Over 8 million people in the UK are thought to be in debt or over-indebted, meaning they owe more than what they can afford to pay back. Managing debt is key as well as saving money on expenses, so for Debt Awareness Week (22- 28th March 2021) we offer some tips on how to manage debt and make savings.
MANAGING DEBT
Debt can be stressful. Managing it can feel tough but with these hints and tips, it needn’t be a problem that keeps you awake at night.
1) KNOW WHERE YOU STAND WHEN IT COMES TO WHAT YOU OWE
The key to managing debt is having a clear overview of what you owe and to whom. But it is also about knowing which are priority debts and which are charging you the most in terms of interest too.
The debts which accrue the most interest are costing you more and so if you can afford to make a higher payment on these, the cheaper it will be in the long run.
2) OVERPAYING
Overpaying on loans and other debts isn’t always possible especially when money is tight. But even making the smallest of overpayments on top of the minimum monthly payment will help to reduce the overall amount you owe.
3) STAY IN TOUCH WITH FINANCE COMPANIES
The last thing you feel like doing when you don’t have enough money to cover all your repayments is talking with the company or organisation to say that you can’t pay.
Most companies prefer their customers to talk to them and can offer a range of options from repayment holidays to reduced payments for a period of time.
4) PAY OFF DEBTS BEFORE SAVINGS
It makes good financial sense to pay off debts before you start building a significant nest egg. You want as few outgoings as possible, redirecting your money to pay off debts.
SMALL SAVINGS MAKE THE BEST FINANCIAL CUSHION
However, if you are in debt, that doesn’t mean you cannot save any money at all. Providing your debts are serviced each month – in other words, you can make the minimum repayments on them each month – you can save a small amount to give you the financial cushion that we all need.
THE 1P SAVING CHALLENGE
This easy to follow challenge could see you enjoy a savings pot of £667.95 at the end of the year. You can start any day of the year (it’s easier to start on the first day of the month) and most people start on the first day of the New Year.
So, on 1st January, you save 1p, on the 2nd January, 2p, 3rd January 3p and so on. In other words, you save each day the amount you saved the day before plus 1p. You can also divide the total £665.95 by 12, and put away the same amount each month so that by the end of the year, you have a healthy-looking savings pot.
What you do with it depends on you. You can carry on saving, you can spend it, or you could assign all or part of it to make a larger payment on one or more of your debts.
BOOSTING YOUR INCOME
People fall behind with debt for all kinds of reasons, from reduced hours at work to being made redundant. Many people are currently struggling with debt as a result of lower income relating to furlough. Boosting your income doesn’t necessarily mean getting another job or working longer hours though.
There are some things you can do to boost your income so that managing debt is easier:
- Check your tax code – it doesn’t follow that your tax code will change with any change in circumstances so check that you are not overpaying tax.
- Marriage allowance – the taxman won’t automatically give you your money back or make payments on incentives such as the marriage allowance unless you make a claim. An estimated million married couples are yet to put in a claim. In this case, the partner who earns the least can offset a portion of their personal tax allowance against the higher earner. This can be backtracked for up to 4 years too.
- Sell unwanted items – we all accrue things over time that we no longer use. As well as recycling, selling items on online auction sites is well worth the time and energy. The injection of funds can be helpful.
OTHER TIPS FOR MANAGING DEBT
- Get the best deals on utilities and insurances – don’t allow utilities and insurers to automatically renew policies. Always check that you are getting the best deal.
- If you’re really struggling, visit a food bank – many people are embarrassed and ashamed about using a food bank but there is no need. Run by non-judgemental charities, many people rely on their local food bank from time to time so that they have food in their cupboards.
- Ditch the brands when shopping – save money on your weekly shop by ditching the branded items for the supermarkets own. Even if you do this across a handful of items, you’ll save cash.
- Keep an eye on direct debits and standing orders – when was the last time you checked your direct debits and standing order list? If it hasn’t been for some time, then you need to check through them to make sure that they are all still relevant. Check for duplicates such as mobile phone insurance and whether your mobile phone will be covered on your home insurance.
- Don’t pay for what you can do at home – you can save a significant amount of money by ditching things like the beauty salon without leaving yourself a little uncared for. Consider a DIY pedicure, or a spa day at home. It’ll be much cheaper and you’ll still enjoy a pampering. If gym membership fees are crippling, consider ditching the gym and working out by walking, running or working out at home.
IF YOUR DEBT IS SPIRALLING OUT OF CONTROL
It takes only a few missed payments for debt to become a huge problem. And it takes longer to climb out of debt that it did to get in it.
One in four people who struggle with their mental health in the UK says that debt and lack of money is a major factor. When this is the case or you feel that debt is spiralling out of control, you need to consult with a professional debt advisor.
There are many organisations and charities that help people struggling with debt. These organisations will also lay out all your options, including IVAs and other tools.