Managing Your Cash Flow During Increased Living Cost Hikes

Regulated direct lender Cashfloat has continued its campaign to share advice for borrowers and consumers seeking guidance on managing their money. The short-term loan provider focuses on fair affordability assessments, transparency and responsible lending.

Amid a sustained squeeze on living costs, compounded by slow wage growth, the lender has seen a significant increase in applications for emergency financing, often from households hit by unexpected outgoings that have put their finances under pressure.

As part of a mission to educate and inform and prevent consumers from relying on cycles of short-term borrowing, the loan provider has put together actionable steps that can make every day budgeting simpler and easier.

Auditing Your Financial Health as a Household

The most common reason borrowers turn to short-term lenders is that they haven’t had a reliable budget to begin with. 

This can make it impossible to know with certainty whether your income will cover all your expenses until the next payday, or to have any idea of the contingency you might need to set aside for planned outgoings.

Rising living costs can have a huge impact on families. For many, it’s never been so important to have a firm grasp of their financial position, which will support more informed decision-making if they need to apply for borrowing in the future.

Creating a budget can sound complex, but in reality, it needn’t be a daunting task. For many, the easiest method is to review your bank statements for a few weeks or months and add up your outgoings and income to see how they average out.

From there, you can plan for the months ahead, starting with your known income, deducting essentials like rent or mortgage payments, debt repayments, utilities, and food, and then looking at where you could cut back on luxuries or start building a savings pot.

Repaying Debt vs Saving Money 

If you have outstanding debt, it is advisable to repay this first rather than deposit any unused funds into a savings account. That’s because in almost every situation, the interest you pay on borrowing will be higher than the interest you can earn on savings.

In addition, if you’ve ever had issues with creditworthiness or had recorded missed payments, the less debt you have, the easier you may find it to secure the most competitive financial products going forward, from bank accounts to mortgages.

Small overpayments do add up and, depending on your lender and the terms of your credit, you’ll typically find that the overall cost of borrowing falls, and the amount of interest you pay will drop the more you manage to repay.

Restructuring Borrowing to Balance Your Budget

Borrowing products have varied terms and conditions, and it’s wise to check for any early repayment or account closure fees, or limitations on how you can restructure your debt to improve your financial well-being, but this is time well spent, as there are several possible ways forward that may be beneficial.

Interest-free credit card transfers are a popular strategy because many providers offer a limited period during which transferred balances attract 0% interest. 

Although it’s important to be mindful of transfer charges, usually calculated as a percentage of the balance, this may be helpful if you are currently paying a high interest rate.

Debt consolidation is another method, as having lots of debts, such as multiple credit cards or loan accounts, can reflect negatively on your credit score and make it harder to manage your repayments. Looking for lower-interest loans or repaying expensive short-term credit with a longer-term loan may reduce your monthly repayments.

The caveat with consolidating debts in this way can be that having longer to repay could mean the total amount is higher, but this will all depend on how well you are managing your existing repayments, whether you are at risk of missing instalments, and the interest rates offered.

Practical Cost-Saving Suggestions to Reduce High Outgoings

Every household has felt the effects of higher energy prices and food inflation, but there may be opportunities to improve your budget by reviewing offers and alternative providers or suppliers.

Most people have various subscriptions and recurring charges they pay each month, from insurance to streaming services and utilities. There’s never a bad time to shop around, especially if you’re finding the cost of living a struggle.

While there’s no guarantee that another provider will automatically be cheaper, if you’ve had the same services for a long time, there is a greater chance you’ll find some lower-cost options, particularly with regular payments for car, home, pet or contents insurance, which typically increase year on year.

Comparison sites can be helpful, although you should recognise that they won’t feature every possible supplier. You can also access independent guidance from sites like MoneyHelper and Which? that offer unbiased insights into a range of services.

Making Informed Choices When Choosing Loan Providers

Finally, if you do find yourself in need of short-term borrowing, it’s incredibly important to take your time to review each option, rather than applying for credit with the first provider you come across, or with the first lender who approves your application.

Life can throw unplanned events our way and having a back-up in the form of a trusted, credible lender you’ve thoroughly researched is the next best alternative to dipping into savings or increasing your income to cover temporary gaps, where this is possible, of course.

Digital loan and credit applications have made it faster and easier for consumers to access financing, but there are significant disparities in the types of interest rates charged, the flexibility borrowers have to repay debts early if their financial positions improve, and the eligibility criteria used to determine whether an application will be approved.