Fighting debt in times of high inflation

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Not just the kind of ‘debt’ that is part of life – the mortgage and a few hundred pounds on the credit card that are paid off in full every month. The kind of debt that accumulates and is difficult to repay.

It was created out of desperation – where the monthly income is pushed to its limit, the savings pot has been emptied and there is no choice but to use the credit card or the overdraft.

This week, the Office for National Statistics revealed that inflation was 9.9% in the year to August, down from 10.1% in July.

This decline, although minimal, is the result of a slight drop in gas prices. It came just as Prime Minister Liz Truss introduced the Energy Price Guarantee, which will cap household energy costs and provide relief to bill payers.

But, while that may ease the pressure a bit, it would be wrong to say that the cost of living crisis was waning. Indeed, food prices increased by 13.1% during the year, with some staples such as skimmed milk rising by as much as 40%. Butter and jam increased by almost 30%.

And that’s just breakfast.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Food is the price hike we feel most keenly – 96% of people saying their food costs have risen.

“It’s one of the costs that disproportionately hits low-income people because once they’ve shopped around and bargained, the only option left is to buy less, which can mean impossible decisions. at the supermarket.”

Meanwhile, Alice Haine, personal finance analyst at Bestinvest, said some households had already “reduced spending to the max”, leaving “little leeway for those unexpected expenses that crop up”.

It’s no wonder many of us use the credit card to make ends meet.

So what do you do if you start accumulating an unusual amount of debt? What steps can you take to prevent it from getting out of control?

According to Alice, managing these overspending should be the focus of your finances until they are in a more manageable state.

“For those on the verge of a debt problem, make clearing high-interest credit card balances a priority over saving or investing. You are not going to save or invest more than a credit card annual rate of 20% or more.

How Zero Percent Credit Cards Can Help You Manage Your Debt

If you don’t repay the full amount each month, credit card interest will add an additional burden to the debt. Therefore, having a 0% credit card could help you pay off the balance faster.

According to The Money Charity, the average credit card debt per household is £2,229 and if a borrower only paid £100 as a minimum repayment per month, it would take more than two years to pay it off.

Rachel Springall, finance expert at Moneyfacts, said: “Credit cards are a convenient method of payment and a useful safety net if someone has little disposable income. Those who use them to make purchases would be wise to transfer their debts to an interest-free balance transfer card to avoid incurring interest charges.

Check out Moneyfacts.co.uk for the latest and greatest balance transfer offers. Some offers offer 0% interest for up to 36 months.

There’s paperwork involved and there will also be fees – so be sure to take these fees into account when comparing offers.

Debt Consolidation

If you have multiple credit cards running with high and unmanageable debt or other forms of borrowing such as store cards or overdrafts, it may be worth “consolidating.”

It means, in a nutshell, putting all the debt in one place, like a loan.

Rachel said, “An unsecured personal loan can be used to consolidate credit card debt into one place and may be easier for someone to pay off.”

She explained in early September that the lowest rate offered on a £10,000 five-year loan was 2.8% from M&S Bank, costing around £718 in interest.

“Borrowers are not guaranteed the lowest rates and it should be noted that at least 51% of successful applicants must be offered the advertised rate, and prepayment charges may apply if clients decide to change their existing loan,” Rachel added.

Get help if you are in financial difficulty

If you find yourself failing to apply for credit cards and being denied loans, don’t despair. It could feel hopeless but there is actually a lot of help and support if you find yourself in this situation.

You can find more information about the options available to you by visiting The Money Charity website. Here you will find more information about debt management plans and other ways to manage your finances.

There is also another charity, StepChange, which can help you with more personalized advice. You can also contact Citizen’s Advice for assistance.

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