Don’t let the rate rise tip you over the edge
TRICIA PHILLIPS hands out her top five tips to get your finances into shape
BANKS and building societies are dithering over announcing details of their plans regarding mortgage and savings rates following the base rate rise. While mortgage products that track the Bank of England base rate will go up automatically, we are still waiting to find out what the majority of lenders plan to do with their Standard Variable Rate mortgages.
All this uncertainty doesn’t help households to plan their finances and keep an eye on budgets.
Andrew Hagger, from personal finance website Moneycomms.co. uk, says it’s no surprise that banks are dithering over announcing details of their savings changes.
“When the base rate increased last November only one in 10 providers passed on the full 0.25% to savers within five weeks of the announcement.
“Skipton Building Society has announced it is passing the full 0.25% to savers and upping variable mortgage products by the same. But, disappointingly, Nationwide – the biggest UK building society – and TSB are both upping variable mortgage deals by the full 0.25%, while only increasing some savings rates by 0.10%.”
Experts in the debt sector have major concerns. The national average amount owed by those on a debt management plan with Payplan is currently a staggering £81,147.
However, the free debt advice provider is warning that many who are currently on the breadline could be tipped into the red following the recent interest rate hike.
Jane Clack, money adviser at Payplan, says: “Mortgage rates tend to increase very quickly after base rate rises, but unfortunately less quickly on savings rates. The direct impact for some people may not be huge, but for others it could act as the financial tipping point.”
It’s time to take action now and take control of your finances to get them into the best shape possible.
1 CHECK YOUR MORTGAGE AND SAVINGS
IF you are on a variable rate or tracker deal and worried about rate hikes then it’s time to consider switching to a fixed-rate deal, for peace of mind that your repayments won’t keep rising. It’s expected there will be more base rate rises on the cards, although Bank of England governor Mark Carney said these would be “limited and gradual”.
Check your savings – if you can get a better deal, jump ship. There are no rewards for loyalty. Banks focus on profit margins.
2 REDUCE CREDIT CARD BALANCES
FOCUS on paying off debt from your most expensive credit card first. For example, if you owe £2,000 on one card charging 21% APR and another £2,000 on one charging 13%, concentrate on paying as much as you can over the minimum to the account charging 21%.
Even just £10 a month will help to make a dent in the balance and save you a bit on interest payments too. Ensure you make repayments on time each month to avoid damaging your credit rating and incurring extra charges.
3 SET UP A BUDGET
KNOW exactly where you stand. Go through your outgoings and ensure you’re not paying over the odds for energy or insurances.
Check that standing orders and direct debits are for current bills and cancel anything that’s out of date.
Any surplus money you are left with, after repaying debts, can be saved for a rainy day fund. A few pounds a month will start to build into a decent pot – saving a little is less expensive than having to rely on borrowing if you get an emergency bill.
4 TAKE ACTION EARLY
IT is never easy to face up to financial worries, but addressing the problem as early as possible will give you more options to sort it out.
Don’t wait until you get into arrears with bills. As soon as you realise you’re unable to make ends meet take action.
Speak to your financial providers and see what help they can offer. Jane Clack says: “Sit down and work out exactly how much you owe and who to. If debt repayments take up more than 20% of your take-home pay then you should look at taking steps to cut back and make savings.” Don’t be tempted to take out more credit to try to repay existing debt.
5 DON’T SUFFER ALONE
IF you are struggling to keep on top of your bills, don’t let things escalate – and don’t try to cope alone or ignore the issue. It won’t go away. Speak to loved ones or get free, independent advice from a debt advice agency. They can help you to go through your options and find a way to get back on track.
■ For money advice and help managing debt, visit payplan.com or call 0800 280 2816. Make an appointment with a debt adviser at your local Citizens Advice or visit citizensadvice.org.uk or call the National Debtline on 0808 808 4000.