Things to do in the second lockdown

Now we are in the second lock down, it is a good time for some of us to review our lives and our financial situation in particularly if you are in debt. For many of us who are fortunate to be working from home we are spending less as we are no longer paying for things such as travel expenses to and from work. Below I hope is a useful guide to help those who want to review their finances and begin managing any debt you may have.

ASSESS

The first thing to do is to assess your debts

The first step towards dealing with debt is to assess the problem. Without understanding how much you owe you cannot then begin to plan to repay it.

Start by making a list of all debts owed

Once we have got a list of our debts, it is useful to highlight priority ones. These are the ones we should try to pay first.

Priority debts are the ones that if not paid have the worst consequences if we fail to pay them.

Debt charity StepChange have identified the following as priority debts:

Type of debt Consequences of non-payment
Mortgage Repossession
Secured loan Repossession
Rent Eviction
Council tax Bailiff visit, money taken from wage or benefits, debt secured against home, bankruptcy, imprisonment
Child maintenance Money taken from wage or benefits, bailiff visit, imprisonment
Magistrates’ court fines Bailiff visit, money taken from wage or benefits, imprisonment
Tax, VAT or National Insurance Bailiff visit, money taken from wage, bankruptcy, County Court judgement (CCJ)
County Court judgement (CCJ) Bailiff visit, charging order, money taken from wage
TV licence A fine
Gas or electricity Disconnection, money taken from benefits
Hire purchase or logbook loan Repossession, County Court judgement (CCJ)
Telephone Disconnection, County Court judgement (CCJ)

Check out the StepChange website for more  information.

Check your credit report

You need to have an understanding how our creditors see us also it can allow you to see if you have any incorrect information recorded against your name-. I myself use Clearscore as I love the fact that I receive regular updates in relation to my credit score in my local area.

Write a Budget

Once we have an idea of what debts you owe and which ones are the most important (Priority debts), it is time to make a budget and figure out a repayment plan.

Budgeting is difficult and scary, especially as we will be looking at the total amount of debt we owe, and it may seem that we will never be able to pay this off. You should remember that you will be taking control of your debt probably for the first time.

Below are some tips to help you begin this

  1. Purchase a blank notebook for this (I recommend the pound shop)
  2. Find your recent bank statement (a print-out is best)
  3. Identify and Highlight each regular payment (e.g. rent/credit card payments etc.) in one colour
  4. Highlight other spending Treats (e.g. takeaways, clothes shopping etc.) in another colour
  5. Now make a new list with the items you have now highlighted

If you are fortunate to have any spare cash, use it to pay down any expensive debt you have, such as credit cards or loans.

If you have several credit cards and/or loans   write a list and put them in order of the highest interest rate first

e.g.

What I owe Interest rate Bal o/s
Overdraft 39.5 2000
Credit card 19.5 4000
     

 

This can mean that paying off a credit card or overdraft loan can mean you are actually and getting an extra 20-40 percent return on your money and it is a way to improve your finances.

If you have got lots of borrowing in different places, find the debt with the highest interest rate and pay that off first, before moving to the next highest rate. If you do not have the cash to pay down any borrowing, see if you can shift your debt onto a cheaper rate.

Sometimes you can find balance transfers offers these are banks who may offer low rates on balance transfers to encourage you to switch your account, sometimes the rate can be as low as 0 per cent for a period of time and this can vary for a few months to a year or longer. Even though it is temporary it means that you will have some time to repay the debt alone without paying any interest. This can give you time to sort out your finances.

The good news is that Financial Conduct Authority (FCA) has extended payment protections options for customers struggling during November lockdown this could provide some welcome extra breathing space.

Customers with personal loans, credit cards and other consumer credit products can now ask for support from their lender or a payment holiday if they have not already had one.  Mortgage customers are also eligible for payment deferrals,

 

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