Dealing with the COVID-19 crisis has forced the UK to the brink of a significant financial crisis, according to the debt charity StepChange. Their findings conclude that there has been a doubling of people suffering from severe debt since the pandemic kicked in. Much of this debt has come about due to emergency borrowing required by those affected most by the COVID-19 virus.
Before you get too stressed worrying whether or when things will improve, please read on. There are measures you can take to reduce your risk of incurring personal debt, and this article will inform you what you can do.
How Has Emergency Borrowing Been Affected By The COVID-19 Pandemic?
StepChange’s research found that around one-in-three UK adults, almost 15 million people, have suffered a downturn in their finances as a result of COVID, through redundancies, furlough, or reduced hours of work. Moreover, the amount of people facing severe debt during this time has risen to around 1.2 million.
Those already falling behind in repayments amount to 5.6 million people, with the average amount of arrears being between £1,365 and £1,577. This level of debt is making it difficult for many people to make-ends-meet. A further 3 million people are at risk of falling behind on repayments. These figures mean that emergency borrowing has risen 66% during the pandemic and now stands at £10.3bn.
Avoiding Personal Debt
Debt not only has a financial impact on your life, but it can cause emotional harm too. Fortunately, there are things you can do rather than having to resort to emergency borrowing, and here are five of the most effective measures:
1. Start Monthly Budgeting
Regular budgeting will help you keep track of your spending. Without budgeting, it is challenging to stay abreast of where your money is going each month. As money unknowingly trickles out of your account, it is easy to inch your way towards financial heartache. Budgeting will help you organise your finances to identify areas where you can make cut-backs on your spending.
To many people, the mere mention of the word budget fills them with dread. However, there is plenty of help available online from financial websites and budgeting apps. These tools will provide you with templates for your budget and advice on how to make savings and cut back on your spending.
2. Develop Other Sources of Income
Budgeting can only go so far in getting you out of a financial pickle. You may be in a position where you need additional income to get your finances straightened out. Finding something to make a bit of income on the side is not difficult. There are plenty of places online that offer opportunities to make extra cash. Options include online teaching, online selling, freelance writing, website testing, and taking surveys.
3. Prepare an Emergency Cash Fund
Building up an amount of cash to use in the case of an emergency will give you a tremendous sense of ease. If you don’t have the money to access in an emergency, the chances of you opting for emergency borrowing increase considerably.
The Money Advice Service advises that you should have an emergency fund that will cover your necessary living expenses, such as a mortgage, utilities, and food, for at least three months. When you start out building your fund, the amount to cover three months may seem daunting. However, the important thing is to get started and build it as quickly as you can.
Putting the money into an easy-access savings account will help you. You will be able to get a little bit of interest on the money you save, as well as being able to get at it should you need to. It will also take it out of your current account, so you are less likely to spend it.
4. Change Your Credit Card For More Favourable Terms
Credit cards are a useful tool, but they can also be a curse if used irresponsibly. If you have built up a balance on your credit card and are not clearing it every month, you will be hit with high-interest charges. The high cost of maintaining these interest payments means that you are less likely to get the balance cleared.
If you are in such a situation, you should consider changing your credit card provider. Making a balance transfer to another card provider could give you a low-interest period or even zero interest. You can then use this period, usually between 6-12 months, to get your credit card balance cleared.
5. Get Financially Savvy
Improving your financial knowledge will make a significant difference in your economic activities in saving, borrowing, investing, and others. Getting knowledge takes away much of the guesswork that many people rely on in the absence of such knowledge. You’ll be able to make better-informed decisions leading to better financial outcomes.
You can increase your financial knowledge in several ways. Reading financial newspapers, books, or online articles is a good starting point. Consulting financial experts and advisors, either directly or online, will allow you to get an independent assessment of your financial outlook.
Hopefully, following some of these simple tips will help you get out of a temporary financial crisis and avoid resorting to emergency borrowing.