While inflation has fallen over the year, the Bank of England’s target of 2% still remains a long way off. So, it came as no real surprise that the Bank of England held its interest rate last week. This higher-for-longer monetary policy continues to ask us to stretch our budgets for more months than we’d anticipated. And it’s giving many of us 3am money thoughts. 

If you’re revaluating your finances in what’s been another challenging year, you’re not alone. From various research¹, we know that almost a quarter of working people worry about money every day and nearly 60% worry about it weekly or more frequently. And almost 1 in 5 workers regularly run out of money before payday with 10 million borrowing money to buy food or pay bills.  

And when our finances are stretched, it can make us question everything from our day-to-day expenses to our investments. If your finances are keeping you awake at night, here’s a checklist to help keep those money worries at bay. 

1. Deal with your priority bills first

Not paying money owed on your priority bills (council tax, utility bills, mortgage or rent, child maintenance, or hire purchase payments – on essential items) can have serious consequences. There are many free debt helplines available that can give you professional help and guidance. You can find some support organisations in our wellness directory here. 

2. Pay down expensive debts

If your priority bills are under control, you may want to consider paying down other ‘expensive’ forms of debt, including personal loans, credit and store cards, and even payday loans.  

Remember, you’ll typically pay much higher interest rates on these loans than on a mortgage. So, do what you can to pay down expensive debts and keep them down. Cutting out the waste of money on interest charges will help to reduce your worries.  

There’s some psychology to consider here too. It may help to break a debt cycle if you build (or re-build) your emergency funds before you start paying down expensive debts. That way, you avoid taking on more debt when unexpected expenses arise – like repairs to your car or your home.  

Also, if you have more than one expensive debt, it turns out that the logical way to repay them doesn’t work best for everyone. For example, some people find it easier to pay off their smallest debt first (even if it’s not charging the highest interest rate) to get that feeling of making progress.  

3. Cut the interest cost on your debts 

Cutting the interest cost on any loans you have is a good way to reduce your money worries too. The credit card and loan market is competitive and constantly changing. So, if your credit rating has improved since you last opened a credit account, you may find you can access a lower-cost loan now.  

Online comparison sites can help you check if you qualify for lower-cost loans or a new credit card that won’t charge you interest for a period. Remember, a 0% card is not free if it charges an upfront fee. Also, those cards are not available to everyone – and the credit limit might not meet your needs. Some employers also offer low-cost loans with repayments deducted from pay. Some of these loans are highly competitive, but, if available, you should still check if it’s the best deal for you.  

4. Claim the help you’re entitled to

Most people are surprised that some state benefits are available to higher income earners. This may explain why millions fail to claim thousands of pounds in state benefits each year. It’s hard enough to cope with the cost of living and repay expensive debts without being unnecessarily short of income. So, be sure you claim your entitlements, which differ depending on where you live.  

5. Keep your mortgage under review

If you’re worried about high-interest charges on your mortgage, now or in the future, consider talking to a good mortgage broker. They should be able to help you explore your options for reducing or capping those costs. Also, if you can afford to overpay your mortgage, you might worry about whether it’s best to do so or if you should invest that spare money instead (into your pension, for example). Again, your broker will help you explore those options and ensure you avoid unnecessary charges on any extra repayments you make.  

6. Stay invested if you can

It may feel counter-intuitive to stay invested when you’re looking at ways to cut financial corners but being forced to sell your investment has the potential to lock in any losses you may be making. Our principles for good investing pages talk about why it pays to stay invested and you can read more about that on our start investing page. But basically, history shows that the longer you’re invested, the lower the chances are that you’ll make a loss – although this isn’t guaranteed. Read all our principles for good investing here.  

7. Think about taking financial advice

The truth is few people avoid money worries. It’s stressful to consider declining wealth or running out of income when we don’t know what to do about it. That’s why seeking expert advice can be so valuable. If you’ve got more than £100k to invest, our financial advisers can help bring you peace of mind by giving you a personal financial recommendation that takes your unique circumstances, goals and timeline into account. Learn more about financial advice here.  

Source:

¹ Data is drawn from various surveys conducted by the Money Advice Service, Office for National Statistics (ONS) and various financial service providers, including Salary Finance, Wagestream, UBS and ABRDN.