Money Advice Service

If you think you want to borrow some money, be sure you can afford any new monthly repayments on top of your current outgoings. Knowing exactly what money is coming in and going out each month will help you work out whether or not you can afford extra credit.

First, draw up a budget

The only way to see if you can afford to take on this new borrowing is to put together a household budget.

This will show you if you have any money left over at the end of the month once you’ve paid all your bills and living expenses.

What to include in your budget

It’s easy to miss expenses off a budget, especially if many of your bills go out by Direct Debit.

Use our Budget planner to help you make better use of your finances

Here are some costs to consider:

  • Gas
  • Electricity
  • Council Tax
  • Water rates
  • TV licence
  • Mortgage or rent
  • Home and contents insurance
  • Telephone, mobile and internet service

Existing debt

  • Loan repayments
  • Credit and/or store card repayments
  • Hire purchase or in-store credit agreement repayments (for example for furniture or a TV)

Travel

  • Fuel
  • Car tax
  • Car insurance
  • Vehicle maintenance
  • Car finance repayments
  • Other transport, such as train or bus tickets

Essentials

  • Clothing
  • Food shopping
  • Toiletries and cleaning products

Other personal

  • Pension contributions
  • Life insurance premiums
  • Other insurance, such as critical illness or income protection cover

Children

  • Clothing
  • School trips
  • Childcare costs
  • Maintenance payments
  • Private tuition/schooling

Entertainment

  • Holidays
  • Hobbies
  • Eating out
  • Hairdressers
  • Lottery tickets
  • Gym membership
  • TV subscriptions (e.g. Sky)
  • Trips out (for example to the cinema or events)
  • Magazine and newspaper subscriptions/purchases
  • Drinks outside the home (including coffees and alcohol)

Of course, every household has different bills, so don’t treat this as a complete list.

Think about any additional costs you or your family might have to pay.

It’s a good idea to gather bank account and credit card statements from the last three months and record everything you spend over a period of a month or longer (as you might have some bills that are taken every six or twelve months).

Make sure you include everything you spend to get a true picture and add a bit extra to allow for inflation and any unexpected costs.

Once you know:

  • How much you need as a cushion or to save, and
  • Exactly how much money you spend in any one month, and

You’ll be able to see whether you can afford to take on any new debt.

Review your financial commitments

Look at your income and outgoings and think about whether you could pay all your bills and debts if you fell ill or lost your job.

If meeting monthly repayments is hard or you have lots of different loans and cards then it’s a good idea to review your debt and see if you can reduce it.

Whatever you do, don’t take on more debt to pay off what you already owe.

Confident you can afford to borrow?

If your budget shows you have enough spare cash and can afford the borrowing you want, it’s still important to take the time to compare the various credit options and find the right borrowing for you.

The links below will help you decide what borrowing option works best for your situation:

Only just making ends meet?

If your budget shows that you have little or no spare funds to pay for any extra debt then you can’t afford to borrow.

It can be worrying to realise you’re only just coping with your current financial commitments, but don’t ignore the problem.

Work out a plan to make sure you can pay back what you owe.

If you can’t manage, contact one of the free debt advice charities^

Your tips for borrowing money and paying it back

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This article is provided by the Money Advice Service.