Cost of Living Campaign - Price Watch - How to manage your debt as prices continue to rise
AS PEOPLE struggle to make ends meet as inflation, fuel, utility bills and other costs rise at an unprecedented rate the future looks uncertain for many.
With the current cost of living crisis that the UK is experiencing, as well as the added uncertainty of the current geopolitical climate, many Brits are feeling more anxious about their financial situation than ever.
Debt charity StepChange has reported a 34 per cent increase in people using their resources from December 2021 to January 2022.
Independent financial broker Norton Finance details how people can manage their debts to improve their financial situation.
UNDERSTAND YOUR FINANCES
Tackling debt is a task that is only made harder if you don’t have a clear idea of what is happening with your finances. Sitting down to assess your income and outgoings can take some time, but it can save a lot of future work and uncertainty.
Norton finance director Paul Stringer said: “With 15 million Brits struggling financially, debt can be an intimidating topic, but thankfully we’re seeing less stigma around it as it is a problem to be dealt with rather than avoided.”
He added: “With careful management of your debt and planning a solution that is right for you, you can put yourself on the path towards being debtfree.”
LIST YOUR DEBTS
Since we’re tackling debts, the best place to start is working out what you owe, when payments are due and in the case of having multiple sources of debt – which debt has a higher interest rate.
ASSESS YOUR INCOME
Whether alone or combined with a partner’s income, look at your sources of income to give yourself a starting figure for what you bring in each month.
BUDGET REGULAR EXPENSES
Payments for a mortgage or rent, utility bills and food are unavoidable. Look at where your money is going each month.
CONSIDER SAVINGS GOALS
Are you saving for a life event? While dealing with debt is an important financial goal to achieve as soon as you’re able to, it is important to put money aside for life events such as a wedding.
MAKE YOUR MONEY GO FURTHER
Now that you’ve looked at your income and expenses, are there areas where you could save money that could go towards your debt?
Could you reduce outgoings around transport, food, or luxuries such as subscription services?
TAKE CONTROL OF DEBT
Once you have a clear picture of your finances, it’s time to really get to grips with your debt and make sure that you’re able to stay on top of it. The following tips can help you feel like you have control over your situation.
Add your payments to a calendar – Knowing when your payments are going out is crucial for staying on track with paying debts. By adding them to the calendar you ensure that you don’t get any nasty surprises from a payment you had forgotten, and you can also make sure that there is enough money in your account for the payment to go through.
Prioritise your debts – If your budgeting measures and reducing outgoings means that you have some spare money to put towards paying off debts, it’s important to know where this money would be best spent.
This would generally be higher interest debts, but if you have some smaller debts that could be dealt with quickly to free up funds and give a small win to help motivate you then this could be a good option.
Make the minimum payment – If paying off your debt is proving to be a struggle, try your best to make the minimum payments to avoid late fees and a knock-on effect on your credit score.
If reaching the minimum payment is difficult, talk to the creditor directly to ask for an extension, rather than taking out a credit card and putting yourself in further debt in order to make the payment.
One possible solution for people with multiple loans to pay off is debt consolidation.
This would pay off your existing loans and combine your debt into one source with monthly repayments as you would only owe money to the debt consolidation provider.
Having one provider can make dealing with your debt easier as there are fewer payments to keep track of and you could save money on interest and late fees.
It is important to speak to a loan provider to assess your options.