According to statistics from KnowYourMoney, 62% of people in the UK owe money. That’s nearly two-thirds of the population. What’s more, 67% don’t have a cash reserve to pay off urgent debts. That’s over two-thirds of the population. This would be worrying at the best of times, but with the current situation in the UK, it may become a critical issue.
Brexit could lead to higher interest rates
With Brexit now less than two months away (officially) and “no-deal” looking increasingly likely, it is now at least a feasible possibility that Sterling will weaken, pushing up inflation and forcing the Bank of England to raise interest rates to meet its inflation target. This would increase the cost of borrowing, which would, of course, be bad news for anyone in debt who’s already struggling to make ends meet. The only other option would be for the government to change the BoE’s inflation target, which would keep interest rates down but increase the overall cost of living. In other words, regardless of which option the government picks, if you’re in debt, your cost of living is very likely to go up, so you need to prepare for that quickly.
The difference a credit rating can make
If your credit rating is good, then now might be an excellent time to see if you can seal in a balance transfer deal, if possible on a card to which you can transfer all your credit card balances. Typically you need to make the transfer within a certain period of opening the card and there is usually a fee involved. If you are one of the people who have debt but no savings at all, then you might want to see if you can use strategic timing to your advantage. If you can get approved for such a card, then make the transfer immediately after you get paid and use the money you would have put towards making the minimum payment on your old card(s) to pay the balance transfer fee on your new one. If you can’t manage this, then this may be one of the very few occasions where it could be justified to borrow more money, even if this means asking family and friends, since, in this situation, you will have a clear path to paying them back. Since you will not be paying interest on your balance, your minimum payment will be lower and you can use this difference to pay back what you borrow and then put it towards making more than the minimum repayment so you can clear your balance sooner. If this sounds like a feasible plan for your situation, then it would probably be a good idea to move quickly as the clock is ticking on Brexit and that may impact both the availability of these deals and your ability to be accepted for them.
Regardless of your credit rating, now is always a good time to get to grips with your finances
Counterintuitive as it may appear if you have debt but no savings, your first priority should probably be to build up some savings. Even though it’s almost guaranteed that you’ll be paying more interest on your debts than you’ll earn on your savings, it’s still important to have a cash cushion to act as a buffer against whatever life may throw at you. In simple terms, the fact that you have been accepted for credit in the past does not mean that you will be accepted for credit in the future and you do not want to be left struggling to pay an essential bill through lack of funds. On a similar note, now could also be a good time to review your insurance cover, especially pet insurance. Only once this is taken care of, should you focus all your energy (and money) on tackling your debts.