Whatever your money situation, most of us live with some form of financial stress. You don’t have to be on the breadline to find it a strain to make the books balance each month. Even relatively well-off people can find it difficult to maintain high-cost commitments they’ve entered. And, beyond the inherent money implications, financial stress can also pose a real threat to your mental health. So if you’re stressing over debts or feeling the financial heat, cut yourself some slack by considering these stress-beating tips.
You can’t deal with an enemy you haven’t already identified. The first step in reducing financial stress is to understand where the biggest problems are, and where the biggest wins are to be had.
Start by listing out your debts. Then make another list of your fixed monthly overheads, such as rent, mortgage payments, council tax, and utility bills. Finally, make a list of your typical day-to-day outgoings, such as paying for travel or meeting friends for dinner.
Now try to pinpoint the items that are causing the most worry. Ask yourself which payment or outgoing you’d get shot of first to make yourself feel happier. Once you have that in your sights, you can plan to go after it.
If you’ve got a clear idea of how much money you need to service your debts, make loan payments and pay your bills each month, compare this to how much income you have. If you’d need £3,000 a month, but have only £2,000 a month coming in after tax, you’ll need a plan to lower the outgoings. Otherwise, your debt will spiral further away from you each month.
Consolidating existing debts is a really good place to start. This works by taking out one single loan (with a single provider) and using it to pay off all of your outstanding debts. For example, say you have several credit cards, store cards and loan agreements, each with a different lender, you’ll be paying significant interest rates on each of these debts. By paying all of these off to be left with only one consolidated debt, you’ll be able to reduce the interest rate you’re paying each month.
There are a few different methods to consolidate debts. If you are a homeowner, second charge mortgages are often appropriate as they tend to come with lower interest rates. As explained by Loan.co.uk, second charge mortgages work by letting you use the percentage of your property you own outright as collateral to borrow more money.
Another benefit to getting a second charge mortgage for debt consolidation is that the longer the term you choose, the lower the monthly repayments will be on your second mortgage, thus helping with your overall financial circumstances.
Finances are more manageable when you have a set budget to work with. Figuring out what that budget should be is easier than you might think.
Often the best way to make sense of all of the numbers is to create a budgeting spreadsheet. In the first column, list all of the expected outgoings you have in an average month. As the list grows, group it into categories. For instance, you may have separate categories for the likes of credit cards, utility bills, car-related costs, travel expenses, food and drink, entertainment and so on.
Next, under each category, group all the relevant outgoings. For example, ‘car’ might include things like insurance, fuel and parking costs. Once you’re happy you’ve thought of everything of any significance, put a value next to it in the second column, showing how much you need to allow for that each month. Then, use the SUM function to total up your predicted monthly outgoings.
Once you’ve completed that step, check your payslip (or combined payslips if you’re doing this together with a partner), and at the bottom of your spreadsheet enter your net monthly income/s. Then, simply subtract the outgoings from the total income and see how it looks.
If the total is a negative number, you should begin reducing anything in your outgoings that is within your control (such as entertainment or dining out), creating a smaller monthly budget for each of these activities. Any money saved by budgeting in this manner can instead be directed towards paying off outstanding debts.
Financial stress is not only caused by how much money you owe, but also by when it is owed by. Keeping on top of when things need to be paid by can be just as stressful, particularly if you have several repayments due at different times of the month. That’s why it’s a good idea to schedule and automate payments so that they take care of themselves.
Most lenders and businesses are geared to take payment from your bank by Direct Debit. If you set this up, you authorise them to automatically take the amounts owing to them on their due dates. Once in place, the only thing you need to do is keep an eye on your statement to ensure there’s sufficient money in your account to meet the debits each time.
For many other regular bills, setting up a Standing Order to make the payment each month, or even each quarter, may be preferable. A Standing Order is in your control, so rather than authorising the business or lender to automatically take money, you instead authorise your bank to ‘send’ payments on the dates you schedule. You can schedule these for dates of your choosing. This in itself helps in reducing the end of month stress that can come from wondering whether your salary will reach your account before bills have to be paid.
As Mind advises: “Although there will be things in your life that you can’t control, there might be practical things you could do to resolve or improve issues that are putting pressure on you.” So, grab a pen and paper and work your way through these tips. You’ll feel less anxious simply from having reviewed your situation properly and taking steps to improve it.