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Tackling debt is a challenging thing for anyone – but you’re not alone. COVID-19 has severely affected hundreds of industries, millions of people have taken hits to their income, and debt charities receive five times their normal number of calls.
Reduced incomes, redundancies, and closed businesses mean many of us are facing tough times ahead. The looming worry of debt is present for more than ever – and it’s tempting to reach for short-term solutions to avoid getting into debt. Sometimes, however, the long-term view is the best one to take.
If you are worried about debt, don’t panic! There are ways of getting help out there and this article will list various first steps you can take to begin tackling debt.
The first step to tackling debt is to assess the likelihood of it actually happening and becoming a problem. If you know you’ve got some cash due in a week or two, simply speaking to your lenders to arrange a delayed (but full) payment is always the best option.
However, if you’re already in debt or won’t have income that covers your payments, take action.
If you are in financial stress and concerned about failing to make immediate payments – contact your provider. During the coronavirus period, relief is being offered by freezing repayments, or delaying bills if you can’t afford to pay them right away.
It’s important to know that these debts will still need to be paid back in the long run. They’ll also continue to accumulate interest, so only take a repayment holiday if it’s absolutely necessary. If you can’t afford to pay the full amount, but can pay some, arrange to do that.
Get help as soon as you can. StepChange is a charity that offers free, confidential debt advice. Easy to use, you tell them about your finances and spending, and they’ll help you work out a budget and give you advice on working practical solutions.
Tackling debt is easier when you know what’s the most important one to pay off first. List all of your debts in a spreadsheet – including the outstanding balance, the monthly repayment, and the interest rate.
Start with the largest costs and those with the highest interest rates. If, for example, you have a mortgage and a credit card debt, but the credit card debt has an interest rate of 29%, pay that first and opt for an arranged mortgage holiday. This will free up the mortgage payment to pay your other – higher interest – debts, to cost you less in the long run.
If you have several priority debts and can’t afford to pay them you’ll likely be eligible for help and benefits.
When you apply for Universal Credit, the housing element is applied – this replaces the old style Housing Benefit. It can cover some of your rent (up to a certain limit based on your location and circumstances, and it doesn’t need to be repaid), or mortgage payments (not including interest – and must be repaid in 12 months).
You can also apply for extra help from your council if the housing element does not cover your rent, which is called a Discretionary Housing Payment.
With non-priority debts you can’t afford to pay, contact the supplier and they may be able to help you have a repayment holiday whilst looking for additional income and benefits.
Remember: don’t take longer breaks than needed from your debt as they still accumulate interest and you’ll end up with more to pay back in the long run.
Tackling debt starts with making sure you’ve collected every penny you’re owed – and then finding ways to boost your earnings in the future, too.
The first step after redundancy is to make sure you have been paid what you’re legally owed. This includes the correct redundancy pay, your last full wage, plus any holiday pay or ‘pay in lieu’. The Citizens Advice redundancy page tells you how to check you have received what you’re entitled to.
If your redundancy payment takes your capital to between £6,000 and £16,000 you may be entitled to means-tested benefits. Anyone with capital (or assets, such as a second property) worth more than £16,000 isn’t eligible for benefits.
Additionally, if you have a mortgage, it’s worth checking your policy. Does it mention what happens in the event of a redundancy? Is there any leniency that can be offered to you?
If you’re struggling to afford to pay everything now you’ve had your salary reduced, you might be eligible for support through the welfare system. Apply for benefits like Universal Credit and Child Benefit: speak to your assigned advisor to find out how your lower income may allow you access to other benefits, too.
You can also choose to take a second job while you’re on furlough. You’re not allowed to work for the same employer that furloughed you, though. This is a good way of topping up your income – though remember it may affect your annual taxes at a later date.
Look at what benefits may be available to you. The welfare system has benefits covering a range of situations so if you’re struggling with your finances you should be able to find help there. There are options for childcare and family, heating and housing benefits, as well as the Job Seeker’s Allowance, and Universal Credit.
In most circumstances, Universal Credit is the first port of call. If you’re not eligible for this, you may still be able to get means-tested or contribution-based benefits such as Employment Support Allowance or Job Seeker’s Allowance.
The best way to work out what you may be eligible for is either the Turn2Us or EntitledTo benefit calculators. You can then apply online using the gov.uk website, because of the huge increase in people seeking benefits there is a slightly longer timescale before you receive payment. Though, if you are in a financially urgent situation you can apply for advanced payment once your application has been approved.
If you are already receiving benefits it still may be worth using one of the benefit calculators to see if you are entitled to more now that your financial situation has changed.
Make a household budget of every penny you’ve spent in the last month. Ideally, you should do it for the last three months if you can!
Take a look at where you can cut back. Some things will naturally have reduced, such as takeaways and coffees out, because of the current lockdown. Other things, such as old or duplicated subscriptions can quickly eat into your cash. Do you have the same subscription as someone else in your household, such as Spotify or Amazon Prime? Talk to them about sharing – this’ll reduce the cost for both of you!
Work out how to save on things like grocery shopping, too. Bulk-buying is normally a great way to save money, but is difficult at the moment. Instead, look at switching from branded items to own-brand products, and try cooking from scratch instead of buying ready meals. The cost quickly drops!
Tackling debt is a case of reducing spending (where possible) and increasing earning (where possible). The good news is there are still ways to earn more money at the moment!
If you are on furlough, you can do so without impacting what you are due to be paid. If you are receiving benefits, you can work up to 16 hours a week. For every £1 earned over your personal Universal Credit limit, you lose 63p of the benefit.This tapered system helps you get back on your feet while you’re starting work.
Check out our Make Money section for ideas on how to make some extra cash in your free time. From online surveys to selling personal data, there are lots of ways to earn cash just from sitting online. It’s also a great way to beat the boredom while we’re stuck in lockdown!
You are able to find a second job whilst still receiving furlough payments and there are still industries hiring at the moment. A big one that is desperate for workers is seasonal fruit picking work – the British Summer Fruits page shows jobs based on location to help you search. There’s also opportunities at the moment for healthcare workers and caregivers, online teaching, and supermarket assistants. Workers are needed immediately and if you’re available for some of these jobs, they’re worth applying for.. Take a look at our Coronavirus Job Bank for more help.
Very importantly, remember to keep your own mental health as a priority during this hard time. It’s easy to feel overwhelmed but reach out and talk to someone. There are plenty of UK mental health charities that are here to support you.
Samaritans lines are open 24/7 and can be contacted by telephone on 116 123 for free, or by letter, or email. Reach out them if you need help or someone to talk to.
Mind is an excellent organisation that can help, call their infoline on 0300 123 3393, or text 86463, if you need help with mental health problems, want to ask about treatment, or where to get help.
If you’ve got a burning question about tackling debt, ask it! Jump on over to our new messageboard and post your query for others to answer and share their experiences with you.
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