The cost of living in the UK has been rising for some time, and by April 2022 millions of households will begin to feel the pinch even more when energy bills rise and the National Insurance tax hikes come into effect.
The ‘cost of living crisis’ refers to the fall in ‘real’ incomes caused by inflation growing at a faster rate than wages, combined with upcoming tax increases. In short, things are becoming more expensive, particularly food, energy and fuel - and wages are not increasing at the same rate - putting a squeeze on household incomes across the UK.
If you find yourself about to fall into debt, or you’re worried that your current debt might become unmanageable, here are five things you can do to help manage that debt through the cost of living crisis.
Many people with debts don’t actually know how much they owe, so sit down and work out exactly how much debt you have. Also find out what the APR (annual percentage rate) is that you're being charged for each debt and work out how much you need to meet your debt obligations each month.
At the very least, you need to be making the minimum repayment on all debts to avoid getting into further difficulty. Once you've got your budget giving you a clearer idea of how much extra money you can put towards paying off debt, pay the debts with the most serious consequences and highest cost first. Some suggestions on how to prioritise payments can be found in this blog.
Consider debt consolidation if you have multiple debts. You could find out if you are eligible for a salary deducted loan via your employer through Salary Finance which could help consolidate monthly debt repayments and free up extra cash to help with the rising living costs and bills. You can also find out whether debt consolidation is the right option for you by reading this blog here.
Once you know how much you owe each month, you can work out what you can afford. Draw up a spending plan showing you how much you have coming in and going out each month. If you're not sure where to start, our Smart Spending System can help. This will help you to have a clearer idea of how much money you have to clear your debt each month and allows you to set a realistic time frame for getting rid of your debts.
If you’re genuinely struggling to stay on top of your repayments and you’re starting to worry that your debt levels are out of control, stay calm. You can negotiate with your lenders, it’s in their interests to keep your repayments affordable rather than risk you paying nothing. If you want someone to help you negotiate or simply need some free debt advice from experienced advisers then you can get in touch with PayPlan or StepChange
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