As the UK faces a debt crisis as a result of the coronavirus pandemic, it’s more important than ever to plan for the future. According to the StepChange Debt Charity, 1.2 million consumers are in financial crisis and struggling to pay for essentials and stay on top of their bills. To make matters worse, households are now turning to debt to pay debt.
The pandemic initially caught entire economies off guard and many households were forced to rely on the government for support. But now, there’s the second wave and we’ve experienced a second lockdown. Ask yourself this: if you had known a second lockdown was coming, what would you have done to protect your finances during the pandemic?
The problem started before coronavirus
According to Mat Megens, HyperJar CEO, “Even before Covid-19 struck, we had near record levels of unsecured debt and a boom in buy now, pay later schemes. We were racing towards the end of a credit cycle, which arrived with a bang following lockdown.
“Unsurprisingly, as the StepChange data shows, we’re seeing big increases in those struggling to pay back this kind of debt as they focus on other priorities. Debt doesn’t just bring a financial toll to people, it can bring a severe mental toll.
“However, I think there will be some positives coming out of this. A rebalancing of what we call the ‘game of loans’ – the ubiquity and normalisation of debt for consumption, pitched as freedom and empowerment – with more fintech innovation like ours, aimed at giving people a sustainable relationship with their money. Tools that help us to plan for the future, and give us clarity, control and confidence. That reward good spending habits instead of bad.
“HyperJar’s own customer research shows the mental health benefits of making that first step from passive to active money management, and of relying less on debt. These aren’t new concepts but it’s the simple stuff that works best.
Begin your journey to financial freedom today – try our new Hero’s Journey tool!
MyWalletHero is here to help you learn about taking control of your money, whether that’s paying off debt, working towards a short-term money goal, or investing for your future.
Our latest tool can help you understand the next steps on your journey – simply choose a goal that best describes your current interests to get started.
“The challenge is creating an environment that makes it as easy as possible to avoid temptation and to turn thoughtful spending into a habit. Many people have missed out on the positive feelings you get when you’ve saved up for something or when you’ve committed to a good plan. If we can get more people to experience these positive feelings, the nation could be well on its way to conquering the ‘game of loans’.”
Why you should plan for the future
Debt might be inevitable in some instances. A proper plan will allow you to keep in charge of your finances.
You can avoid spiralling debt
A solid financial plan should include some form of savings to help you weather tough times. According to HSBC, a good safety net is around three to six months’ worth of living costs. While it doesn’t mean you’ll be spared from getting into debt entirely, it might lower the amount you may need to borrow.
It can help safeguard your credit score
When you know what your financial plan looks like, it’s likely that you will stick to it as much as possible. Keeping up with your payments to ensure that your credit score remains good should be part of your financial plan. Your credit score will determine whether you qualify for borrowing should you need it.
You’ll be more inclined to keep saving
You might have had to use some of your savings to fund your expenses during the pandemic. However, if your financial position hasn’t changed, it’s important to keep saving. This will ensure that if there are more waves of the pandemic you’ll be in a better position to brave another lockdown.
You’ll know the true cost of debt
A plan for the future of your finances should, at the very least, include a cold, hard look at the cost of your debt. Knowing the cost will make you less inclined to keep up appearances and more focused on your actual needs.
Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.