According to ITV News, 11% of UK households were going into debt or increasing existing debt to afford Christmas last year. It can be easy to get carried away at Christmas and spend more than you can afford, but what happens if you have gotten yourself into debt?
Christmas Overspending
According to the Bank of England, the typical household spends almost £740 more in December, acting as 29% more than in other months.
In fact, households were estimated to spend £823.40 on Christmas this year, with many relying on credit to afford it, including 4% turning to general loans, 2.9% using payday loans, and 3.2% turning to family or friends for a loan.
Getting Out of Debt…
If you’ve gotten into debt, it’s very important to get out of it, but this can sometimes seem impossible. Debt can be incredibly overwhelming, but burying your head in the sand won’t make the problem go away. In fact, more often than not ignoring your debts will only make them build.
A good place to start is to:
Make a list of everything you owe and to whom
Work out which of these are priority debts, where serious action can be taken if you fail to make repayments, such as gas and electric bills or mortgage arrears
Create a budget to figure out where spending can be reduced to help you work out how much you can reasonably repay to your creditors
Now it’s time to get advice… you can click here for a list of free debt advice organisations
The solution to your debt will be specific to you. It will depend on what type of debts you have, how much you owe, and how much money you can pay towards those debts.
Debt Solutions
There are a variety of debt solutions out there. You can read more about these on StepChange’s website, but here is a quick overview:
Administration order- a legal agreement arranged by the County Court between you and your creditor to make repayments
Arranging payments with creditors
Bankruptcy- a legal process undertaken which writes off unsecured debts when you are unable to repay them within a reasonable timeframe
Debt arrangement scheme- a scheme set up by the Scottish government where you repay your debts with affordable monthly payments without the threat of court action
Debt consolidation-when you borrow enough money to pay off all of your different debts so that you now only owe money to one lender
Debt management plan- an agreement between you and your creditors to pay all of your debts in affordable monthly payments
Debt relief order- where your debts are written off 12 months after the debt relief order is approved, providing you owe less than £30,000 and meet the other eligibility criteria
Individual voluntary arrangement- a formal agreement set up by an insolvency practitioner to make payments towards your debts via a lump sum payment or a 5 or 6 year repayment plan
Insolvency- usually used when referring to businesses, this is where you can no longer afford to make debt repayments. You are insolvent if you file for bankruptcy
Minimal assets process- a way of writing off debts for those with a low income with very few assets
Protected trust deed- a formal agreement to pay part of what you owe to creditors via affordable monthly payments, often over a 4 year period
Releasing equity- accessing the cash tied up in your home to help pay off your debts. You can read more about equity release here
Remortgage your home- where you take out a new mortgage on your home to pay off debts by either releasing equity, or reducing your monthly mortgage payment
Selling assets- where you sell something of value to have more money to pay towards debts
Surrendering your property- selling your home to find cheaper housing to have more disposable income for debt repayments
Settlement offers- where you offer your creditors a one-off payment to clear your debt
Sequestration- a form of insolvency in Scotland
Temporary repayment plan- where you make small monthly payments towards your debt
by Red Star Wealth
According to Finder’s digital banking statistics, around 93% of Britons used online banking in 2022. The rise of digitalisation has certainly made it easier for us to manage our finances, but has it made it too easy?
Reviews and Regulatory Checks
One great impact of digitalisation is the ease of which we can now check the trustworthiness of financial advisers and firms which offer financial products or services.
It’s easy for us to check reviews and ratings online to see other people’s experiences with different businesses and individuals. Even more importantly, we can easily check whether advisers or firms are FCA or PRA regulated to ensure that we are properly protected when receiving financial products or services.
Online Banking
Online and mobile banking can enable us to manage our money easily at the click of a button. It allows us to see the exact numerical figure of what we have in our bank account and allows us to set up savings accounts with little hassle, encouraging saving and financial planning.
However, not all of the effects of digitalisation have been quite as positive…
Accessibility
Digitalisation has made it far easier for us to check our finances and make changes to them, such as making an online banking transfer in less than a minute.
In fact, according to Finder, 49% of those who opened or intended to open a digital bank account cited convenience as a driving factor, with 16% driven by a lack of branches in their area. But is ‘going digital’ a response to banks closing, or is it also a driving factor as it reduces the demand for their services?
The Rise of Cryptocurrency
Digitalisation has led to the boom of cryptocurrency in recent years. Depending on your viewpoint of cryptocurrency, this can either be seen as a more positive or more negative impact.
Whilst many now swear by cryptocurrency, it does offer us the opportunity to take on more risk when investing. This can of course reap high rewards but it can also lead to huge losses due to its volatile nature.
Online Loans
With digitalisation has come the emergence of online loans. It is relatively easy for us to apply for online loans with us now able to borrow money from the comfort of our own homes.
However, the ease of which we can now obtain loans might actually make managing money harder in the long run. This is because it encourages many people not to manage their finances at all, but to instead expect that they can rely on borrowing.
It’s arguably too easy to be accepted for payday loans online due to affordability checks which are often inadequate. This makes dealing with your finances harder in the long run as you will still have to deal with the original debt but with the addition of excessive interest rates.
Buy Now Pay Later
Buy Now Pay Later firms have made it too easy for us to overspend, as it encourages many people to think they can afford more than they actually can and spend without repercussions. However, there are of course significant repercussions of this.
Apple Pay, Contactless and Debit Cards
Apple Pay, contactless card payments and debit cards mean it’s now very easy for us to spend money. If paying solely with cash, you would have to ensure that you always had enough cash on your person, which is a double-edged sword.
It would mean you wouldn’t necessarily have enough money if you were in an emergency that required payment, e.g, running out of petrol. It would also mean you would always have to carry cash, sometimes in large quantities. Therefore, if you were to lose your purse or wallet, this money would be gone.
Having a debit card or a form of online payment means that we avoid both of these issues. With the latter, you could cancel or temporarily freeze your debit card if you were to lose it.
However, these forms of payments have perhaps made spending too easy. It is easy for us to spend money without really thinking about it leaving our account. For more information about how cash may be better for helping us budget, click here.
Overall, digitalisation has made dealing with our day-to-day finances much easier, but this isn’t always a positive thing…
by Red Star Wealth
Jeremy Hunt’s decision to scrap the pensions lifetime allowance, announced on Wednesday 15th March during his Spring Budget, has been met with controversy.
What was the Lifetime Allowance?
The lifetime allowance previously capped the amount that individuals could save into their private pension before incurring a tax charge. Previous to the Spring Budget, the lifetime allowance was set at £1,073,100, with expectations that Hunt would increase this figure to £1.8 million. However, in a surprise move he instead decided to abolish the lifetime allowance completely.
For most lower and middle earners, the scrapping of the lifetime allowance will not affect them. This decision will mainly affect higher earners as these tend to be the people who can afford to build bigger pension pots.
“It is a pension tax reform that will stop over 80% of NHS doctors from receiving a tax charge and incentivise our most experienced and productive workers to stay in work for longer”
“I have listened to the concerns of many senior NHS clinicians who say unpredictable pension tax charges are making them leave the NHS just when they are needed most”
The decision to scrap the lifetime allowance is aimed to keep people close to retirement in the workforce for longer, as well as encouraging those who have already retired to return to work. This is because there is more incentive for employees to stay in work to continue building their pension as they won’t face tax penalties for doing so. The idea is that this will help stimulate economic activity and produce economic growth.
Criticism
However, this decision has been met with controversy, with some arguing that whilst these changes would indeed combat the issue of 55% tax penalties faced by doctors, they would also give a big boost to many wealthy people.
David Brooks, head of policy at Broadstone, has argued that scrapping the lifetime allowance and increasing the annual pensions contributions has acted as a “huge tax giveaway to the wealthiest people in the country”
The following images is taken from the director of the Social Market Foundation, James Kirkup’s, twitter:
Perhaps the government should be focussing on getting more people to start building pensions, rather than helping those with large pensions make them even bigger.
Shadow Chancellor and Labour MP, Rachel Reeves stated:
“The only surprise in the budget was a huge handout to the richest one percent of pension savers […] Labour believes that the tax burden should be shared fairly. That is why I’ve announced today that Labour will reverse the changes to tax-free pension allowances. It is the wrong priority at the wrong time”
Given that Labour is favoured to win the next general election, it is a real possibility that Hunt’s scheme may not be in place for very long…
To read more about other changes announced in the Spring Budget, check out our previous blog.
by Red Star Wealth
Let’s have a look at some of the key changes announced in Jeremy Hunt’s Spring Budget earlier today.
Pensions
Hunt announced that the pensions lifetime allowance was to be abolished, meaning more people can save unlimited amounts into their private pension without incurring a tax charge.
He also announced an increase in the tax-free yearly allowance for pension contributions, taking it from £40,000 a year to £60,000 a year.
Fuel, Alcohol and Tobacco
The 5 pence cut to fuel duty on petrol and diesel was due to end in April but Hunt has announced a freeze of fuel duty for another year, helping keep down costs for motorists.
Tax on tobacco is set to rise by 2% above the rate of inflation, or for rolling tobacco, 6% above inflation.
Most alcohol duties will be rising in line with inflation as of August, meaning supermarket prices for booze will increase. However, Hunt has also mentioned a draught relief scheme to be implemented from August 2023 which should keep pint prices in pubs down.
Energy
Energy bills for the typical British household were due to rise to £3,000 a year from April but the energy price guarantee has now been extended until the end of June, keeping this figure at £2,500 instead.
Hunt has that the government will invest £20 billion over the next 2 decades into low carbon energy projects.
Nuclear energy will now be classed as environmentally friendly for investment purposes, meaning it will qualify for the same investment incentives as renewable energy.
Hunt has also stated that £63 million will be given to leisure centres to help them cope with rising swimming pool heating costs and investment to become more energy efficient.
Childcare
One of the main highlights of the budget is the expansion in state-funded childcare. Hunt has promised up to 30 hours a week of free childcare for eligible households with children as young as 9 months. This won’t be fully implemented until September 2025 but will be rolled out in stages from April 2024.
Families on universal credit are set to receive childcare up front rather than in arrears. Instead of a cap of £646 per month per child, this will now be increased to a maximum of £951.
Hunt has further announced relaxed rules in England to allow childminders to look after more children.
He’s also increasing the funding paid to nurseries providing free childcare by £204 million from September this year, rising to £288 million next year.
Corporation Tax
Corporation tax will indeed be increasing, taking it from a 19% tax on taxable profits over £250,000, to a 25% tax. However, Hunt has also announced a new policy of full capital expensing over the next 3 years which will allow companies to deduct money invested into new machinery and technology from their profits, helping to reduce their tax liability.
Support for the Vulnerable
Hunt has announced a new system of Universal Support across England and Wales. This is a new voluntary employment scheme for those who are disabled or have health conditions. Up to £4,000 per person will be invested to help support around 50,000 people a year in finding suitable work which caters to their needs.
Hunt has also announced funding of:
£400 million for mental health and skeletal support
£3 million to help those with special needs to enter the workforce
An additional £10 million over the next 2 years to help charities in England who work in suicide prevention
Other Notable Points
-£200 million this year to help local councils in England repair potholes
An extra £11 million in defence budget funding over the next 5 years
by Red Star Wealth
According to The Money and Pensions Service’s Financial Capability Survey, 11.5 million UK adults have less than £100 in savings and only 49% of people could last 3 months or more without borrowing money if they lost their main source of income.
Why Might You Struggle to Save?
It’s difficult to save money if you have any debts because you are tied into making repayments.
It’s also difficult to save when you don’t have a budget plan as it’s harder to keep track of your money. Budgeting can help you see where you might be able to reduce your spending and where (if possible) you can afford to put money into savings. Use our free budget calculator through our sister company’s website if you need some help making your budget!
It’s hard to save money if you have a habit of overspending. It can be easy to spend beyond our disposable income, especially at times like Christmas…
The Cost of Living Crisis
UK savings will likely only decrease in continuing months. This is because many people cannot afford to save money at the moment, giving the huge inflationary pressure on living expenses.
You can only afford to save money when your expenses are more than your income. Therefore, many people might see their savings slowly being depleted, the growth of their savings coming to a standstill, or their savings’ growth slowing down.
Why is Saving Money so Important?
It enables you to achieve your financial goals
You can form an emergency fund for any unexpected expenses. This in turn gives you security and peace of mind as the emergency fund acts as a safety net so that you can afford to cope with the unexpected
It can help you avoid taking out credit, protecting you from entering a cycle of debt. This point is particularly true when considering how many people turn to things like payday loans when they have unexpected bills
It means you can accumulate wealth, which is good if you want to do something like channel money into an investment
It helps protect your credit score as you can make payments on time
If saving for a house, it means you can put down a bigger deposit, meaning you will have a smaller mortgage with more competitive interest rates
We know that it can be really difficult to save money when the price of everything constantly seems to be on the increase. Sometimes saving is not a viable option, as you may simply not have any spare cash to put away. However, if you are able to, building your savings is certainly worth considering…
by Kristen
Ways students can save money at university
It’s that time of year again, the outcome of all the hard work, stress and worrying is sealed in one envelope for hundreds of thousands of youngsters. The start of university is approaching and the temptation to spend is EVERYWHERE. If you want to save money at University, take a look at these top 10 tips – you might be surprised by how much you really can save!
It’s almost too easy to go a little wild when we receive a large sum of money like a student loan, but so many make the mistake of forgetting that a student loan is supposed to last until the end of the term (or somewhere near).
‘Freshers Week‘ is approaching, the lack of budgeting experience and the need for six new outfits for each night out in the clubs a student loan doesn’t stretch too far and I can almost guarantee almost every parent will receive that ‘ muuuuum ‘ or ‘ daaaaad ‘ text before mid-term.
There are many ways to ensure your money go further, keep reading to find out our top tips for every student embarking on their university adventure this month!
1 – Refund on TV licence (a simple way to save money at university)
Although a TV licence doesn’t seem too much at £12.25 per month, you can get a refund on your TV licence for the months you’re not in your student accommodation.
So, if the licence is purchased in September and you move back home the following July, you can get a refund for the remaining two remaining months of the licence, worth £24.50.
2 – Apply for a Council Tax redemption
If you’re a full-time student living alone or with other students then you don’t need to pay council tax. You can apply for council tax exemption via the gov.uk website.
3 – Don’t buy contents insurance
.. Well check with your parents before you do as you may be covered under their house insurance through a ‘contents away from home‘ clause.
If not, they will probably be able to add this on at a small fee and a lot cheaper than securing your own insurance!
4 – Invest in travel cards
The 16-25 Railcard was designed for young people in full-time education (although full-time students who are over 25 may also be eligible). The card can be purchased for one year or three, and gives you a third off rail journeys across the UK.
The card also gives you access to partnership offers and competitions, including West-End theatre discounts and holiday offers.
5 – Don’t pay over the odds for your energy
Once you’re living away from your parents you will have to factor in bills. If you’re living in halls then you might not have a choice over who supplies your energy. If not, use a comparison site like MoneySupermarket.com or uSwitch to check prices, you can even earn cashback when you switch through some sites.
It’s illegal for your landlord to prevent you from switching to a cheaper energy supplier, although you may need to tell them if you do.
6 – Get the right bank account
Most banks offer dedicated student bank accounts with a range of perks and interest-free overdrafts. Avoid the temptation of signing up to a poor account just because of a freebie.
If you have a job and receive a regular income its worth looking around for a bank which offer interest on balances!
7 – Mobile phones
Most if not all students rely on our phones these days, but it’s a monthly cost which isn’t cheap!
If your contract is approaching its end make sure you shop around on comparison websites to avoid high monthly fees. Contact your current supplier and tell them you are a university student … they may give you a discount on price to avoid you leaving and taking your custom elsewhere.
8 – Get cashback on (nearly) everything you buy
Cashback websites pay you when you click through to them and make a purchase, so every time you shop online at selected retailers you can earn money back on your purchases.
Many popular online sites such as Quidco offer free membership for users and will offer cashback on utility bills, holidays, clothing, groceries and more. For instance, you can earn cashback of up to £70 on a Sky TV package, or up to 5pc on purchases at Currys PC World.
9 – Don’t pay too much tax
If you work during term time or over the summer to keep yourself afloat, make sure you’re paying the right amount of income tax. Students are taxed just like anyone else. If you earn less than £11,500 a year (as of 6 April 2017), you shouldn’t pay any tax no matter if your 18, 45 or 60.
Even if you only do summer or temp work, you’ll be taxed as if you’d earn that rate all year. Therefore, if you’re a student and your total earnings for the 2016/17 tax year came to less than £11,000 (the previous personal allowance), and you paid tax, see the HMRC website for how to apply for a refund.
10 – Don’t buy new books – rent, borrow or buy second hand instead
At the start of a new term, it’s likely you’ll be given an extensive list of books you’ll need over the year, depending on your course, some textbooks can really break the bank and leave you out of pocket.
In the first few weeks of term there’s usually a rush in the Uni library for the texts you may need, meaning you could be left waiting. So, instead of rushing out and buying them new, see if the local library has a copy. At the very least you can take time assessing how often you’ll need it.
Make sure you check on line as many Uni books will have an online version saving you up to 50% off!
University will be one of the best times of your life before you make the leap into the working world. Enjoy it and don’t let worrying about money ruin your experience. However keep in mind you still need to live for the rest of the term so budget and keep asking yourself the question before purchasing ‘do I need it ‘ and ‘ will I use it ‘ trust me, that will save more money than you know!
Red Star Wealth are an independent financial adviser based in Blackpool, Lancashire.
