How to manage financial difficulties
It can be extremely stressful to run into financial difficulties and we know that worrying about your finances can consume a lot of your time. However, there are steps you can take to improve your financial situation and your state of mind. At Freedom, we want to give you a helping hand to support you in this time. This guide will provide you with the fundamentals of managing debt problems and how you can get your finances right back on track.
How do people get into financial difficulties?
Getting into financial difficulties is sometimes easier than you might think. Quick changes in your life can have a big impact on your financial health. Here are a few common reasons of how people get into financial difficulty.
- Redundancies/ job losses – losing your job unexpectedly can have a big impact on your finances if you don’t have any savings to support you.
- Unexpected costs – sometimes things break and the costs to repair them can be higher than you expect. If you don’t have any savings to cover unexpected costs, then you may find yourself struggling to pay repairs and keep on top of your typical outgoings.
- Debt spiral – some people get caught in the trap of spending more money than they earn and relying on debt to fund this. In some cases, this can cause a debt spiral if debts continue to mount. This can be particularly dangerous if you often spend more than you can afford on your credit card.
How to get out of debt
If you believe you are in financial difficulty, don’t panic. There are steps you can take to improve the situation. We’ve provided our top tips which you should follow if you need help managing financial difficulties.
Tip 1 – act now
The stress of falling behind with repayments can lead to people ignoring the problem simply because they feel unable to cope with it. The longer that payments are missed, the higher the charges will become without the debt ever reducing. If you feel that debt is getting on top of you, act immediately. There are options available to you, but these options will reduce the longer your finances spiral out of control.
Tip 2 – talk to your lender
If you feel that you are struggling with your debt repayments, get in touch with each of your lenders straight away. Explain your situation and see if you can extend the term of the lending in order to reduce the monthly payments. Some borrowing comes with payment holiday options, and if you have been paying into a PPI policy, now is the time to set the insurance cover in motion should the reason for non-payment be as a result of accident, sickness or unemployment. It may be that you can be accepted for a consolidation loan that you can use to repay your existing debts leaving you with one single, easy to manage debt per month.
Tip 3 – make a budget, and stick to it
Work out what you need to live on day to day with the priority being food and travel to work. Remember that non-repayment of secured debt can lead to repossession of the home or car so this too must be high on the priority list. Next outline your monthly bills and debts and measure them against the income. If possible, make cut backs by cancelling luxuries like satellite TV or gym membership. If you need help budgeting, visit: https://www.freedomfinance.co.uk/guides/freedom-finance-personal-monthly-budget/
Tip 4 – shop around
If you have a mortgage, see if you can transfer it to a better deal. Can you sell your car, repay the finance and buy an older model outright? Shop around for car insurance deals – you may be paying above the odds simply because you haven’t searched elsewhere. Similarly, you may be owed a mobile phone upgrade, which could lower your monthly bill. By shopping around, a little saving here and there can mount up to a substantial monthly saving, which can in turn be used to pay off existing debt. For more information about shopping around online, visit: https://www.freedomfinance.co.uk/guides/a-guide-to-online-loans/
Tip 5 – take advice
Charities such as national debtline and the Step Change (formerly Consumer Credit Counselling Service) are available to offer free advice to those struggling with managing their debt. It may be that you need to enter into a plan that allows you to pay a single reduced monthly sum divided across your creditors. Although this will affect your credit rating, it will make a start in better managing your debt. Whatever the debt counsellor advises, talking to someone who can help may set your mind at ease as you will be given a path to lead out of financial difficulty.