This year has seen the cost of the living problem grow out of control, resulting in rising household debt as a result of increased expenditures.
Mortgages, rent, food, and energy costs are all increasing in price for the British population.
The average household presently spends £3,549 annually on energy; however, these bills are capped at £2,500 per year for normal use under the Government’s energy price guarantee, rising to £3,000 from April 2023 to April 2024.
The average UK adult’s debt, excluding mortgages, increased from £25,879 in 2021 to £34,566 in 2022, as reported by money.co.uk.
Due to the rising cost of living, nearly two million households missed a key bill payment in the past month, according to the consumer advocacy group Which?
If you are in debt or are concerned about someone who is, This Is Money has compiled five pieces of advice from financial experts on how to repay your debts in 2023.
Establish a regular budget
The first step in dealing with debt, according to experts, is to assess your monthly income and expenses.
Andrew Hagger, a personal finance specialist at MoneyComms, stated, “It is impossible to set plans if you do not know exactly where you stand financially.”
People frequently do not know exactly what they owe, and when they guess, they are frequently off.
When in debt, it is essential to know exactly how much you owe to which companies when the due dates are, and how much interest is being charged.
It is also essential to determine your other monthly expenses and the amount of money you have coming in to cover them.
Sue Anderson, head of communications at the debt charity StepChange, stated, “Although it may sound simple, adopting a budget can help you gain financial understanding and control.”
Include earnings, benefits, pensions, and housekeeping money from your partner or relatives in your list of incoming funds. Examine your monthly spending by jotting down everything you purchase over the course of a month, including bills, groceries, clothing, car or travel expenses, subscriptions, etc.
“Once your budget is complete, deduct your projected expenses from your estimated revenue. This is your disposable income, and it will be used to pay down your debt.
The This is Money home budget calculator allows you to enter your salary and recurring monthly spending to calculate your monthly income and expenditures.
Can you bring additional cash?
If your typical discretionary income is insufficient to cover your debts, you may be able to temporarily boost it.
If you are currently employed, the apparent approach to increase your income is to hunt for a higher-paying job, seek a promotion, or work more hours; however, this is not always achievable.
However, there are plenty of additional methods to gain a few pounds. Here are twenty of them, ranging from renting out your driveway to changing your bank account.
StepChange suggested using cashback services like TopCashback or selling unneeded clothing and household items.
If you’ve recently experienced a drop in income, such as because you’re working fewer hours or have been laid off, you may potentially be eligible for government assistance.
The government has a benefits calculator that determines if you are entitled to further financial assistance.
Can you make any savings?
There are numerous ways to save money, and any savings can be applied to debt repayment.
It could be as easy as shopping at a cheaper grocery, determining if you are eligible for a shared broadband rate, or canceling needless subscriptions.
Check to see if you are still paying for any unwanted subscriptions, direct debits, etc., as advised by Hagger.
Give priority to payments
After completing all of these steps, you may be able to repay all of your debt within a few months. StepChange stated that there are extra measures to take if you are unable to.
Sue Anderson advised, “Don’t panic if you can’t pay off your bills immediately.” Nonetheless, it is essential to know how to prioritize.’
Certain debts should take precedence over others because the consequences of not paying them are more severe. Among these may be your rent, mortgage, electricity bills, and council tax.
After you’ve paid off these expenses, you should aim to pay off the minimum balance on each of your debts. This will prevent your debt from increasing as interest accrues.
After you have accomplished this, prioritize paying off the debt with the greatest interest and fees. If you have multiple debts, merging them into one can help you gain control over them.
The most popular method is to use a credit card with 0% interest. These cards do not charge interest for a limited time.
Balances transferred to a card with a 0% introductory APR do not accrue interest for a specified period, which might aid in debt repayment.
This allows you to pay off obligations without accruing interest, allowing you to get out of debt faster. Then, you must ensure that you can repay the amount before the 0% APR term expires, or you will begin paying the interest again.
Try not to use the card for purchases or cash withdrawals, and be sure to make the minimum payments, as otherwise, you may lose the 0% APR benefit.
There are a few requirements for obtaining a 0% APR credit card. Hagger stated, “Attempting to refinance might be challenging. You can still obtain 0% balance transfer credit cards, but you may require excellent credit.”
Initially, you must be accepted. The precise terms of these credit cards will vary slightly based on your financial situation, including your income, credit score, and monthly expenses.
Banks such as NatWest offer credit cards with 0% interest for 33 months, with the rate increasing to 22.9 % thereafter.
Even though a credit card advertises 0% interest, there may be a transfer fee when you load funds onto it. These are known as “balance transfer fees,” and they typically range between 2 and 4 percent.
Barclaycard and HSBC are two institutions that provide credit cards without balance transfer fees. However, remember that suppliers provide various deals to different individuals.
Don’t delay obtaining help
Even if you have attempted the aforementioned debt relief strategies without success, you can still receive assistance.
If you’re concerned about your money or struggling with debt, you don’t have to suffer in quiet, according to Anderson. Contact a debt help organization as soon as possible for free and impartial advice.
