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Health and Wellbeing
A Health and Well-being Wales Partner

Very few young people set out to owe money they can’t afford to pay back – or think it will ever happen to them.

Being in debt means spending money you don’t have right now. Manageable levels of debt are not usually a problem – the majority of adults have borrowed money at some stage of their lives. It is when debt becomes unmanageable and paying back what is owed takes up more and more of someone’s wages or benefits that it becomes a problem.

Unfortunately, for some young people the combination of low or irregular income, bad spending habits, unforeseen emergencies and living independently for the first time can result in spiralling levels of debt.

Living from month to month makes it hard for them to reduce their debts so that each time another unexpected event crops up – or even birthdays and Christmas – they feel they have no option but to borrow more.

Whatever the reason for being in debt, it’s important to seek help. Worrying about money is stressful and can have a negative impact on someone’s mental health.

Good and bad debt

Not all debt is bad. It makes sense to take out a mortgage for a long-term investment like a flat or house. A loan for a car that helps a young person travel to work is also worthwhile in the longer-term (although unlike property, cars usually decrease in value).

Most university students now take out student loans to finance their studies (Money Saving Expert has more on post-2012 student loans).

So-called ‘bad’ debts typically involve spending money to buy things that have no long-term or investment value, e.g. new clothes, meals out. Many young people are now forced to borrow to cover basic living costs.

Most bad debt accrues on credit cards, payday loans and overdrafts. High interest charges and fees mean the amount owed is soon far in excess of the original loan or overspend.

Even when getting into debt is worthwhile, young people should still consider affordability and potential changes in their short-term circumstances – and shop around for the best deals.

Formal borrowing

Most lenders will not consider lending money to anyone under 18 and banks do not allow young people’s accounts to go overdrawn.

Everything changes at 18 when a young person can enter legally-binding contracts. Depending on their income and circumstances, they then have access to credit cards, car finance, bank loans, payday loans and mortgages (a guarantor is often required). Some forms of borrowing are easier to obtain than others, with young people often being seen as high-risk by conventional (and cheaper) lenders.

Unfortunately, the ease of online applications has led to some under 18s lying about their age and being granted payday loans.

Informal borrowing

Borrowing from family or friends is the cheapest form of borrowing; however, it is important to be clear about how and when the money will be repaid (put this in writing).

Owing money to family and friends can put a strain on relationships, especially when the person who has lent the money needs it to be repaid for their own financial well-being.

Getting on top of things

When someone is in debt and cannot keep up with the repayments, it’s important they seek free expert advice as soon as possible.

There are debt solutions for different circumstances, including:

  • Debt management plan (DMP)
  • Debt relief order (DRO)
  • Debt arrangement scheme (DAS)
  • Individual voluntary arrangements (IVA)

The debt charity Stepchange has more information.

Impact of debt on mental health

Money worries put an enormous strain on both the person in debt and their family. Depending on the kind of debt, there may be constant letters and phone calls or even loan sharks or bailiffs knocking on the door.

Living in a household where debts have got out of control can have an enormous impact on a child or young person’s mental health and can make them feel lonely and isolated.

Information and support

MoneyHelper explains financial matters including loans and borrowing, bank accounts and financial emergencies in simple terms.

Stepchange provides free advice to anyone in debt.

The National Debt Helpline believes no-one should go through debt problems alone. Call: 0808 808 4000.

The Money Saving Expert has produced a debt help plan.

M.E.I.C. provides confidential support to young people in Wales up to the age of 25. Call: 0808 802 3456 or text on 84001, instant message or email.

Last updated: 09/03/2023