According to a report from the National Audit Office, up to 8.3 million people in the UK are unable to pay off their debts or household bills. Many debt charities have reported a spike in the number of people seeking help with their finances, particularly among young people who have seen the biggest squeeze on their incomes more than any other age group.
Some of this is caused by simply overspending – people being influenced by friends and family or advertising and ‘discounting’ (some discounts are not all they seem!) or getting caught up and losing track of their spending. While many families will then cut back to pay off their debts, those who are already on the breadline will find it difficult, if not impossible, to make any savings.
The latest figures from the TUC indicate that unsecured debt has hit a record high of £428bn, equivalent to more than £15,000 for every household in the UK. It seems that either through necessity or compulsion, we are a nation that simply can’t help spending beyond our means.
Attitudes to spending and mental health issues also have a part to play – it is estimated that you could be up to six times more likely to experience problem debt if you have mental health issues. For many, it’s simply no good telling people to ‘get to grips with it’ or even presenting them with the tools with which to change – it’s a slow process, one that requires education as well as understanding and empathy. In 2016 Martin Lewis founded the Money and Mental Health Policy Institute, a charity with the stated aim of finding solutions to the link between financial difficulty and mental health problems.
For those seeking help, there are some amazing debt charities out there who can offer impartial and practical advice to those who need it – completely free of charge, and no matter the scale of your problems. Fortunately, if you feel able to make a change there are a number of things you can do to repair your finances and get set for the year ahead.
Set a monthly budget
It’s important that you know your income and outgoings, especially if you are on a low wage or don’t have a lot of disposable income. Regularly overspending or relying on credit to make ends meet is one of the fastest ways to fall into financial difficulty – and yet, sadly, many people simply have no choice but to do it.
Writing down what you spend, either on paper or even a spreadsheet, could help you take back control of your money. With some banks and building societies, you can even set warnings which send you a text message when you come close to a specified spending limit, or if you exceed your overdraft limit.
Cut the cost of credit
Take stock of where your debts are held – is it credit cards, overdrafts or personal loans? You may be able to move your debt around so you pay less interest on what you owe, or even none whatsoever. Some credit cards offer a 0% balance transfer facility where you can transfer credit from one card to a different one with a lower interest rate.
You could also consider taking out a cheap personal loan to pay off your other debts, thus consolidating them into a single, simple monthly payment. This may not always be cheaper than paying off each debt individually, however, but may help you keep track of what you owe if you have multiple accounts.
Review your bank account
Most people will never switch their bank account provider, despite the Current Account Switch Service which guarantees a simple, reliable and no-hassle switching service. Some providers are currently offering customers up to £150 in cash* if they switch their current accounts – a sum of money which could be welcome if you have debts to pay off.
Look ahead to the future
If you’re conscientiously looking after your finances, but then finding that a yearly spending splurge is sending you back to square one, it might be time to consider a regular savings account. This is where you put a little away each month throughout the year, and depending on how much you invest, leaves you with a modest buffer to help you cope with unexpected (or expected) costs.
*Correct at the time of publication