Debt can seem like an overwhelming burden, and some people’s problems with debt have grown much bigger over the past year.
A recent survey by VoucherCodes found on average, the 25-34-year-olds they polled had worked up £2,673-worth of debt since the pandemic lockdowns started.
Rachel Springall, a finance expert at Moneyfacts.co.uk, says some people who are struggling may want to approach a free debt advice service for support, before their situation gets worse. In the meantime, here are some tips from Springall to help people make a start on bringing debts under control:
1. Create a Budget
If you don’t have a budget, you may not know if you’re spending more than you make. Budgeting, boring as it sounds, can be a useful tool for managing your money and planning for your future. You can use software and budgeting apps like Mint, You Need a Budget, or PocketGuard to make a budget, but you can also create an effective one with just a notepad and pen.
To get started, write down how much money you have coming in every month. Include income from your job and any other sources.
Next, note all of your recurring, fixed expenses. Include your rent or mortgage, utility bills, insurance premiums, minimum credit card payments, and groceries. Look at how much you typically spend on nonessential expenses, such as dining out or entertainment.
Springall says: “Thankfully there are free mobile apps that can break everything down and help consumers to change their spending habits.”
If you’re spending more than you’re making, or if there isn’t enough breathing room in your budget, look for areas where you can cut back to reduce your expenses. For example:
- Carpool: If you drive to work, see if there is a co-worker who lives near you who would like to carpool. Or, create a profile on RideShare.org to find a carpool partner. By sharing the ride, you can save money on gas and car maintenance.
- Shop with a grocery list: Preparing your own meals and eating at home is a great way to save money, but it’s smart to shop with a list—and stick to it—to avoid unnecessary purchases.
- Reduce streaming services: If you’re paying for multiple streaming services, pick one or two favorites and cancel the rest.
- Switch to a new cellphone plan: If you have an expensive cellphone plan, see if you can switch to a less costly version with your current provider. Or, shop around with different providers to find a cheaper plan.
2. Consider low or fee-free balance transfer cards
“Consumers comparing 0% introductory balance transfer credit cards may well be comparing the deals with the longest interest-free term, however there are also fee-free options to consider,” says Springall.
“In recent months, some providers have dropped their fees, which means borrowers could save on the up-front cost of moving their debts.”
3. A low-cost loan could help consolidate debts
Springall says rates as low as 3.4% have recently been offered to people looking to borrow £5,000 over three years. Bear in mind though that you may not be offered the advertised rate – and always think very carefully and perhaps seek advice before taking on additional debt.
Springall adds: “It’s important to keep in mind that out of all successful applicants, a minimum of 51% are offered the advertised rate, and that early repayment charges may apply if customers do switch their loan.”
4. Get out of expensive overdrafts
Depending on who you bank with, overdrafts can be a very expensive way to borrow. Springall suggests: “An alternative to clear an overdraft would be to use a money transfer card and this may be more suitable for consumers concerned they will be unable to get back into the black quickly.”
5. Build a savings buffer so you can avoid debts in future
Springall says the West Bromwich Building Society has been offering an adult regular saver account paying 2% interest. NatWest has also been offering a digital regular saver account paying 3% on balances up to £1,000, to its current account customers.
Credit score firm ClearScore also suggests breaking debts down in order of priority and speaking to your lender as soon as you can if your situation is getting worse.