Sarah Steel is our Head of Financial Wellbeing, an experienced financial professional and a Fellow of the Pension Management Institute.
The rate at which prices are rising in the UK has dropped back slightly, but inflation remains near a 40-year high. In response, the Bank of England has increased interest rates to 4%, the highest level for 14 years. There’s no doubt times are tough. For many, the line between debt discomfort and debt crisis is worryingly thin. When people are stressed about money this can impact their sleep, personal relationships and even their ability to concentrate at work which is why financial stress is the biggest cause of workplace absence.
And with an increase in energy bills due in April, the increased debt and financial worries will remain for many. Here are my ten top tips for getting your finances back on track:
Ten top Tips
The increased cost of living has resulted in a financial struggle for many people. Add to this the January financial hangover from Christmas and increase in mortgage payments as interest rates rise, there’s no doubt times are tough. For many, the line between debt discomfort and debt crisis is worryingly thin. When people are stressed about money this can impact their sleep, personal relationships and even their ability to concentrate at work which is why financial stress is the biggest cause of workplace absence.
And with an increase in energy bills due in April, the increased debt and financial worries will remain for many. Here are ten top tips for dealing to help get finances back on track:
1. Get to grips with how much you owe - The first thing to do is to understand the full extent of your debts. For each debt you have, try writing down how much you owe, the minimum payment you need to pay each month, the interest rate you’re paying on the debt and when you need to pay it by. It may seem scary at first but putting your debts down on paper will be the first step in taking control and working out a plan of what to do.
2. Prioritise your debts - Rearrange your list of debts into priority order by putting those debts with the most serious consequences for not paying and the highest interest rates at the top. This will help you to identify which debts you should concentrate on paying off first (see 8 below).
3. Stop borrowing - It may sound obvious, but it will be harder to deal with existing debts if you keep adding to them. Try to cut unnecessary spending and avoid the temptation of advertised loans which often come with very high interest rates which make it harder to pay back. Breaking the cycle will help to put you in control of your money.
4. Work out your budget – Use a budget planner (Budgeting & Saving - Better With Money) to work out your income and outgoings each month. Include your debt repayments as outgoings. This will help you to identify if you have a shortfall to address or whether you have some money leftover that you could pay towards reducing debt. If you live with a partner and are dealing with your debts together, fill in your budget together.
5. Reduce Outgoings – See if there are any non-essential subscriptions or direct debits you could cancel or whether you could save money on your bills or insurance by shopping around. Could you prepare a food planner and buy only the items you need or use vouchers to reduce your grocery spend? Reducing your outgoings will free up more money to decrease debt.
6. Reduce the cost of debt – Do you have savings that you could use to pay off debt? Could you consolidate debt by moving it to 0% credit cards or cheaper loans? Have you considered re-mortgaging to pay off your debt and spread the cost across the term of your mortgage? When applying for cheap loans or credit cards, use an eligibility checker first, available on most lenders’ websites, to see which cards you’re likely to be accepted for based on your circumstances. If you’re turned down for finance this could negatively impact your ability to get credit in future.
7. Maximise Income – Are you claiming the state benefits you’re entitled to (www.entitledto.co.uk), are you eligible for any charitable grants? (www.turn2us.org.uk). Are you receiving the correct tax reliefs? (Claim tax relief for your job expenses - GOV.UK (www.gov.uk). Maximising your income will enable you to pay off debt more quickly.
8. Pay off priority and high interest debt first – Once you know what you can afford to pay on debt, don’t split your money between your debts equally. Pay at least the minimum required on all but pay as much as you can on the priority and most expensive debts first. When these are repaid, shift focus to the next highest rate debt and continue this until you’re debt free. This way you’ll pay the least amount of interest.
9. Set up direct debits - Direct debits can help to simplify your finances, helping you to budget and ensure your credit cards and loans get paid on time. Missing payments can have a detrimental effect on your credit score which could negatively impact your ability to get credit in future and may push up your rates on insurance products too.
10. Ask for help if you need it - If you have spiralling debt and can’t make the minimum repayments or don’t feel mentally strong enough to deal with your finances, don’t feel as if you have to struggle alone. You can contact one of the non-profit debt counselling organisations shown here BWM_Debt_CharitiesV2 (betterwithmoney.com). They have qualified debt advisers whose job it is to help you for free regardless of the amount of debt you’re in. 80% of people who seek help for debt feel more in control and happier after doing so.
Dealing with your debts may sound difficult or feel uncomfortable but no debt problems are unsolvable. Following these tips will put you in control of your money and reduce the stress of debt.
The Wellness Movement provides financial education in the workplace to bring money matters to life in an interesting and accessible way. We provide employees with the financial knowledge and tools to budget, reduce outgoings, make cost savings, prioritise payments and maximise income, to better manage debt and insulate themselves against problems in the future.
If you would like to find out more about the “Tackling Debt” webinar or the other courses we offer, please contact us here or email hello@thewellnessmovement.co.uk