How to recover financially after coronavirus
The ongoing COVID-19 crisis has affected the pockets of almost everyone in the UK. Since the initial lockdown measures were announced in March of this year, entire sections of the economy have either been curtailed or shut down entirely, inevitably signalling a significant economic shock that has been felt across the world. By extension, many workers have seen changes to their income, particularly if the lockdown restrictions have left them unable to work or, worse, laid off.
Fortunately, the UK government has introduced a number of recovery measures to help keep people on their feet throughout the pandemic such as the furlough scheme and cash injections for the self-employed. With a range of different recovery schemes on offer, however, many people are struggling to work out the kind of financial help available to them. If you’ve found yourself navigating treacherous financial waters as a result of COVID-19, we’ve put together a guide below to help you on the road to recovery. Whether you’re looking for clarity about what kind of help you can apply for or are simply looking for a way to pinch the pennies, this guide is here to reassure you that you can – and will – get through this.
Employees: Be clear about your options
If you were in employment before March 19 and have been forced to stop working due to COVID-19, the likelihood is that you are already benefiting from the job retention scheme, whereby the government pays 80 per cent of employee salaries, as well as associated National Insurance payments and pension contributions. Employees who have been placed on the scheme (known as furloughing), should receive up to £2,500 a month and cannot be asked to do any work by their employer. They can, however, work and get paid by another company if applicable.
Despite the obvious ways in which this scheme will help many households, it is also worth noting that a 20% drop in income could lead to money worries. What’s more, the furlough scheme will start to wind down from August, meaning that employers will have to start covering part of the salary of furloughed workers. By October, the scheme will have ended completely.
With the end of the job retention scheme in sight, it is a good idea to start thinking about how your finances are likely to fare in the coming weeks and months. If you have been struggling on 80% of your usual wage, it is a good idea to start thinking about how to live on a lower income throughout the rest of the furlough period. This could mean reducing grocery bills or cutting back on luxuries (something discussed in greater detail below).
If you’re unsure about the security of your position due to your company’s current financial position and are worried that your role may be phased out, it is also worth thinking about contingency plans in the unfortunate event that you are laid off by your company. Firstly, this means asking for clarity about your position early on and pushing your employers for information about any planned restructures.
If your position is precarious, you may want to consider what kind of work you will be able to move into in future. Although the economy and the job market is very much in flux at the moment, taking a regular look at job boards may help you to gauge the kinds of sectors that are hiring at the moment, and how you can hone your skills to optimise your chance of re-employment. It is also, of course, worth looking into the kinds of financial support you would be entitled to were you to face a period of unemployment. Fortunately, the Citizens Advice website has a very helpful guide to benefit entitlements that has been designed especially for the COVID-19 crisis. It includes information about a range of different situations, including what you are entitled to if you are sick or shielding.
Self-employed workers: Make sure to claim all of your entitlements
If you’re self-employed, you will need to do a little more administrative work to gain access to all of the money you are entitled to. Thanks to the government’s self-employment income support scheme, you could reclaim significant amounts of money lost due to the COVID-19 crisis, depending on certain aspects of your personal circumstances such as your average monthly income and how long you have been self-employed for. Although the rules and restrictions may seem a little confusing at first, the Money Advice Service has put together a comprehensive guide to working out your entitlements on their website. Make sure to take a look and apply for any entitlements as soon as possible to help secure a solid financial safety net for the coming weeks and months.
Remember to budget
As soon as you have worked out what kind of government support you are entitled to and your likely income for the coming months, you can start drawing up a special COVID-19 budget. It may sound boring, but it could help you to avoid a whole host of financial woes.
A good place to start is to look at your direct debits and think about which ones could be cancelled. Gym subscriptions, for example, are an expensive luxury that many people pay for without even using. If lockdown life has helped you rediscover the joys of outdoor exercise, saving money on the gym is an obviously smart move.
Similarly, you should take stock of spending habits that do little to improve your quality of life but incrementally add up to a significant chunk of your income. This could include, for example, takeaway dinners, fast fashion items, or sugary treats. Whatever your spending crux, try to identify it and make a conscious effort to reduce unnecessary outgoings. For more help on drawing up a realistic budget, take a look at this handy article from Forbes.
Take a look at any relevant insurance policies
If you have taken out a mortgage or life insurance policy, it may come with a payment protection clause or a policy covering sickness or unemployment. If this is the case, you may be entitled to some money that could help you to weather financial troubles.
Speak openly with creditors
If you are unable to come up with a realistic budget and your available funds are simply unable to cover essential bills, get in touch with the relevant organisations you owe money to straight away. This is a much better choice to make than simply allowing bills to pile up as your honesty may encourage creditors to give you some leeway regarding payments, particularly given the current economic environment.
Make use of your savings account
If you’ve got money stored away in a savings account, now is the time to make use of it. Whilst you may not be able to spend the money on the car you’ve been saving up for, dipping into your savings could help to get you through the financial crisis relatively unscathed.
Ask for payment holidays on loans, credit card bills, or your mortgage
If you are struggling to repay loans, credit card bills, or your mortgage, you may be able to apply for a payment holiday. Indeed, lenders regulated by the Financial Conduct Authority have been granting payment holidays throughout the coronavirus crisis to help people avoid financial turmoil. Of course, it is important to note that you must continue to make repayments if you are able to and that stopping payments before gaining approval for a payment score could count as a missed payment that ends up affecting your credit score. For more information about when and how to apply for a payment holiday, take a look at this helpful article.
Consider applying for an interest-free overdraft
Since the coronavirus hit, banks have been allowing customers to arrange interest-free overdrafts, giving them access to up to £500 for three months. If you find that you are still struggling after three months, you may be able to extend the interest-free overdraft for another three months. Keep in mind, however, that your interest rate will go back to its original figure as soon as the period of support is over.
Be wary when borrowing money
If you are facing severe financial hardship, you may want to consider borrowing money. This should, however, be considered a last resort as it could end up saddling you with large amounts of debt that will take a long time to pay back. It is also important to be very careful about the kinds of people or organisations you borrow from, as some arrangements could be much more costly than others. When shopping around, you need to think about factors such as interest rates and Annual Percentages Rates (APR), how much you will need to repay in total, whether you will be able to cover repayments, and costs such as late payment fees. Possible borrowing options include:
Friends and family members
While it may not feel good to ask for money from friends and family members, borrowing from them is almost certainly the cheapest way of weathering a financial storm. Unlike commercial lenders, they are unlikely to charge interest or impose strict repayment deadlines.
Of course, this option still carries a level of risk. Although many people find that their loved ones are very understanding and more than willing to help out, others may find that asking for a loan causes rifts in family relationships. Ultimately, it is up to you to navigate tricky social situations and decide whether such a loan is feasible.
If you are considering getting a new credit card, it is very important that you read the small print carefully and work out whether you will be able to cover repayments. Failing to make repayments could affect your credit rating and make it more difficult to apply for financial products later down the line.
If you only anticipate a fall in income for a week or two, taking out a payday loan may be feasible. However, it is important to remember that payday loans have a bad reputation for a reason. If you are unable to make a repayment, you may find yourself getting into spiralling amounts of debt that far exceed any financial troubles you were having in the first place. Proceed with caution and only take out a payday loan as a last resort.
Credit unions tend to charge low-interest rates on their loans and are usually willing to work with borrowers to set realistic repayment terms. To figure out how much a loan from a credit union could cost you, check out this handy repayment calculator.
Fair finance providers
Fair finance providers help those whose credit scores are deemed unacceptable by high street lenders. They tend to offer low-interest rates and base their repayment terms on affordability assessments.
Remember: Always avoid loan sharks
In times of crisis, it is all too easy to be drawn into dodgy deals offered by loan sharks. These illegal lenders target the desperate and the vulnerable, charging high-interest rates and often resorting to threatening repayment collection methods such as blackmail.
Look after your mental health
Financial concerns have the potential to cause serious mental health issues. If you find that money problems are causing depressive thoughts and impacting your daily life, it is important to look after yourself and seek relevant help. As well as taking the time to do activities that you enjoy and spending time with friends and family, you may want to reach out to an organisation that can help you get through difficult times. The Mind website offers plenty of great suggestions regarding organisations to get in touch with if you’re struggling mentally, as well as some invaluable hints and tips surrounding self-care. Remember that poor mental health can make money problems much worse as it can demotivate you to take action and impact your ability to think clearly and rationally. Addressing mental health problems as soon as they start to arise will help you to get back on your feet as quickly as possible.« How to Budget on a Variable Income How to create a monthly budget – 7 step guide »