DEBT is a huge problem in the modern world, for both public institutions and personal savers. Coronavirus has only exacerbated this problem and many families may be unsure of where to turn.
Bank overdrafts can provide people with a relieving lifeline for when they fall into financial difficulties. However, these same overdrafts can also be a huge burden for the people reliant on them, especially if they are dependent on them just to cover their bills.
This problem appears to be a common one according to recent analysis from OpenMoney.
Anthony Morrow, the CEO of the firm, highlighted just how much of a worry this can be for consumers: “If you’ve got a large overdraft balance it can often feel impossible to get out of it, but remember you’re not alone.
“Our recent research has found that almost half of us (47 percent) worry about our financial situation at least once a week or more. The key thing to remember is to always prioritise paying debt off before making any other new financial commitments.”
There are many different types of debts that people can be in but overdraft debts can be particularly problematic when factoring in penalty fees, which could damage an attempt to get out of an overdraft even further.
Thankfully, Anthony went on to provide tangible advice for people struggling with and overdraft debt problem: “If you do have an overdraft to pay, but you also have a savings account, we recommend you use this to clear the debt first.
“It’s very likely that any more you’d make in interest on savings, will be less than money you’ll be spending to be in your overdraft.
“If you don’t have enough to pay it off in one go, pay the overdraft in chunks, reducing it as you go.”
Anthony went on to highlight some personal habits and tools that can be utilised to not only help with debt, but also build up healthy financial wellbeing: “It’s a personal choice, but I’d advise checking your current account once every couple of days, or even daily.
“It’s an easy way to stay on top of your spending and outgoings, and you can also set up push notifications from some apps which will give you alerts on how much you’ve spent – and whether you’ve gone over the limit.
“Money management apps have been designed by tech bods to make it easier and quicker than ever to keep on top of your money – so if you’re got a smartphone, take a look at what you could download and use for free.”
This advice is especially pertinent at the moment considering the overdraft rule changes on the horizon.
While the FCA temporarily haltered the plans, from July banks across the UK will be free to drastically increase their overdraft charges.
From next month, some overdraft users could see their charges rise to nearly 40 percent.
This could be a shocking surprise for unprepared savers but Anthony concluded that the first thing people can do to be ready is simply embrace communication: “Remember too, that you can always speak to an expert – try talking to your bank as they can give you advice about the new overdraft changes and help you assess your options.
“Charities, like StepChange, also offer free help to those struggling with debt.”
As he highlighted there are many charities in the UK who can provide free and impartial advice on handling these types of problems.
On top of StepChange, worried consumers can also turn to the Money Advice Service, Citizens Advice and the Money and Pensions service for help.
The government’s own website is also being regularly updated with all things coronavirus related.
The state is clearly committed to helping struggling families as it has recently extended mortgage holiday rules, the furlough scheme and SEISS grants.