Making ends meet on a low income is extremely stressful, especially when an emergency forces you into debt. When money is tight, getting out of debt and back on an even keel takes incredible resolve and careful planning. For many struggling with their finances, the idea of saving money just isn’t an option. But, turning your finances around, even when you are on a low income, can be done. Here’s how.
First things first – take control
Your debt and poor spending habits are dragging you down. While it’s not easy to change the way you manage your money, it can be done. Taking control is the first step.
There is no point burying your head in the sand. That will only make things worse. The first thing you need to do is sit down and work out exactly how much you owe, what your monthly outgoings are and how much money you have coming in. If you have a partner, be honest with each other and lay all of your cards on the table (metaphorically speaking).
The Money Advice Service have a great budget planning tool which will help you to work out exactly how you spend your money. Getting out of debt and turning your financial habits around will involve commitment. You’ll need to learn to prioritise, budget and make important decisions. It may feel like you are climbing a mountain but stick with it and you can liberate yourself from the spiral of poor money management and debt.
Balance transfer credit cards
The chances are if you have credit cards and are struggling financially, you are probably only managing to meet the minimum payment each month. This means you will likely be accruing silly amounts of interest each month and very little will be getting paid off the actual debt. So, what can you do?
One option is to shuffle your credit card balances to other cards offering 0% for a predetermined time. Some deals offer 0% interest on balance transfers for up to 36 months. This gives you 3 years to pay off the card without paying any interest. Shop around for the best deal as there is usually a fee, which gets added to your credit card balance.
The important thing to remember when shuffling debt in this way is to pay off the debt before the 0% ends. For the best balance transfer cards, see Martin Lewis’s MoneySavingExpert.com.
Paying off your credit card
If switching cards isn’t an option, prioritise your debts. Focus on the most expensive credit card first. If you owe £500 on a card charging you 19.9% interest, but owe another card £500 at 34.9% interest, focus on paying extra off the one with the higher interest rate. Cut up existing credit cards so you can’t be tempted to use them anymore. If you are stuck with your card debt, always pay more than the minimum payment. If you find yourself with a spare fiver, pay it off your credit card.
Consolidate debts with a personal loan
Speak to your bank about the possibility of a taking out a personal loan. The interest rate will be considerably more favourable than a credit card or overdraft. You will also gain certainty over the monthly repayment. If your bank won’t lend you money, there are other options, but any loan is only worth considering if it will cost you less than your current borrowing arrangements.
Avoid payday loans, but consider guarantor loans
If you have a poor credit history, and can’t get a loan through your bank, one option is to consolidate your credit card debts into one place with a guarantor loan. Although bad credit loans can have higher interest rates, the repayment plan will mean you are paying off the debt. And unlike with a credit card, you can’t be tempted into spending more.
Always make sure you can cover the monthly repayments before you commit and be sure to stop using credit card accounts when you pay them off with the loan. There is an argument for keeping the cards with a zero balance to improve your credit score rating (it shows restraint), but only do this if you won’t be tempted to start spending on them again. Guarantorloansuk, is a reputable broker who offer practical tips to help you improve your credit rating and avoid expensive high interest loans. Check out this blog post for more information on understanding your credit score. According to one report in The Guardian, some credit firms are offering loans with APRs of up to a staggering 1421%.
You should definitely avoid payday loans with high interest rates. These will only get you into more debt. Guarantor loans are an alternative option if you can’t get a personal loan through your bank. They have lower interest rates than payday, instalment and doorstep loans. For a guarantor loan you will need a guarantor (a family member or friend who can secure your loan against their property).
How to save money on a low income
Your first priority should be to pay as much each month as you can off of your debts. However, there will be extra things you’ll need to budget for, so it’s prudent to have a savings plan in place to cover those eventualities. Emergencies, holidays and Christmas will only get you in further debt if you don’t plan ahead for them.
- Reducing your monthly outgoings may seem impossible but look carefully and you will find ways to save money. For example, could you reduce your accommodation costs by moving into a smaller property or a different area? It may feel like a step too far, but it could be a short-term solution to get you to a place of financial freedom.
- Something as simple as switching energy suppliers could save you around £100 per year. Bulb are one energy supplier offering cheaper, greener energy. Get a quote here.
- Switch to shopping on-line. It makes sticking to a list easier (and will save you time and travel costs). You can also see a running total of how much you are spending as you shop online, making it easier to stick to a budget. You can save money by being a thrifty shopper.
- Sell some of your belongings. EBay and Facebook selling groups are great websites for making money out of the things you haven’t used for years.
- Whenever you can, walk instead of taking the car. This will save you money on petrol. It’s also healthier for you and better for the environment.
- Downgrade your phone and TV package. You don’t need the latest iPhone or Sky Movies.
If you are struggling with money and have spiralling debt, it is always best to speak to someone. If you bury your head in the sand, you could be getting yourself deeper into debt. Citizens Advice, the Debt Advice Foundation, the National DebtLine, PayPlan and StepChange all offer a free debt advice service. Get in touch, it could be your first step to becoming debt free and saving instead.