Could Covid-19 help you save?
Coronavirus has changed life as we know it; from social distancing to self-isolation, working from home to home schooling, everyone has had to adapt to a new normal. Spending habits may have changed for a variety of reasons like being put on furlough, job losses and redundancies. For many, this might have meant important milestones like getting married or buying a house have been put on hold. Whatever the situation Covid-19 is making many people re-evaluate their finances and where they spend their money.
Are you saving money working from home?
One unexpected result of our new normal could involve setting yourself up to be in a stronger financial position for the future. For many, spending more time at home means spending less money going out, especially if you are no longer paying for commuting costs or childcare.
Could this be the time to focus on your credit score?
Finding yourself with extra money left-over from normal bills and the cost of day to day living could be a chance to take some steps to improve your financial health in the long term and help you get into good credit hygiene habits. How could this unexpected extra money be used to possibly boost your credit score, and prove you’re good at managing credit?
Pay off a credit card
Paying back larger amounts and not just the minimum repayments could help avoid spending more on interest and will lower the amount of credit you’re borrowing in a shorter amount of time. It will also demonstrate to future lenders that you have a history of repaying your debts on time.
Save for a rainy day
If Covid-19 has taught us anything, it’s that things can change in an instant so if you are in a position where your outgoings are not as high as they were pre Covid-19, this might be the time to think about starting a savings account.
There are many different types of savings accounts
- short term accounts
- long term savings
- Individual Savings Accounts (ISAs)
If you choose to open a savings account, consider what you’d want from it. If you want a safety net in case of future emergencies, a short-term account will let you withdraw your money when you need. A long-term savings account could save you a greater amount, but you usually have to leave the money in there for a fixed amount and you may not be able to withdraw any of your investment (without paying a fee). An ISA can come in many forms – stocks and shares, cash ISAs, ISAs for children – so make sure you do your research to find out which option is right for you.
Saving for a mortgage deposit
If you’ve been thinking about buying your own home, this could be a chance to help prepare you for the mortgage application. When it comes to applying for your mortgage, you’ll have to put down a mortgage deposit - a lump sum you have to pay upfront.
Generally the more you put down on the deposit, the better the mortgage deal you’ll get – as you’ve already paid off a bigger percentage of the purchase price. Putting away the money now could save on the money you pay back for a home in your future.
If you are thinking of looking to buy your new home in the next 12 months or arranging a new mortgage, then now is the time to look at your credit report to make sure that all the information held on it is correct. If there are any issues that could impact on the type of mortgage you could get, you can look at addressing them now so you will be credit ready when you find your perfect home. For example if you have missed repayments in the past and you haven’t done already, it may be a good idea to set up a direct debit so you never miss a payment again. This way when you are ready to make your mortgage application you can demonstrate a pattern of behaviour that shows that you are now proactively managing the credit you have in a responsible manner. Also it can take up to three months to appear on the electoral roll, so if you are not already on your electoral roll, this is something else you could consider.
The mortgage is not the only cost when buying a new home, our guide on buying properties can help you get a better understanding of the costs of buying a new home. It also has a budget planner so you can better understand the costs of moving to your new home e.g. solicitor feeds, searches etc.
What can you do if you’ve got less income coming in or your bills have increased?
You might be thinking none of the above applies to you, and the balance between your outgoings and incomings has tipped the other way. During these hard times, it’s important to focus on keeping your finances healthy and prioritising where you spend your money. Below are some things you can do during these leaner times to keep your financial position strong.
Find out how your local foodbank can help you
Outgoings for food bills may certainly have gone up in your household and put a strain on your finances. If you have found yourself in a position where it is difficult to make ends meet to feed the family, research how your local foodbank can support you until you are able to get back on your feet. You can find the one closest to where you live by visiting The Trussell Trust, an organisation which supports a network of foodbanks across the UK.
Prioritise paying off minimum repayments
If you are worried about making your repayments there are a couple of things you can look at, but it is important that where possible you make at least the minimum repayment required. If you are not able to make the minimum repayment then contact your lender and see what help they can provide. It is possible that they may be able to offer you an emergency payment freeze. However it is worth bearing in mind that if you do take an emergency payment freeze you will have to repay this money at a later date. So make sure you understand what will happen to your repayments when the emergency payment freeze comes to an end.
Do not cancel any credit repayments without talking to your lender first.
Rethink your budgets
If money is tight, it may be time to review your income and outgoings again. Be realistic about what you can afford and use your income to cover bills, mortgage or rent.
Why not use our interactive budget planner to help you plan your income and outgoings in detail, it may help you see where you can cut costs. Small savings on non-essential items all add up; make a shopping list before heading out and only buy what you need, use loyalty cards and voucher points you’ve saved and freeze or cancel any memberships you aren’t using right now like the gym.
Find out if you can get help
If the impact of Covid-19 means that you are having to manage on a severely reduced income, you might be able to apply for financial help in the form of benefits or emergency payment holidays. You could be eligible for Universal Credit to help manage your living costs.
You should also get in touch with your bank directly. Many banks are offering customers an interest-free overdraft for a set amount of time. Even if you don’t normally have an overdraft - they can decide to give you one because of these uncertain times.
Where to get additional help if you’re struggling with finances
If your situation has changed and you find yourself struggling, there are different companies and charities who can offer advice, guidance and provide emotional support.
Citizens Advice: Free advice on everything from your rights as a furloughed worker, what benefits you could be entitled to and getting food vouchers if you have children who used to get free school meals.
Money and Mental Health: Martin Lewis is the backer of this charity which offers free support for people whose mental health might be suffering as a result of money issues.
National Debtline: If you need help dealing with debt, this charity offers free, expert help and guidance. You can contact them for free on 0808 808 4000.
StepChange (formerly Consumer Credit Counselling Service): If you are struggling, know you’re not alone. This charity helps around 650,000 per year who find themselves in need of help and guidance. You can contact them for free advice on 0800 138 1111.
The Trussell Trust is a national charity supporting a network of foodbanks across the UK, which is committed to help put an end to hunger and poverty. You can find out more information on their website here.
This article was written on 11 June 2020; all information was correct at the time of writing.
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