We are in the midst of a very challenging time for our personal finances. Covid hit wallets hard, with incomes reduced as a result of furlough, redundancy or illness.
Still recovering, we’re now contending with rising interest rates on debts, coupled with the highest inflation we’ve seen for 30 years. This increase in the cost of living, as it’s being referred to, is affecting everything from mobile phone bills and the price of the weekly supermarket shop, to student loan rates.
Then there are unaffordable energy bills. Latest estimates suggest as many as four in ten people could be in fuel poverty in the autumn, classified as spending more than 10 per cent of income on heating your home.
For some, as Martin Lewis, the money saving expert has described, it is a choice between heating and eating. Many others are feeling the financial pressure and may be concerned about how to meet bills or clear debts.
If you are struggling, know first that you are not alone. There is a lot of free, anonymous support available out there. Companies and banks you owe money to are often much more forgiving or helpful than you might imagine. While burying your head or shutting out your worries may feel the most comforting option, it can exacerbate the problem.
Here is what to seek, and how to approach it.
Prioritise what you need to pay for
First, if you are in financial difficulty or worrying about how to meet financial commitments, make sure you’ve done an audit of your money to understand who needs what and when.
Understand exactly what you’ve got coming in: your salary or wages, any benefits, and then divide up your outgoings by priority, writing down how much you spend, and need, in each category.
The first category should be the things that are most important to meet, that is bills or debts that if you don’t pay them could have grave consequences. For example, your rent or mortgage, without which you’d lose your home; council tax, if you don’t pay it you can end up in court; energy bills, in order to have hot water and heating at home, plus the cost of basic food to feed your family.
The second category should be less urgent bills and debts, such as bank and personal loans, credit cards with high interest rates that could be costing you a lot if you can’t meet repayments, and essentials such as childcare or transport.
Finally, look at more take-it-or-leave-it spending, meals out, clothes shopping, holidays, splurges on Amazon, subscriptions you signed up to then forgot about. It is this category of spending you want to focus on cutting back first if you can. This is also the pot from which you should try and save.
The website Moneyhelper.org.uk has a bill priority tool to structure your budgeting.
Think about an emergency fund
Saving money may feel impossible at the moment, for many people it really is. But if there is some slack in your budget, focus on setting up a modest cash emergency fund. In uncertain times having a backup in your bank account becomes even more important. Often it is when people are unable to find the cash upfront for unexpected expenses that they are tipped into unmanageable debt.
Financial advisers will always recommend three to six months of essential outgoings, that probably means rent or mortgage, council tax and bills, and the food shop (the top priorities you highlighted when doing your money audit). This may seem a very high amount, so aim for what you can.
The best way to save is to work out what it is you can afford to set aside and then move the money into a separate account, in an easy-access savings account, a second current account, or even an envelope in your sock drawer, where you’re not tempted to spend it, as soon as you are paid. If you wait to see how much you can save after all your expenses have been met, you may find there’s nothing left.
Check you are receiving all money you are entitled to
A staggering £15 billion worth of benefits and tax-breaks go unclaimed each year from people who are entitled to support from the state but don’t realise it or don’t know how to claim, according to the website Entitledto.co.uk.
If you are unable to work, or you are on a low income, check your eligibility for universal credit, you may be entitled to extra to cover housing and childcare costs.
If you work and have children, including if you are self-employed, you can claim up to £2,000 a year (£4,000 if you have a disabled child) in tax breaks to pay for childcare, including everything from a childminder to after-school and breakfast club (childcarechoices.gov.uk).
Make sure you’re also claiming child benefit if you or your partner earns less than £60,000 a year. Find out more here.
If you are married and you or your partner is on a lower income, or unable to work, look into marriage tax allowance worth £250 a year, and you can backdate it.
You may also be able to request a reduction in council tax if you live alone, are a student, or are claiming benefits such as universal credit or pension credit.
Entitledto.co.uk and Turn2Us.org.uk are very useful websites offering benefits calculators to show what you might be able to claim and how much, as well as listing grants that you could also look into. Many charitable or religious groups, or local organisations offer money to people to help with essential living costs without any expectation that it will be repaid.
Some utilities companies offer those on a low income or benefits better deals.
Millions of people could be eligible for a social tariff which could reduce your bills to around £15 a month, but these are not well advertised - you won’t find them on a comparison site- so always ask, or search a broadband or phone company’s website for its social tariffs.
Jobseekers can claim free broadband for six months through TalkTalk. Find out more here.
Seek support if energy bills worry you
Energy bills have risen by over 50 per cent this spring and are likely to rise again in autumn. If you don’t know how you’re going to pay, or are worried it may become more challenging in the colder months to come, contact your energy company to discuss your account.
Do not assume there’s nothing they will do. If you can’t meet your bills, your energy company is obliged to find ways to assist. The energy regulator has rules in place that state companies have to help customers in financial difficulty, they cannot just cut you off.
They may offer you a different tariff, or lay out a payment plan, agree to reduce how much you owe for a set time, give you longer to pay or suggest hardship funds that may help you meet your bills.
Most or the major energy companies, including British Gas, EDF and E.on, have their own hardship funds, including grants to replace boilers. Ask your energy company for details and how to apply.
There is £350 of government support towards energy bills available this year.
That includes a £200 loan which will be added automatically to your bills in October. This will need to be repaid with a £40 levy added to your bills each year from April 2023.
If you live in a household that is in band A to D for council tax you will also receive a £150 rebate. If you pay your council tax by direct debit you should get the cash automatically into your account this April, though it may take a little longer. If you don’t pay by direct debit your council may ask for your bank details.
Those who don't live in the right council tax bands to qualify, or who don’t pay council tax, may still be eligible through the council discretionary fund, but you will need to contact your local council to find out more.
How to ask for help with debts Waiting to get help with debt can end up making the situation much worse, interest rates mount up, or you are forced to put essential spending on your credit card.
If you are stuck clearing minimum payments with no idea how to meet all your debts in full, or are simply concerned that you won’t be able to make repayments on time, always pick up the phone to the companies you owe or opt for an anonymous web chat if that feels too daunting.
There can be a perception that the person on the other end of the line, whether they are from a bank, a debt collection company, or a charity, are going to judge you. They won’t. This is what they deal with, day in and day out, and have many tools to help customers get back to a more stable situation. Zopa, for example, says it is always best to get in touch before things start to go wrong, so they can put a plan in place together for you until your situation improves.
A spokeswoman for Zopa says: “Our dedicated team understands this might feel like a difficult conversation to have, but they deal with people in these situations every day and can help you through it. If picking up the phone doesn’t feel right for you, you can start a live chat with us as well. It’s important to get in touch with us as soon as you think you might start to struggle.
“The sooner you get in touch the sooner we can start to tackle the problem together. Missed payments can stay on your credit file for up to six years and could impact your ability to get credit in the future.”
Consider a debt charity
If you feel too nervous to contact people you owe money to directly, or there feels like an overwhelming number of them, consider a debt charity instead.
Organisations like StepChange, PayPlan, and National Debtline will give you personalised advice on how to manage money you owe, everything from drawing up a budget, to contacting companies on your behalf, or giving you clear advice to enable you decide if something like a debt management plan or Individual Voluntary Arrangement (IVA), where you plan affordable repayments to debts you owe over several years, are right for you.
They can also give you information on the breathing space Debt Respite Scheme, which, if you pass eligibility checks, means the people you owe money to can’t add interest or fees to your debts, or take any action, such as sending in debt collectors, for 60 days.
Know that you never need to pay for debt advice or debt management plans, be careful to avoid companies selling you such services who are preying on people feeling vulnerable at the moment.
There is plenty of free advice available out there, never feel too embarrassed to ask.
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