Back in January this year, Moneyfacts reported that low- income households were facing the fastest rise in consumer debts since the start of the financial crisis however, since the COVID-19 outbreak in March 2020, many consumers are managing and clearing their debt better than ever. So, how can this be?
Well, the main reason is that many consumers have been able to clear their debt because they haven’t been adding to it. Consumer spending has fallen, meaning those credit cards haven’t been taking so much of a ‘battering’ as they may have done pre-Covid.
Many consumers have also managed to save a record amount of money, with bank deposits totalling over £16.2billion in April 2020 however, this is likely to have come from two of five high-income families who have received budgeting gains rather than the one in eight low income households.
Why are some thriving and others not?
With unemployment rates increasing and a period of time where many employers were failing to recruit, many consumers found that they had started to fall behind on their utility and housing bills, with around 4.2 million of these taking on additional debt.
This problem isn’t going to solve itself though and Covid certainly has a lot to answer to, but how can we help ourselves manage what we have and clear our debts as quickly as possible?
Having a plan of action
The best way to get started is to have a read through our blog post from August 2020, which talks about how to get a hold on your finances.
The post looks at goal setting and getting a budget in place to help you fully understand how much you have every month and how much you can afford to pay towards savings and debt repayments every month.
It also helps you collate the information you need to understand how long it will take to clear any debt, such as APR and exact monthly payments. Once you have your information and your budget, you can then start to look at other tools to support your debt free journey.
Using an online calculator to understand when a debt may be paid off, along with the interest you will accumulate are the best way to understand all of the possible variables. For example, you can enter increased amounts for each debt, which then shows you how much time you are able to ‘cut off’ your repayment term.
Make sure that if you are looking to clear off loans or car finance earlier than anticipated, that you speak with the loan company to ensure there are no early repayment fees attached to your contract.
Keeping the momentum
Whatever you do, don’t give up!
In this case, every little overpayment you can make will help reduce your debt quicker. If there is one month that you can’t overpay, that’s fine. Just make sure that you are making your minimum payment, rejig your budget and have another look at your budgeting calculators.
If you are in a situation where you need support now or in the future, you should find out what government incentives you are eligible for. At the time of writing, mortgage payment relief is still available as well as the governments job support.
Another area that you may be struggling with is work and unemployment. You can gain some great advice from one of the debt charities or citizens advice however, due to the demand on these services, consider joining the debt free community on Instagram for some amazing advice.
We also have some great tips in our article on finding your job during a global pandemic, which you can find on our site here.