Some Britons found the financial hardship caused by the pandemic difficult financially. As a result, it’s likely that many more will fear rising bills and increasing debt in 2022.

Many people turn to credit cards or loans to pay off their debts. This can lead to financial difficulties down the road.

This is Money offers advice to those in debt and provides guidance on ways to make it out in 2022.

Despite a difficult year, there are many ways people can get out of debt in the New Year

Even though it was a challenging year, there are still ways to get out of debt.

1. Prioritize the things you owe

You should know what your debt is and how it has been paid.

You should create a budget. Plan for any areas where you might be spending too much. Think about whether that money could be used as a payment or to save.

Priority should be given to paying your highest bills first.

After, try to meet the minimum payment on every debt you have each month, to avoid default charges and the effect on your credit rating.

Then you should pay most towards the highest-cost borrowing – that’s the debt on which you’ll have to pay most interest and charges.

Rachel Springall from Moneyfacts shared the following: “It can seem overwhelming for consumers to get rid of debt. But one of our first steps is budgeting, which means separating household income and spending.

Breaking down expenses can have a profound impact on your mentality. It allows them to clearly reduce their spending.

“Someone might use an app called Money Dashboard to budget, or even a spreadsheet to keep track of household expenses and future expenditures like holidays. 

“If you have a goal to save money, it is important that you plan well.

Andrew Hagger, Moneycomms, said that he had a simple spreadsheet and would recommend keeping it on a tablet or phone. He also suggested checking the monthly balance against his bank account to make sure he’s on top of things.

It is more crucial than ever that you keep an eye on your finances in ‘2022. With inflation on the rise, your income won’t be as high as it once was. You should also monitor your bank balances and spend carefully to avoid wasting your hard-earned money.

‘If it’s not already, register for a free online score report at ClearScore and TotallyMoney. It will give you an up-to-date copy of your credit score every month. Use this to remind you to be responsible with your borrowing and spending to maintain your good score. 

Customers can move outstanding credit balances to a zero transfer balance credit card

Customers have the option to transfer outstanding credit balances onto a credit card with zero transfer balance. 

2. Consolidate your debts

A consolidation of debts can help you stay on top your finances.

This is a good idea if you plan to repay your card balances. 

Rachel Springall added: “Consolidating your debts with a loan can make it simpler for those who are struggling to pay their various debts. Credit cards, because they are convenient, tend to be the first source of funding to help cover household costs.

Overdrafts can also be used for people with increasing debts that exceed their income.

“Unsecured personal loan” can be used for more high-end debts. They are not secured by a home, or other assets.

Providers of unsecured personal loans have greater risk than those tied to real property. Therefore, rates may increase if they feel it is more risky to lend.

Research from Moneyfacts in December 2022 shows that the average rate on an unsecured personal loan this month was 6.9 per cent when based on getting a loan of £5,000, which are not restricted to one term.

Important to note that the APR advertised for an unsecured personal loan is only available to 51% of applicants who are successful.

The rate you see right now may not be the same rate as that offered following the application or the rate in 2022. 

£5K £7.5K £10K
01/12/2019 7.0 4.6 4.5
01/12/2020 7.2 4.6 4.5
01/12/2021 6.9 4.4 4.4
Source: Moneyfacts. Corrected 16/12/2021      

3. Speak to debt experts

Speak to experts on debt to receive professional guidance about managing your money.

Many charities and services can offer assistance, such as Citizens Advice, StepChange, and the National Debtline. 

This firm can provide free advice for customers, and they offer several options that will help them get rid of their debt. 

Andy Shaw is a StepChange debt advisor policy officer: “Budgeting is the most effective place to begin if you want to bring your finances on track. 

“Having an increased awareness of the things that are coming in and going away will allow you to make informed decisions about what next steps to take, regardless if you’re trying to save money or increase your income.

Don’t be discouraged if your finances aren’t looking good and your options for getting out of debt seem bleak. You can find organizations that will give you free and comprehensive advice on debt to help you get started on a better financial future. 

StepChange suggests that you get free financial guidance if you are experiencing any of the following:

· A negative budget – more going out than coming in

· Arrears on any ‘priority’ household bills, for example mortgage, rent, council tax or utilities

· Not enough disposable income to cover your minimum debt repayments – if your income has dropped due to coronavirus, you may be able to get a payment break from some of these bills, but it’s still a good idea to get free debt advice.

Don’t hesitate to contact a debt counsel organization if you find yourself in such a situation.  

4. Credit cards that allow you to switch

You can also move your outstanding credit balances onto a zero-transfer balance credit card to help you get out of debt. 

You’ll get a significantly lower rate of interest and will avoid having to pay large interest charges that can be added on after your initial zero-percent interest offer expires. 

Springall explained that the recent boom in balance transfers cards has resulted in a 0 percentage point increase. Not only are consumers going to find better terms but also, fees to move debts will be lower.

‘For example with 0 per cent balance transfer cards, the top deal from Virgin Money for 35 months charges a transfer fee of 2.94 per cent which is a charge of £88.20 on a debt of £3,000, but there are fee-free options available elsewhere. 

‘Someone with a £3,000 debt that paid £150 back as a minimum per month would clear the debt in 20 months, but there are cards that can default to a repayment of just one per cent plus monthly interest – so their debt would hang overhead for much longer on this basis.’

Santander and NatWest have the best balance transfer credit cards that are free of fees for customers who apply within the last 18 months.

Therefore, if consumers can pay off their debt within this period, £150 per month approximately for a £3,000 debt, they would save themselves £88.20 compared to the longest 0 per cent balance transfer offer on the market.

Card provider Card name Intro Rate Intro Term Intro Bal Trf Fee Get a low APR
Virgin Money Virgin Money 35 month Balance Transfer Credit Mastercard 0.0% For 35 months starting from the date of issue. 2.94% 21.9%
M&S Bank M&S Bank Transfer Plus Offer Mastercard 0.0% The transfer date is 31 months. 1.99%, Min: £5.00 21.9%
Santander Santander Allday Balance Transfer Credit Card Mastercard 0.0% The transfer date is 31 months. 2.75%, Min: £5.00 20.9%
Sainsbury’s Bank Sainsbury’s Bank Mastercard 30-Month Balance Transfer Credit Card Mastercard 0.0% The card is valid for 30 days from date of issue. 1.50%, Min: £3.00 19.9%
Tesco Bank Tesco Bank Clubcard Mastercard for Balance Transfer MasterCard 0.0% For 30 months starting from the date of issue. 2.60% 21.9%
MBNA Limited MBNA Limited 0% Balance Transfer Mastercard Credit Card 0.0% For 30 months starting from the date of issue. 2.95% 21.9%
Barclaycard Barclaycard Platinum 29-Month Balance Transfer Visa 0.0% For 29 months starting from the date of issue. 2.69% 21.9%
Halifax Halifax Longest Balance Transfer Credit Card Mastercard 0% 0.0% For 29 months starting from the date of issue. 2.70% 21.9%
HSBC Visa Balance Transfer Credit Card Visa HSBC 0.0% For 29 months starting at the date of transfer 2.75%, Min: £5.00 21.9%
Sainsbury’s Bank Sainsbury’s Bank Mastercard 28-Month Balance Transfer Credit Card Mastercard 0.0% You can use your card for up to 28 months after the issue date. 1.00%, Min: £3.00 21.9%
Virgin Money Virgin Money Mastercard Balance Transfer Credit Card for 28 Months Virgin Money 0.0% You can use your card for up to 28 months after the issue date. 1.00% 21.9%
Barclaycard Barclaycard Platinum Balance Transfer Visa for 28 Months 0.0% You can use your card for up to 28 months after the issue date. 1.60% 21.9%
Source: Moneyfacts. Corrected 16/12/2021       

5. Do not get into your overdraft

Consistently using your overdraft can lead to debt. Some may find it hard to repay. 

It is important to get out of debt completely.  

Overdrafts in 2020 were drastically changed by a fixed fee ban from the FCA. Some overdrafts charged up to 39% equivalent annual rates (EAR).

It can cost more to keep an overdraft open for more than a few days. If this happens more frequently, it is time to move to a less expensive alternative.

For the time being, borrowing with a creditcard is more affordable than using an overdraft.

Springall stated that consumers will now be able to easily compare tariffs and switch charges because there’s more transparency.

“As we saw during 2021 many banks and building society adjusted their banking packages. So consumers might need to review their accounts and determine if it’s working well enough.

“It is easy to switch to the Current Account Switcher Service, (CASS), and it is not difficult to do so if you are receiving poor service or no incentive.

Those in debt are encouraged to face their financial situation head on and create a budget

People in financial distress should confront the problem head on, and set up a budget.

6. Reduce your spending

This may seem simple, but it can be your best way out of debt.

Writing a budget is a good start to account for where your money goes each month and seeing if there is anything you could cut back on – or stop purchasing altogether.

Find ways to reduce outgoings. Check your debit card statements to check if any can be cancelled. You should also look at subscriptions in order to cancel any.

It’s possible to make small changes, such as not buying coffee from take-out and instead bring your own cup. 

Hagger added: “In these days between Christmas and New Year put aside some time to evaluate your financial situation and make a plan for improving it by 2022.

Look at your credit cards and bank statements. See where the majority of your money goes and how it affects your monthly pay.

You should set limits on non-essential spending. Also, avoid using your bank’s overdraft to cover large chunks of the month. It’s surprising how much bank fees you pay over the course of one year.

“Many people are aware that they overspend, but they do not realize how much until they look at their financial statements.

‘You almost need to go back to square one – write down a list of the things you have to pay – household bills, food, transport costs etc and then see how much spare money you have left for the month.

This amount can be used for any financial obligations and to spend on clothes, treats and going out.

“In an ideal universe, it would be a good idea to also put some cash aside every payday in a separate savings account. This will allow you to save money for any financial emergency and possibly even pay off your holiday expenses.

Customers are advised to avoid using Buy Now, Pay Later websites, such as Klarna & ClearPay

Customers are advised to avoid using Buy Now, Pay Later websites, such as Klarna & ClearPay

7. Avoid Buy Now, Pay Later

Buy Now, Pay Later plans are becoming more popular each year. There is a variety of options available, including Klarna and Clear Pay.

These services enable customers to place orders online and then pay them off later.

While these are growing in popularity, experts are increasingly warning the danger they pose to users – especially younger audiences.

These services are criticised for encouraging customers to spend more than necessary and then charging high interest rates to customers who cannot pay back the money on time.

Hagger added: ‘Buy now, pay later has now become the default way for many people to buy stuff – having to pay only a third of the price up front may seem great at the time, but using BNPL too frequently can soon get you in a financial muddle and even risk messing up your credit record.

BNPL can be a great tool to help you live within your means.

“Too many people run multiple BNPL contract simultaneously, lose track of what they have committed to, and before they know that they are close to their overdraft limit which can cost them nigh 40 percent in interest fees. 

StepChange spokesmen added: “Unfortunately the continuing pandemic has added uncertainty to our lives. This can make credit use more difficult. 

“With uncertainty about the future of the Omicron version and the current rise in Omicron credit, it is a smart idea to steer clear of any credit that you cannot predict at the end the month whether or not you will be able pay it back, just in case you suddenly lose your income.

We recommend that you wait to make any purchase until your money is available. Instead of using Buy Now, Pay Later services, You should not use credit if you aren’t sure you will be able to pay the amount due.

8. Get better deals 

A second tip is to save money on your bills.

Consumers can compare prices on price comparison websites to see how much they might save switching to cheaper energy suppliers or getting a better deal on their TV, broadband, and mobile phones.

Customers could often save hundreds of dollars by switching to cheaper tariffs, but deals are currently limited due to the current energy crisis.

It is worth researching to determine if your situation can be improved with a different supplier or tariff. 

Alternatively, it may be better to move to a standard deal at the moment as it is currently capped by the industry regulator, Ofgem, at £1,277 annually.

This is a deal that you won’t want to miss.  

It is important to ensure that you get the best insurance deal for your car and home policy.

If you wish to keep your current policy or change to a better plan, make sure that you negotiate with your insurance company.

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