How to take control of your debts during the cost of living crisis

As the cost of living crisis continues to impact households across the country, many people who are already struggling will be finding their finances increasingly difficult to manage. While some on low incomes may have become accustomed to dealing with debt and financial uncertainty, the current crisis has also meant that there are many people experiencing financial difficulties for the first time in their lives. 

Managing debt can often be overwhelming and sometimes scary, especially if you haven’t been in this situation before. Thankfully, there's plenty of good advice available to help make things a little more manageable if you are struggling financially. 

Here are some top tips on how you can better manage your debt and take back control of your financial situation: 

Take stock of your outgoings

First you’ll need to make a list of all of your monthly outgoings plus any outstanding debt along with the interest rates on each borrowing. Once you have a list of everything that you pay out for each month, you can then see whether there are any outgoings you don’t really need in order to reduce unnecessary spending. It’s important to be honest about your spending habits and ask yourself if you are paying for any non-essential items that could be cut? 

In addition, look at your utility bills like your phone, TV or broadband accounts. If you’re out of contract, you may be overpaying versus finding a new provider with an introductory offer. Comparison sites, like ours, can be used to find the best deals by comparing prices from dozens of providers at once.

Once you’ve examined your outgoings, you can then look at the list of outstanding debts and use this to determine what borrowing is causing the most financial pain. Start off with the debt with the highest interest rate and work out which will take priority along with a strategy for paying them off. As you’ve already outlined your outgoings, you’ll be able to see how much you have left to pay off outstanding debts.   

Negotiate lower monthly repayments

If you’re struggling to keep up with payments to your creditors, you could try to negotiate reduced monthly repayments or ask to be put on a payment plan. To do this, you’ll need to show them why you can’t afford the current repayments . They’ll usually want to look at your total income, monthly outgoings and essential living costs to see what you’re able to realistically afford. However, this could affect your credit rating, and it may be harder to get credit in future. You also run the risk of paying more back in the long-run due to increased interest rates.

Consider debt consolidation

If you have multiple debts with high-interest rates, it may be worth consolidating your debts. This means that instead of having to make multiple payments each month, you could get one large loan to pay everything off leaving you with just one payment to make each month. Debt consolidation makes managing multiple finances easier. It can help you pay off debts quicker, lowers your monthly payments and means you’ll have fewer bills to manage. 

However, it’s not always the best option. Some come with added costs like origination fees, balance transfer fees on credit cards, closing costs and annual fees. If you have a poor credit score, you may only get loans with high interest rates too, so it could end up costing you more in the long run. When shopping for a lender, it’s important to make sure you understand the contract before you sign up. 

A debt management company will be able to show you what types of consolidation loans are available to you, along with the interest rates. You should seek expert advice before doing this as it may not be the right path for you. Citizens Advice Bureau are on hand if you want impartial, free advice about whether you should choose a debt consolidation loan. 

As long as you keep up repayments, your credit score won’t be affected by having a debt consolidation loan. However, if the overall cost of the new loan makes it more difficult to keep up with all of your repayments, and any are missed, these missed payments will have a negative impact on your credit score. 

Other options to consider include: 

0% interest balance transfer credit cards - These types of credit cards can offer 0% interest repayments for long periods of time, usually between 12 and 24 months. Depending on whether you meet the criteria set by the credit card company, a 0% balance transfer credit card could be a good solution for someone who wants to transfer their existing balance from one card to another to eliminate high interest rates on repayments. The money saved from interest repayments on the previous card can then go towards paying the lump sum off instead. However, you should remember to pay this off before the 0% interest period runs out to ensure you don’t end up in further debt. 

Personal loan - You could obtain a personal loan to pay off debts. This could save you money in the long run as the overall interest rate will be lower and it can help streamline your finances into one lump sum. 

Seek expert help and advice

If you’re finding that managing your debts is becoming overwhelming and you really don’t know where to start, then it might be worth seeking professional support and advice. There are many organisations and charities, including Step Change, National Debtline, Debt Support Trust or Citizens Advice, that can discuss what options are available to help you start tackling your debt. Debt advisors are always available to offer free expert advice over the phone, and can provide a range of budgeting tools and fact sheets on how to deal with debt. Money Helper can point you in the direction of various online, telephone or face-to-face support in your area too. 

Money and your mental health

Mental health problems can make earning and managing money more difficult, while debt can trigger or worsen existing mental health conditions such as anxiety and depression. If your financial issues are having an impact on your mental health, then you may want to consider seeking professional help. Sometimes just highlighting issues with a friend or family member can help as this may make you feel less alone as the other person might be able to offer some advice you hadn’t thought of yourself, (or just help you make an appointment with a debt advisor if necessary). 

Remember: How you tackle your debt is ultimately up to you, but it's always best to address the problem as soon as possible to ensure you don’t fall into further arrears and further financial difficulty. Once you start opening up about your debt, it will become easier to manage and understand. You’ll also start to feel a lot better and more in control of your life and finances.