COVID-19 has hit us hard. Millions of Brits have seen their incomes crushed by layoffs, furloughs or short-time work.
As a result, people have turned to credit cards and bank loans.
Last year, Barclaycard reported that credit card spending on essential items rose 4.1% year-on-year, partly due to the shift to online shopping during lockdown.
But what’s the best way to pay off that debt as borrowers try to get their money back on track in 2021?
It’s a must to create a budget, keep track of income and expenses, and curb non-essential expenses.
But those whose debt is a multi-tented animal, with bank loans, utility bills, mortgage or rent arrears, and loyalty cards, need to take serious action.
Move your debt to a provider with a monthly repayment
One option is debt consolidation, a loan that shifts your debt to a provider with a monthly repayment.
In terms of administration, it’s easier than sorting through copious amounts of paperwork. Also, there are many debt consolidation companies to choose from.
But as debt relief agency StepChange warns, it’s not always an easy fix. It can often get expensive as debt consolidation companies charge for their services and monthly repayment rates can be higher than some people can afford.
StepChange’s online calculator can show how much you may have to pay back (step-change.org/debt-info/debt-consolidation-calculator.aspx).
Some loans need to be secured against your home – meaning you could lose your home if you can’t keep up with the repayments. At the very least, missed payments will cause your credit score to suffer. Stepchange also warns against wording such as “government debt consolidation programs”. It looks legitimate – but the government has no such official programs.
What the government is offering is the Money Advice Service, which provides advice, guides and online tools for customers, including help with debt management (moneyadvice-service.org.uk/en/tools/debt-advice-locator).
Citizens’ advice also offers well-founded assistance on dealing with
A StepChange spokesperson says, “Talk to someone like us and if necessary, get a debt management plan or other appropriate debt settlement solution.”
Talk to your creditors about repayment plans, too. Britain’s Financial Conduct Authority has ordered mortgage lenders to show “forbearance” to people struggling financially thanks to COVID-19.
Talk to utility companies about affordable payback plans. You can also switch to a prepaid meter, although it may come with a more expensive plan. You can also renegotiate existing payment plans to make them more manageable. But as we ponder how to pay suppliers back, saveonenergy.com/UK has revealed that 13 million UK households owed a total of £1.7 billion in 2020 from energy suppliers.
For instructions on how to request a refund, visit https://www.saveonenergy.com/uk/. If you’re counting your pennies, it’s worth a try.