January could feel a little different this time around. The spirit of the 2021 New Year has focused on how the UK will recover from the last 12 months and current lockdown. Unfortunately for many people, the festive financial hangover may be lasting a little longer than they would have wished.
The end of any year should be a happy and festive occasion, but it can also be the time of year when people can get further into debt than is healthy for their finances. Whilst the New Year should be a time of new opportunities and looking forward to the future, many can be faced with the problem of dealing with strained finances.
In a more ‘normal’ time, there would be some straightforward pointers on how you can help yourself in relation to your debt finances. However, we have to acknowledge that circumstances around dealing with debt may well be different this January with incomes potentially adversely impacted out of people’s control.
Ideally, we shouldn’t wait until January to be thinking about this, but hindsight is a wonderful thing… and the best way to address any threatening “financial blues” is to at least try and be proactive about any imminent problems.
The COVID pandemic has certainly had an impact on personal savings. Individual savings plans may have gone out of the window in the last 10 months due to the uncertainty that has persisted; and thinking about how much money can be allocated for savings in 2021 may just not be a priority right now for many.
Borrowed and spent too much in 2020? What can be done?
Firstly, don’t panic. Make a realistic assessment of where you are as soon as possible and work out exactly how much you owe and when it needs to be paid back.
Don’t ignore it, it may be a worry, but facing worries head on will help to manage them sooner, rather than letting them spiral out of control.
Prioritise the important debts
All debts need to be paid off, but it is wise to identify which debts take higher priority than others. Make sure you can maintain payments on any debts such as your mortgage or other secured loans where your home or possessions may be at risk if you don’t pay them.
Other debt needs to be managed too, as left unpaid will damage your credit score and put you at risk of formal action being taken by a lender. Try to focus on maintaining payments, and aiming to reduce balances on those debts with higher interest rates first.
In worst case scenarios, some lender and creditors offered payment holidays during the pandemic. Payment holiday facilities can provide short term breathing space but
do simply kick the can further down the road lengthening the repayment term, with payments having to be met at some point. Payment holidays can potentially result in higher future costs too, due to additional interest.
Where you have credit cards where you are charged interest, you may be able to move the balance on to a 0% balance transfer credit deal. This can help save money over the life of the 0% deal … but you need to look very carefully at the charges and terms as upfront transfer costs will reduce potential savings.
When things are much worse than anticipated
Lenders may be more sympathetic to the plight of their customers because of the COVID pandemic. Having an honest conversation with creditors is likely to be far more beneficial than burying heads in the sand.
Ultimately, if someone is really struggling and it’s going to take more than a simple fix to improve things,it’s worth seeking further advice. Free and confidential debt advice is available from places such as Citizens Advice.
If you are worried about how your current situation may impact your chances of securing a mortgage in future, speak to a Linear adviser.