Cost Of Living Crisis: Follow This Six-Step Plan To Ease Your Bills (And Mind)

With prices soaring, one in five people now expects to fall into problem debt this year. Grazia's Life Skills money columnist Laura Whateley has a six-step plan to help you out.

A woman holding a baby looks at bills

by Grazia |

Life is getting seriously expensive. Inflation is the highest it has been for 40 years, and no one is immune to the effects of rising costs of energy, petrol, food, as well as tax. National insurance went up by 1.25 percentage points from April 6.

A typical household’s income will fall by about £1,000 this year, reckons the think tank the Resolution Foundation, while one in five people expects to fall into problem debt this year, according to a YouGov polling from StepChange Debt Charity.

While there are no quick and easy solutions to the high cost of living, you can try to be prepared. Now is the time for taking stock of your finances, understanding the price of your debts, putting a savings buffer in place, making sure you’re getting the best deals, and claiming all the benefits and tax breaks you can.

1. Give yourself a financial health check

Sit down for a full health check of your bank accounts. If you live with a partner, do this together so you are both on the same page.

That means writing down everything you’ve got coming in, totals and interest rates on any savings, pensions and debts, and ordering what you’re spending on by priority. First, bills that if you can’t pay them have dire consequences. That means rent or mortgage and council tax. Then other essentials: energy, food, broadband, phone, childcare. Finally, spending that is easier to cut back. Purge all the direct debits and subscriptions you don’t need or forgot about.

Get an app like Moneydashboard, Snoop or Emma to make all this easier to monitor.

2. Call your energy company

Energy bills are expected to rise 14 times faster than wages this year, according to the TUC.

What can you do? For years the advice has been to 'shop around' to find a cheaper deal from another provider, but that’s not going to help at the moment, there are no longer any cheaper deals. Do call your energy company and ask what they can offer you, though. The default tariff which is capped by the government may be the best bet, but you could be given a fixed rate deal that undercuts this.

Keep track of how much you’re spending with a smart meter. Scan the Energy Saving Trust website for tips on how to reduce what you're using, e.g. only run your dishwasher when it’s full, and keep washing machine cycles to 30 degrees.

3. Make sure you're claiming on childcare

The government earlier this year rejected calls for it to review the shockingly unaffordable cost of childcare in the UK. There’s no magic solution to how much of your income nurseries or nannies will eat up. But make sure you claim everything you’re entitled to. Hundreds of thousands of parents don't, for example, take advantage of the tax-free childcare scheme even though they’re eligible.

For every £8 you pay into an online childcare account, you receive a top up of £2 from the government, worth up to £2,000 a year for each child under 12, or £4,000 until they are 16 if your child is disabled. This is true if you're self-employed, too.

The money can be used with any approved childcare, including nurseries and childminders, after school clubs or play schemes, too. Apply at childcarechoices.gov.uk.

Don't forget child benefit. If you or your partner earn more than £60,000 you don’t get it, but it is still worth looking into, because claiming gives you important national insurance top ups towards your state pension.

4. Weigh up the cost of a new mortgage

Rising inflation is pushing up interest rates. The biggest impact could be on your mortgage.

If your latest mortgage deal has come to an end, or will do shortly, don’t linger on your bank's Standard Variable Rate (SVR). Try to get a new cheap fixed-rate loan. There are still bargains to be had. But don’t panic into switching too early, as you may have to pay a high early repayment charge. Weigh up the costs. An online calculator will help see what a base rate rise could mean for you. L&C has one free.

If your latest mortgage deal has come to an end, or will do shortly, don’t linger on your bank's Standard Variable Rate. Try to get a new cheap fixed-rate loan.

5. Get a safety cushion ready

It may feel counterintuitive, and extremely hard, to think about saving more when your finances are tight, but debt charities warn that it is a lack of any emergency fund that forces people to borrow and get in a debt spiral to meet an unexpected bill. Aim to have a cushion to hand, charities suggest at least £1,000 if you can, in an easy-access savings account. If you are saving to get on the housing ladder open a lifetime Isa, which offers a 25 per cent boost on up to £4,000 a year from the government.

Although it might be tempting, avoid reducing your pension savings, especially if you are in a workplace scheme. Your employer will be paying in, so coming out of it is like rejecting a pay rise.

Make sure you’re not paying high interest on debts unnecessarily. If you have a balance on a credit card, switch it to a 0 per cent balance card. If you need a loan, seek out a 0 per cent interest spending card, by far the cheapest way to borrow money. Moneyfacts.co.uk lets you compare the best.

6. Don't be embarrassed to seek help

If you are struggling, don’t be embarrassed to seek help, even if you don’t think you are deserving of it. Debt charities, such as StepChange which offer free, anonymous online advice on how to manage bills you can’t meet, advise people on high incomes as well as those with very little.

Check you are claiming all financial support that you are eligible for, too. Websites such as Turn2Us.org.uk and entitledto.co.uk will show you what you might be able to apply for, including government benefits, grants and schemes to help with the cost of energy.

This is going to be a tough few months for a lot of people - you don’t need to face financial difficulties alone.

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