May brings Debt Awareness Week, during which struggling debtors across the UK are encouraged to take proactive steps to improve their financial circumstances.
According to Step Change, the economic effects of the pandemic are likely to be felt by millions of households for many years to come.
“This Debt Awareness Week, we are focusing on breaking down the stigma that surrounds debt, opening up the conversation, and encouraging people to take #TheFirstStep towards resolving their money worries,” commented Richard Lane, director of External Affairs at Step Change.
“With the week also marking a year since lockdown began in England and Wales and 2.5 million people facing a financial crisis due to the impacts of the coronavirus, it’s important that households across the country know where to get help. You are not alone.”
The charity also outlined a series of simple yet effective steps for reducing debt and restoring financial control, including the following proactive measures:
1. eliminate unnecessary outgoings
The key to bringing debt under control lies in first eliminating as many unnecessary and avoidable outgoings as possible. This is where it can be useful to create a list of all monthly expenses and separate them into two categories: needs and wants. After which, anything within the latter that does not qualify as essential can either be minimised or halted entirely.
2. Transfer credit card debt
One of the best ways to minimise credit card debt is to transfer the outstanding balances of one or more existing credit cards to a new card with an introductory 0% interest rate. Often valid for a year or so, this 0% period provides plenty of opportunity to gradually pay off at least some credit card debt without incurring any interest in the meantime.
3. Consolidate debts with an affordable loan
Specialist-consolidation loans often leave a negative mark on a person’s credit report. With interest rates hovering at all-time lows, an affordable personal loan could be used right now for exactly the same purposes without the risk of credit score damage. Unsecured loans from major high-street lenders are currently hovering around the 3.5% APR mark, which could add up to significant savings if you are currently repaying debts with much higher rates of interest.
4. Clear smaller debts where possible
It can also be useful to make the effort to clear as many smaller debts as possible, eliminating interest rates and borrowing costs in the process. An affordable overdraft can still constitute an unnecessary expense—a debt that should be cleared if it is possible to do so.
5. Speak to your creditors
Last but not least, anyone who is having genuine difficulties keeping up with their outgoings should consult with their creditors at the earliest possible stage. Some may be willing to offer a temporary payment break at no extra charge while you get your finances in order. Others may be happy to negotiate a reduced monthly payment; it may also be worth consulting with an independent broker before applying for any type of consolidation loan in order to ensure you get the best possible deal.