Britain in Debt? The signs are not good. According to an article in today’s Times, the balance of Britain’s credit cards as a whole is closing in on £70 billion pounds, unsecured credit lending is increasing year on year, and the rise of concepts like payday loans and un-arranged overdrafts are causing consumers to fall further and further into debt.
This news, coupled with the fact that wage growth is minimal and we are still in the throes of the “age of austerity” means that we are probably all, super-rich excluded, feeling a little hot under the collar. Every time we make a little bit of financial headway, we are hit with a new financial penalty; a debt repayment, an interest charge, or an un-arranged borrowing fee.
Our personal debt levels as a nation are rising too. Consumer debt has risen 10% year on year to reach £200 billion; the last time things were this bad was during the credit crunch back in 2008.
The Financial Conduct Authority are so concerned that they are desperately searching for ways to prevent banks from lending even more to financially distressed customers.
High inflation and low interest rates are hardly encouraging consumers to save, so many households have little option but to take on more debt and try to spend their way out of trouble.
The question is, will they be able to make the necessary repayments on their debt regularly and on time, without having to borrow still more?
It’s difficult to see how we can stop levels of consumer debt spiralling out of control, when the easiest way to meet repayment demands is to borrow from another lender – and you can bet your bottom dollar there will be another lender out there that is only too happy to oblige – charging the highest interest rate yet.
And so it goes on, until the debt pile becomes unsustainable. The current system does not seem to benefit anybody – even the lenders will come unstuck when the repayments stop coming in.
For individuals and families in mid or lower wage brackets, every month can be a struggle. Despite feeling squeezed, nobody wants to incur the wrath of debtors or lose out on a favourable credit rating by refusing to pay up or calling for a better solution.
Despite the FCA’s efforts, therefore, the situation is threatening to worsen. So what, currently are the best options for a section of society known as the “squeezed middle” – those who earn just enough, or sometimes not quite enough, to pay off their creditors – but are barely able to save for their and their families futures?
We cannot say for certain – a lot of the responsibility lies with the financial authorities, the Bank of England, agencies like the International Monetary fund, to come up with a better, more sustainable financial system that is consumer, not profit led.
Until then, here are 5 tips from The Money Cloud that may help to ease the financial burden each month – and free up funds that will ultimately help you take back control of your finances.
1/ Start with the low hanging fruit
Go through last months’ bank and credit card statements and highlight all of your monthly direct debit payments – is there any service or product that you are paying for that you could simply do without?
Subscription services, for example add up – do you really need that extra sports channel or movie subscription? Are you signed up to more than one online music streaming service? Can you reduce the cost of your next mobile phone contract by not upgrading to the latest phone model?
You might be surprised by how many services you are paying for that you won’t miss when they are gone – it’s all about taking the plunge and doing something about it.
2/ Get familiar with your finances
Make sure that the number 1 authority on the state of your finances is you. Not your bank, not your mortgage company, nor your latest lender, but you. Don’t expect others to bail you out when the going gets tough.
It can be scary going through your finances with a fine-toothed comb at first, but believe us, it will make a HUGE difference to wallet, and to your confidence, to take back control. Every time you withdraw money you ought to know exactly what that money will be spent on and how long it will last.
It’s tempting not to think about it, but keep in mind that every time you overspend, you will have to underspend on another day. The more you practice being good with your money, the better you get at it. In the end, you may even end up enjoying it!
3/ Look for the best service providers
It can be tempting to think that all banks are the same, or all mortgage companies the same, or all loan providers are the same, but that is not the case. By shopping around, you can find excellent deals that suit you and put you in the driving seat financially. The harder you work at finding the right deals, the better it pays. Sometimes you can even beat the banks.
Take money transfer services, for example. If you need to transfer money overseas, The Money Cloud’s widget will provide you with quotes from up to 20 different brokers and money transfer agencies. You will be amazed how much you can save by choosing the best broker available over a bank or service such as Western Union.
Sticking to the “tried and tested” without looking at other options is a recipe for financial disaster. By doing so, you are inviting banks and service providers to try and take advantage of you with inflated prices and unnecessary fees. So take the time to investigate the options – you owe it to yourself to do so.
4/ Be decisive and prepared to spend when the time is right
If you take the kids on holiday every year, for example, you might be able to save a significant amount by booking your holidays well in advance. It may suit you to pay in advance and most people are happy to offer reductions for money up front.
Again, if you are transferring money into a different currency for whatever reason, from paying for a holiday overseas to paying for a property overseas, use The Money Cloud to help you get the best possible value for money.
There are many occasions when it makes sense to take a short term financial hit for a longer-term saving, and booking holidays in advance is just one example. The weekly or monthly shop is another, are you buying ready meals at the expensive Sainsbury’s near work or on the way home each night? Why not plan your meals one month ahead, and buy all the ingredients in advance? Doing this could easily wipe 50% off of your monthly food bill. Don’t believe us? Try it!
5/ Use the right card for the right occasion
If you are withdrawing money from a cash machine, always use your debit card, and never use your credit card. Credit card companies charge a fortune in interest from credit card cash withdrawals and you will be paying the penalty for months, if not years.
But if paying for an item in cash ahead of payday will take you into an overdraught or worse still, beyond into an unarranged overdraft, use your credit card, and pay it off as soon as your employer’s cash hits your account.
Every time you make a transaction, there will be a right card to pay with, and a wrong one. Pick the right card every time and you will soon notice the difference.
Don’t wait for the government or the world bank to solve your domestic finance issues – take responsibility for managing your own finances as well as you possibly can. Get into good habits, and you really can transform your finances and reduce your outgoings drastically. It takes willpower and it is hard at first, but once you get used to it, you will wonder how on earth you survived before.