2020 was a challenging year for many with furlough and job loss contributing to around three in 10 Britons being negatively financially hit by the pandemic, with around £10billion of personal debt built up as a result.
Because of this many will struggle financially and may potentially turn to credit to support them.
Rachel Springall of Moneyfacts advised: ‘The impact of the pandemic on consumers may well have prompted them to take a step back to reassess their financial health and find ways to improve their situation.”Clearly the resilience of consumers finances will continue to be tested throughout 2021 and the impact of this year could well be felt many years to come.
‘If consumers can put aside a little time, they could start to build a solid foundation for a brighter financial future with just a few simple steps and by taking advantage of free planning or support.’
This is Money speaks to the experts for advice on how to get out of debt in 2021.
1. Prioritise what you owe
When in debt it is important to face up to what you owe and not bury your head in the sand.
Work out what you owe and to who – as well as when you owe the money by.
2. Consolidate your debts
If you are always juggling your credit card balances, your overdraft or repayments on your car loan, perhaps it’s time to consider combining all your borrowing with a single personal loan.
If you’re going to go down this route, make sure that once you repay any card balances that you destroy the cards and close the accounts completely.
3. Speak to debt experts
StepChange, the debt charity, estimates 1.2 million people are in severe problem debt because of coronavirus, with a further 3 million at risk of falling into this category. For some struggling due to the crisis, they could benefit from debt advice.
In particular, if you have any of the following, you should consider seeking free financial advice:
- A negative budget – more going out than coming in
- Arrears on any ‘priority’ household bills, for example, mortgage, rent, council tax or utilities
- Not enough disposable income to cover your minimum debt repayments – if your income has dropped due to coronavirus, you may be able to get a payment break from some of these bills, but it’s still a good idea to get free debt advice.
If you’re in this situation, don’t delay getting in contact with a debt advice organisation.
4. Switch credit cards
Transferring credit card balances is a positive way to get yourself out of debt, this may be moving balances from a high-interest credit card to a zero transfer balance credit card.
This will ensure you are getting a much lower interest rate and avoid paying large interest fees that are often introduced after the initial zero per cent interest offer runs out.
5. Cut down on spending
Cutting down on non-essential spending could help you tackle debt quicker.
Look for ways to reduce your monthly outgoings, such as checking and cancelling old direct debits that you don’t make good use of, for example, magazine subscriptions or gym membership.
6. Avoid ‘buy now, pay later’
Buy now, pay later is a popular form of payment for many now doing their online shopping of which many retailers offer you the option to spread the cost of your purchase.
Although this can be a useful option for major purchases once in a while, it’s dangerous to start using it as the norm every time you want to buy clothes or household goods. The danger being before you know it you end up with huge monthly payments that you can’t manage.
7. Switch to better deals – and save
It is always a good idea to use price comparison sites to see if you could save money by switching providers.
This goes for all sorts of bills including energy, mobile, broadband and TV packages.
Research some of the best deals on the market and advise them you are thinking of switching unless they can match it.
In many cases, you will find yourself walking away with a smaller bill.
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