recommend taking on payday loans, simply because the interest rate is often high and it can become difficult to remove the debt.

0% interest credit card

A credit card can be helpful if you need a hand with extra expenses, and many people take one on with the aim to borrow small and pay this off straight away to give their credit rating a boost. Problems can occur though when the debt owed on a 0% interest credit card rolls over into the period after the offer ends, when the interest rate suddenly hikes up. What was once a manageable repayment can quickly become a strain, and an unhealthy cycle of borrowing more and more to cover costs can happen.

Should you get a 0% interest credit card?

It’s a good idea to have one to hand, but only if you have a clear plan in place for how you are going to use it. We recommend allocating one expense to being paid via the credit card then pay this off at the end of every month. You’ll keep on top of the debt and help your credit rating at the same time. If you do buy anything more expensive, ensure you have a plan in place for repaying this within the no interest period.

Short term debt may start out with good intentions, but it’s so important you have a plan in place when it comes to managing it. Speak to our team today if you’re worried about any debt that you may have that you are struggling to repay. They can be reached on 0800 316 1833 or simply fill out our contact form for a call back.