In 2008 the financial crisis rocked the world, bringing a global recession with effects that were far-reaching. More than a decade on, although finances are in a far healthier position, the country hasn’t fully recovered from the plunge.
According to the Institute for Fiscal Studies (IFS), the UK’s economy is £300 billion below where it should have been, with GDP £5,900 less per capita. This, coupled with the continued uncertainty over Brexit, means that for many there is still real pressure on finances.
The economic squeeze continues to be felt across many households, with the Bank of England reporting that the number of defaults on unsecured loans, including credit cards, rocketed in the first quarter of 2019.
But if you’re feeling financial pain, is there any way out of spiralling debts? However desperate things may seem, there are some steps you can follow to successfully manage your finances.
Here’s a look at just a few of the measures you can take.
Recognise your triggers
One of the reasons that people end up in debt is not necessarily because they’re not earning enough to cover their basic expenses, but because they don’t understand where they’re spending money.
Getting your finances organised can play a huge part in managing debt, and this means recognising where and when you are more likely to splash out.
Sitting down and creating a weekly or monthly budget which is achievable can help to focus your spending on the essentials. Looking through your bank statements is a good way of pinpointing where you’ve spent money in the past and where temptation lies.
When you know where you’re haemorrhaging cash, it’s much easier to take steps to plug the gap. Those coffees on the way into work adding up? Buy a travel mug and take a hot drink with you when you leave the house every morning. Simple alternatives like this mean you don’t need to miss out but can still save plenty of pennies.
Create a debt snowball
A debt snowball may sound like a bad thing but it’s actually a tried-and-tested method for tackling finances effectively.
The idea is that you identify your smallest debt and focus on clearing it first. Then you move onto the next smallest one, and so on, until you’re finally tackling the largest debts that you have.
It may sound counterproductive to focus on small debts first instead of the ones which charge the highest interest rates, but there are huge psychological benefits. Being able to clear debts and tick them off your list starts to lift the emotional burden and feels like a real accomplishment.
Having an established plan that’s clearly set out, and where you can see you are making progress, has been demonstrated as being an innovative yet successful way of managing finances and debt.
Consider an IVA
If you can’t manage your debts at the current levels, an IVA could be the solution. An Individual Voluntary Arrangement (IVA) is a legally binding agreement that you make with your creditors that allows the debt to be repaid at a level you can afford.
Although an IVA is a formal arrangement and a type of insolvency, it’s not the same as being declared bankrupt.
For many people an IVA can be a huge relief. It has to be set up by someone who’s qualified to do so called an insolvency practitioner. All communication from creditors must go via the solvency practitioner for the lifetime of the IVA.
Not everyone will qualify for an IVA and there are certain criteria which must apply. In some cases, parts of the debt could be written off as part of the IVA.
An IVA should never be entered into lightly as if you don’t stick to the agreement you could end up facing bankruptcy. If you are considering this as an option, getting IVA advice before proceeding is vital.
It’s never too late to start
The great thing about finances is that no matter what a mess they may be in, getting up straight and organised is possible. All it takes is some personal honesty, and the willingness to kick bad spending habits plus commitment to a plan that you know you can stick to.