The contents on this page have been produced by Fanny Snaith, money coach in cooperation with borofree. These contents are for guidance only and do not represent a recommendation for investments nor an advice to get a loan. The debt guidance is provided for educational purposes and to allow consumers to use their money more effectively.
23% of UK Adults were still unable to afford key household expenses including food, clothing, mortage, rent and utility bills at some stage according to YouGov of 2,000 British adults on behalf of borofree.
To help people who may find themselves in financial difficulty over the next few weeks and months due to the furlough phase out, borofree worked with Certified Money Coach, Fanny Snaith to offer tips to those to help them avoid spiraling into debt.
Identify your true needs, as feeling deprived doesn’t work
"Debt is one of the biggest worries and causes of emotional agony for people. Shame builds from the feeling of being hopelessly trapped, and therefore there is a temptation to cut out all pleasures in life to pay off debt but that simply does not work."
If you live a life without fun, you will feel emotionally depleted and will probably want to spend, therefore will get yourself into more debt. It is suggested that instead, you discover your real needs first, and then only spend on these essential activities and items.
Many people who feel that they need to treat themselves with an expensive purchase has found that it doesn’t tend to make them feel better in the long run. Most purchases are made emotionally rather than rationally. The purchase is to heal an emotional wound or need that would be healed better with love or an activity that was free or costs considerably less.
It is advised that people identify the pattern of how and when they spend. By putting barriers in place to stop the spending, such as only taking cash out with you and listing what you are going to buy, this will make sure you stay within your budget and won’t fall into debt.
One thing people can do when they don’t have a lot to spend, is to explore and research free and fun activities to do instead of spending. Focus on the challenge, involve friends and make it fun. Feeling deprived is a lonely place, but if buying things that you don’t really need or want makes you feel worse, now is the time to work out what you do really need.
Stabilise the debt
Plugging your leaky bucket is the first step to stop the debt spiral. Stabilizing the debt means not adding to it. This step is the fundamental step to becoming debt free and staying debt free. Reducing your debt while you are still using credit cards or being in danger of using them when something unexpected happens, will keep you in the debt cycle for years and years.
Like having a leaky bucket, pouring money into it whilst it is gushing out of holes in the bottom is pointless and endless. This step will likely seem pretty scary at first, but using a credit card or overdraft as a crutch is not serving you in the long run.
You will need to get very creative at meeting your needs without using your cards or adding to your overdraft. Use the Mini Money Map spreadsheet to create a budget to see where you can reduce spending. You may well have to make sacrifices which may seem unfair but try to think ahead to the feeling of being debt free.
Think of ways to increase your earnings if you need to. Ask for a pay rise, part time work, selling unwanted items, etc. Downsize your car or your phone for example. Forgo a foreign holiday. Have movie nights in. It may sound harsh, but the sums need to add up somehow.
Build a firm foundation with ‘sometimes’ savings
You may think it is silly to start saving while you are still in debt, but it isn’t. Not having savings was a reason you got into debt, now they will help you get out. This is the part where we save our way out of debt.
Build savings for essential items coming up such as Christmas, car insurance, etc. This will break the cycle of having to use debt to pay for them as and when they arise. It is a good idea to have a separate account to pay them into. For example at Christmas, you may decide that your total budget to celebrate the holiday is £900. Divide this figure by 12 months of the year and you get £75. Start putting £75 per month, every month into savings and Christmas will be paid for and that way you look after and save for other milestones.
Keep the costs down
If you are paying interest on your debt, do everything you can to minimize or eliminate it. Use the Money Saving Expert Credit Club which will help you to see what might be available to you without having to apply directly to the card issuer, only to be turned down if you are not eligible.
An application from a Credit Club recommendation is not guaranteed, however. Transferring debt will incur a fee, but if it is 2% or less and it also offers 0% for a reasonable length of time, therefore works out as a much better deal. You can also call your credit card provider or bank and ask them to reduce the interest. Tell them that you have been having trouble paying and ask them what they can do to help you. This is not guaranteed, but is worth a try.
If money is tight and you still find you need to make an emergency payment or essential purchase, using a free salary advance provider is a good option. For working people, you can now access your own money early, with no charges and no interest, as is being offered by borofree. For those in work, free salary-advances should obviate the need for high-cost credit and will help you to take back control of your own money faster.
We are all human, meaning that financial worries can impact all of us at one time or another, and when they do, they bring stress and worry. What is important to remember is that there are options available to support when these instances occur. Understanding how to approach money matters and taking steps to make changes that will have a lasting positive impact will lead to being able to enjoy greater financial freedom in the future.
If you are struggling with debt and money worries, you can get support from charities such as StepChange, National Debtline and Citizens Advice.