The cost of living in the UK is rising
At its fastest pace in almost 30 years, with rocketing inflation, price hikes and an increase in National Insurance contribution set to come in from April 2022. Unfortunately, all of us will likely feel the pinch in 2022 so we have put this guide together with some helpful tips on how to prioritise your essential expenditure.
Note that this guide is primarily aimed at those people who currently can manage their monthly commitments and is not a replacement for tailored advice based on your personal circumstances. If you are currently struggling to meet your monthly commitments, then please seek advice from an appropriate professional debt advisor. We have listed the details of some free advisors at the end of this article.
The bad news is that due to the inflation in cost of living, in general, everyone will have to make some form of cutbacks on their social expenditure. It’s not nice to have to do as we all want to treat ourselves, but it is realistically what we will be required to do without going into debt. The good news is that by budgeting efficiently you will be more aware of your disposable income so you can plan to maximise your social spend.
The first tip we can give you is don’t delay in planning your budget. Many people make the mistake of putting these things off and before you know it you have been impacted by price hikes but have overspent and find yourself in financial difficulty. By budgeting now, you can see where exactly you need to make cutbacks, so it doesn’t come as much of a shock when your expenditure does go up.
If you’re impacted by not only price increases but a reduction to your income then the common query we come across when we discuss budgeting with our customers is, what should I be prioritising? The mistake so many people make is getting forbearance or miss payments on their highest value bills but still pay their lower value bills. Whilst this may seem logical as it leaves you with one debt as opposed to several. You are potentially making your situation worse depending on the priority of the bill you’re missing.
We recommend that you fully understand what your highest priority bills are and what is required to be accounted for first. Priority payments are the ones that could leave you homeless, without essential services, or where the creditor has extra powers to enforce the debt. For example, if you don’t pay your rent or your mortgage you could lose your home.
There are many websites and services that offer free, impartial advice on budgeting, some of which we have listed at the bottom of this blog. Please check them out if you feel you would benefit from their guidance.
Below are examples of the common priority debts together with the potential consequence of non-payment if these debts aren’t prioritised. Please note these may differ dependant on the country you live in, so it is worth researching this if you don’t live in England or Wales.
|Rent or Mortgage||Eviction or Repossession|
|Secured Loan i.e., Car Finance||Repossession of the asset. You would still be liable for any remaining balance you owe, and the company could seek legal action to recover this.|
|Council Tax||Money could be deducted from your source of income (wages or benefits) or Bailiffs could be sent to recover the debt.|
|Gas and Electric||Disconnection|
|TV License||A fine|
|Child Maintenance, County Court Judgements, Court Fines, Tax, VAT or National Insurance||Bailiffs could be sent to recover the debt; Income could be deducted from source directly or imprisonment.|
Credit: Step Change
There will be some bills that aren’t included here such as food shopping that many people will class as a priority. Of course, food is a priority, however, spend on food can be adjusted. Furthermore, there are support options available, which is why some financial companies may count food as part of discretionary spend and suggest that you make reasonable adjustments.
Once you have prioritised what needs to be paid first it is worth contacting any companies who come under non-essential or lower priority to let them know of your situation. They may be able to offer you forbearance such as payment holidays or payment reductions. It is worth noting that these aren’t intended to be permanent solutions and in some cases these options can make your situation worse. An example of this is if you take a payment holiday but your income hasn’t reduced and won’t rise by the end of it. This isn’t solving the problem; it’s putting you further into financial difficulty.
Instead it’s important to consider whether you can make any cut backs to your social spend to free up income, whether you can increase your income at all or whether you can reduce expenditure by shopping around for deals.
There may also be help through the government that you weren’t aware of. It’s a common misconception that benefits are only available if you’re out of work, but even some families with an income of £50,000 or more can qualify for help. If this is you then it is worth 10 minutes to go through a benefits check to ensure you’re not missing out on further income. A benefits check can be done in around 10 minutes on www.entitledto.co.uk
If you find yourself struggling to meet your priority bills, then you can call our collections department on 01942 466035 and select option 1 to discuss your options. Every conversation we have is tailored to each customer’s situation. It is important to remember we are not financial advisors and if you feel you would benefit from speaking to one then we have included some below for reference.
Money Helper – www.moneyhelper.org.uk – 0800 138 7777
Money Advice Scotland – www.moneyadvicescotland.org.uk
Citizens Advice Wales – www.citizensadvice.org.uk/wales/debt-and-money – 0300 330 1313
Step Change – www.stepchange.org -0800 138 1111
Christians Against Poverty – www.capuk.org – 0800 328 0006
National Debtline – www.nationaldebtline.org – 0800 808 4000