How to get out of debt before Christmas as twice as many people think their finances will get worse in 2020
CHRISTMAS is a tough time for families struggling financially, but worrying new research shows twice as many people are already fretting over money in the New Year.
Nearly three in 10 people expect their financial outlook to get worse in 2020, according to debt advice charity StepChange.
This is twice as many as the one in seven people who expect to see an improvement.
If you’re money situation is spiralling out of control, there is plenty of free help out there to get your balances back on track.
We spoke to experts at StepChange and Money.co.uk for tips on how you can get yourself out of debt before Christmas so you can start the New Year fresh.
Richard Lane, director of external affairs at StepChange Debt Charity, said: "Debt is a problem which can affect each and every one of us, so it's only right that the services to tackle debt should therefore be accessible to all.
“If you find it difficult to talk about debt, don't worry, we hear you – and we're here to help."
Salman Haqqi, personal finance expert at Money.co.uk, added: “Clearing debt before Christmas can be really challenging, especially if it runs into the thousands of pounds.
"When you break the problem down into its component parts you can start plotting a way out.”
Get help for free
There are lots of groups who can give you free and confidential advice to get you on the road to being debt-free.
- Citizens Advice – 0808 800 9060
- StepChange – 0800 138 1111
- National Debtline – 0808 808 4000
Don't ignore your debt
Thinking about money can be daunting, but it's never a good idea to bury your head in the sand when it comes to your finances.
In fact, ignoring your bills will likely escalate the problem.
It's best to tackle debt head on by working out exactly what you owe and when you need to pay it back.
Work out how much you need to pay back
Once you know what you owe, it'll become much easier to work out a way to pay the money back.
Remember to include all types of debt including credit cards, loans, overdrafts, loans from family and mortgages.
This at least allows you to see the size of the problem.
How to keep costs down at Christmas
CHRISTMAS doesn't need to cost a fortune and Money.co.uk has shared some top tips to keep costs to a minimum.
Have a plan: Work out how much you can afford to spend on Christmas up front, including presents, food and travel. Once you’ve worked it all out keep it somewhere handy like on your phone to help you stick to it.
Get the best price: Always look for discount and voucher codes to get money off your shopping. Sign up to your favourite retailer’s newsletters to get exclusive offers and check on websites like Quidco or Topcashback to see if you can get money back from your shop.
Delivery: Factor in delivery when you’re buying online. It may mean a different website is actually cheaper to buy from once you’ve added in the cost of getting it delivered. Remember to factor in the cost of returns if you’re buying something you’re not sure you will want to keep too.
Discount retailers: For stocking fillers and cracker gifts avoid expensive stores and instead hit the bargain retailers to get smaller things for reasonable prices. Bargain supermarkets are also great for the big Christmas turkey shop and can slash the cost of your shopping.
Avoid big brands: Small children are rarely logo snobs and will love a toy regardless of where it comes from. Research where to buy your food from too – lots of taste tests prove that buying branded foods won’t necessarily mean you’ll get better quality.
Do it yourself: Get busy with the glitter and make your own Christmas cards and tree decorations. Doing this with the kids not only makes it extra special but they’ll make great gifts too.
Know your consumer rights: Buy online and you get 14 days to change your mind and get a full refund including the cost of standard delivery (applies to most items but not all – there are some exclusions). Buy in store and you’re not automatically entitled to a refund just because you’ve changed your mind. Check the store’s refund policy before you spend any cash. Deliveries should be with you within 30 days of ordering unless a different (earlier or later) date was given.
Make a budget – and stick to it
The next step is to create a detailed budget so you can see how much you have going in and going out.
Begin by writing down all of income, including wages, benefits and pensions, and everything you’ll have outgoing during the month, from your household bills to your food shop.
Think about any one-off expenses you could have during the month as well, including birthdays.
Use an online tool like one from Citizens Advice to help you do this.
Address the most important debts
This includes car loans or mortgages on your home.
It's a good idea to prioritise these payments first as these are arguably the most important debts to keep in the green.
Get a balance transfer card
If you're paying interest on your credit card balance, chances are you could be adding to your debt.
A better solution could be getting a 0 per cent balance transfer card.
You'll need to make sure you can pay off the balance before the 0 per cent rate expires and these are typically only available to those with top credit scores.
Check out MoneySavingExpert's eligibility calculator to see which cards you'll likely be eligible for.
The eligibility calculator doesn't affect your score as it's a "soft search" but making multiple applications to credit lenders can lower your rating.
Look at your unsecured borrowing
Unsecured borrowing is where you borrow money from a bank or another lender and agree to make regular payments until it’s paid in full.
These are usually either credit cards, student loans or personal loans.
But keep in mind that interest rates will likely be higher as the debt isn't secured against an asset, such as a property.
The lender can also take you to court if you fail to meet repayments and additional charges can damage your credit rating.
A direct debit can help you meet repayment deadlines so you don't incur penalty charges.
This can be done by speaking to your lender and working out what you can pay each month.
Can you bring in any extra cash?
If your normal disposable income won’t cover your debts, you might want to look at ways you can increase your income in the short term.
There are loads of ways to make a few extra pounds, such as by using cashback websites like Top Cashback and Quidco.
You could also enquire about taking on extra hours at work as most places are looking for extra hours to fill for the busy Christmas season.
For simple ways to make money from home, check out our 50 tips including doing online jobs and selling unwanted goods on eBay.
Can you make any savings?
It could be as simple as changing which supermarket you shop at, or making journeys on foot rather than by car or bus.
We've previously revealed 16 ways you can easily save hundreds on your food shop, from downshifting to bulk buying.
While comparison websites like Compare the Market and uSwitch.com are great tools to see if you can save money on your energy bills.
Also check MoneySuperMarket and Energyhelpline to see what deals are available.
What help is there if you're in debt
IF you're struggling with debt then you can get help.
However, you should always speak to your creditors first to discuss all your options before going down these routes.
Debt Management Plan (DMP)
A DMP is an informal agreement so you can stop it at any time and resume the normal debt repayments, or adjust your payments if your circumstances change, like you lose your job.
It ends when you've paid off the debt so it could last for decades.
According to the Money Advice Service, it's suitable if you have non-priority debts like credit or store cards, overdrafts and personal loans.
The plan is proposed to creditors individually so there's not guarantee that the interest will be frozen.
Many firms charge a fee for the service, either upfront or one that's incorporated into your monthly payments.
You can get a free DMP from the National Debtline, StepChange and PayPlan.
A DMP could affect your credit rating but once each debt is cleared, they will eventually drop off your credit file.
Individual Voluntary Agreement (IVA)
It's a lesser form of bankruptcy, which is a legally binding agreement with your creditors to pay off your debts over a set period of time that has been approved by the courts.
To apply for an IVA, you must have at least £6,000 of unsecured debt, owe money to two or more creditors and be able to afford monthly payments, usually of at least £80.
It must be set up by a professional called an insolvency practitioner who will charge a fee of around £5,000.
Hanover Insolvency charges £3,350 plus an additional £300 for disbursements.
Your repayments are made to the insolvency practitioner who distributes your cash.
If you come into some money during your IVA then your creditors may have the right to claim it.
If you have any savings or pension payments then these will go to your creditor.
If you own a home you may have to remortgage it.
You may also struggle to get credit while repaying an IVA and details of the agreement will remain on your credit file for six years.
If you fail to make repayments then you could be made bankrupt.
The debts are written off after five years, regardless of whether you've paid them off in full.
Debt Relief Order (DRO)
A DRO is way to have your debts written off if you have under £20,000 of debt and no assests.
You have to pay a £90 fee, make repayments and after 12 months your debts are written.
According to Citizens Advice, a DRO could be recommended for you if you owe £20,000 or less have few assets.
You can't apply for a DRO if you're a homeowner.
It will negatively affect your credit score for six years and it maybe difficult to get credit during this time and details will be pubished publically.
Bankruptcy
Bankruptcy is a last resort if there is no other way to repay your debts.
It lasts from one year to up to three and you'll be asked to make repayments during this time.
It is much more difficult to get credit after bankruptcy and your credit rating will be affected by up to 6 years.
You could lose your house, possessions and some proffesions won't let you work if you've been made bankrupt.
If you own a business it could be sold and the details of your bankruptcy will be published publically.
You have to pay a £680 fee to go bankrupt.
Citizens Advice says they typically see people applying for bankrucpty if they can't see a way out of paying their debts, have dicussed their situation with their lenders and feel their siutation is likely to improve.
Breathing Space
From 2021, households that fall into debt will get 60 days protection from bailiffs or prosecution so they can find a long-term solution.
Under the “Breathing Space” plan, they will also have their debts frozen, so no interest can be added.
It covers debts such as council tax arrears, personal tax debts and benefit overpayments.
Debtors must work with professional advisers to get back on track with repayments during the 60-day period.
See if you're entitled to benefits
If you're struggling financially, you could be entitled to extra help.
Citizens Advice can help you see what benefits or tax reliefs are available to you.
Plus there's a benefits calculator on the Gov.uk website.
Help ranges from tax credits, job seeker's allowance and universal credit.
Consider a personal loan
Personal loans are a lump sum borrowed from a bank, creditor or online lender that you pay back in fixed monthly payments.
They'll be interest added to the total amount, so remember to factor that in when you're considering your repayment options.
Most loans usually last from two to five years.
MoneySavingExpert regularly updates the cheapest personal loans currently on the market.
You can also use their eligibility calculator to see which loans you're likely to get accepted for.
As this is a "soft search" it won't affect your credit rating but multiple applications will lower your score.
Always make sure to do the maths to work out if taking out a loan is better in the long-term than taking out a credit card, in terms of the interest you'll be paying back.
A new report recently suggested banks should "spy on customers" to watch out for debt problems.
While we've reported on how there's been a huge spike in councils using bailiffs to collect debts – here's your rights.
Meanwhile, read how one businessman paid £1,200 bailiffs fine with a car boot full of 1p coins.
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