Expert tips to avoid going into ‘unmanageable debt’ this winter

Cost of living: Couple outline 'significant impact' of energy bills

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Consumer credit borrowing was £1.1billion in August, down from £1.5billion in July, and energy bills are set to increase from October, with average bills rising to £2,500 a year. Rosie Hooper, chartered financial planner at Quilter, said: “While the drop in people turning to credit is a positive, the current level of borrowing is still concerning given the ever-rising Bank of England interest rates that are now predicted to head towards six percent.

“Credit cards will have some of the highest interest rates at present, and if the borrowing is to pay for the rising cost of living or essential bills even before the next energy bill price cap is introduced, then people could risk rapidly falling into unmanageable debt.”

The Bank of England has continued to increase the base interest rate in efforts to tackle rising inflation, with the base rate currently at 2.25 percent.

Ms Hooper warned the situation could get worse, stating: “The ongoing cost-of-living crisis is now well and truly taking its toll and these latest figures continue to show just how tightly the nation is having to pull on its purse strings, particularly given worse is likely still to come.”

The wealth management firm provided some tips for Britons on how to be careful with their spending and investments.

Keep a close eye on incomings and outgoings

People can go through their bills and payments to understand how their income compares to their costs each month.

This will help families see where they need to make cutbacks on their expenditure and how much they can put aside for savings.

Set up a budget

This can be made by writing down how much a person or family earns and how much they spend each month.

Having a budget helps a consumer stick within their means, by allocating specific amounts to specific items.

An individual can also amend their budget when their circumstances change and still keep their costs down.

Create an emergency rainy day fund

Setting aside funds for emergencies, such as a broken boiler or car repairs, is a good way to plan ahead for the unexpected.

People can put aside three to six months of expenses in this pot, and it’s a good idea to top it up when some of the money has been spent.

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Invest for the long term

Once a person has built up a good savings pot, they can look at an investment pot for long-term savings.

Investments in the stock market for five years or more gives the funds the best chance to grow at a rate above inflation.

The earlier a saver invests and the longer the investment, the more the likelihood of healthy returns, regardless of momentary blips.

Seek professional advice or guidance

A financial adviser can provide valuable insights into how best to handle a person’s income and investments.

They can set up a tailored financial plan to manage difficult periods, and this can be tweaked depending on real-time circumstances.

Groups such as Citizens Advice or Step Change can provide debt advice and there is lots of information online to help with managing everyday costs and savings.

Ms Hooper urged consumers to plan ahead for the coming months: “As we head into the winter, we can expect the cost-of-living crisis to take an even firmer hold.

“While it is positive to see savings levels maintained at present as it indicates people are still finding some spare cash to save, with the worst still likely yet to come this may not be maintained over the longer term.

“Given the further financial squeeze heading our way, having a cash buffer will become all the more important.”

From next month, all UK households will receive a £400 discount off their energy bills, to help with rising costs, with the discount to be applied over six months, from October 2022 to March 2023.

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