Have you made some New Year Resolutions about savings, budgeting or debts for 2021?
2020 has been a strange year for many millions of people’s finances. Half the country is better off, half is worse off.
Some have gained from losing their commute costs and not being able to go on holiday or eat out as much. Others have seen their business destroyed or lost their job. And many are still in the limbo of furlough and are uncertain when or if they will ever get back to their normal job.
Here are some common New Year’s Resolutions, with some practical tips that will help you to translate wishes into action this year.
“2020 made me realise I need to be better with money”
No-one wants to never go on holiday or eat out. But if 2020 made you realise how fragile your finances are, you may want to stop some spending that you used to do and either clear debt or increase your savings. So what are the most painless ways to do this? And what are your weaknesses?
- look at a Money Detox to cut some unnecessary spending out or down.
- if you feel you shop online too much while watching TV, look at these 5 ideas to spend less online.
- don’t use Klarna, Laybuy, Paypal etc to spread payments. This isn’t the sensible way to buy things, too often it’s a disaster. They are all trying to entice you to spend more than you can afford.
“My money just seems to disappear!”
The more you know about where your money is going, the easier it is to decide what you want to change. A notebook or a spreadsheet will work fine but you have to enter everything you spend… so look at Apps that help you budget to see if one can do most of that work for you.
“Improve my credit score”
Unless there is an error on your credit records the key to improving your credit score is usually just plodding on, making more than the minimum payments to your cards, reducing the amount you owe and getting out of your overdraft.
Find out what the real problems are on your credit record by checking your reports with all three credit reference agencies as they may all have different data. Debts that have defaulted and CCJs will drop off after 6 years so work out when your credit record will start to improve a lot even if you do nothing.
Don’t miss a payment by accident. Set up direct debits so if you are ill or extra busy at work, all the bills get paid. If you switch mobile network, don’t cancel the DD until you are sure you have had the final bill. Do the same if you move house – getting a default for a water or electricity bill will mess up your credit record for another 6 years.
And remember that your credit score is just a number, don’t get obsessed by it. The actual score Experian, Equifax or TransUnion calculates for you is NOT used by lenders in deciding to give you credit. So a new way to get it “up” such as Experian’s Boost may be a marketing trick for them and may make no difference at all to your chance of a mortgage or a reasonably priced car finance.
“I want an emergency fund”
Without a small emergency fund, life is just one expense after another. But finding the money can be very hard. Different approaches work better for different people:
- read 7 ways to save and try one out. If that doesn’t go well, try a different one!
- if you are on Universal Credit or Working Tax Credit look at the government’s Help To Save scheme.
“Pay 5k off my mortgage in 2021” or “Save house deposit by 2023“
These are big targets. Work out how much you need to save each month to get there:
- if your target sounds impossible, then don’t give up, aim for half that amount instead and see how it goes;
- if you wait until the end of the month, you will have to be super-disciplined to have so much money left. Instead, set up an extra standing order for that to go out the day you get paid.
- if your pay varies a lot, decide on a “minimum” level to overpay through a standing order and every month pay over any extra you earn – after tax of course.
Tackle a specific debt
“I want to pay off my largest credit card”
Decide which card to target first and go for it! Don’t just try to get them all down a bit, that’s too depressing. But do make sure your other debts (cards? overdrafts? bills?) aren’t going up because you are overpaying that target credit card – that isn’t clearing debt, it’s just shuffling it around.
Do get a 0% balance transfer if you can. These are still available in 2021 but you will need a very good credit record and you may not be offered a large balance.
Also set up a standing order for just a bit more than the current minimum for your other cards that you want to clear that you aren’t using. If the minimum is £64 can you stretch to paying £70 every month?
It isn’t much more, but by paying the same every month you avoid the minimum payment trap and pay it faster. A lot faster. Years faster! So while you are concentrating on that large debt, your smaller ones are getting paid off quicker as well.
“Get rid of my overdraft”
Overdraft rates went up in 2020. The simplest approach is often to get a new bank account without an overdraft and then just pay a set amount off the old overdraft each month, like repaying a loan.
Does that sound like a lot of fuss? Well set yourself a deadline – check back in April 2021 and see how you get on with clearing it… if you haven’t made good progress by then, it’s time to switch.
Face up to a big debt problem
“I want to consolidate my debts”
Never consolidate debt unless it’s at a really low-interest rate. If you consolidate at high-interest rate, you will probably be in a worse position in 6 months or a year.
And never get a secured loan without taking debt advice first.
“I am juggling payments all the time and my debts go on up”
This is normally a sign that you can’t make all the minimum payments to your debts each month. Here the best thing you can do is take debt advice.
The sooner you do this, the more options you have, but it’s never too late! Taking the first step may feel scary, but you will feel a lot better when you have done it.
If you have priority debts – rent/mortgage, council tax, utility bills – then you may have to talk to the creditor, but knowing what to say can make this easier, so talk to a debt adviser first. Covid-19 – what help with debts & bills can you get? explains there is still some help you can get with some bills and debts, and this may let you increase what you can pay to priority debts.
“Where is the best place for good debt advice?”
Don’t google for debt help or you just end up with commercial firms that pay a lot to advertise. They can afford that because they are planning on selling you an IVA which will make thousands of pounds out of you, even if they say their “advice” is free.
See good places for debt advice for where to go, because the best place for you can depend on what sort of debts you have and where you live. The debt advisers listed there are practical and non-judgemental and will explain all your options and the pros and cons so you can decide.