Winter can be an expensive time of year and with inflation rising, along with household bills, this winter may be more costly than normal. To help consumers cope with rising costs, here we’ve looked at how to prepare finances for the winter months.
During the winter months most people are likely to spend more time at home. This, combined with longer nights and dropping temperatures, means that most people will be using much more gas and electricity than they would during the summer. For consumers who pay their energy bills each month by direct debit, the monthly repayments should factor in the cost of winter fuel usage, this means that those who are already in debt at the start of winter may want to increase their repayments to cover the extra use during the colder months. As well as this, consumers who do not have a smart meter may want to take a meter reading now and again at the end of winter to ensure that they are only paying for the energy they have used and avoid an estimated reading.
Along with factoring the higher use of energy during winter, consumers should also be aware that the energy price cap was increased in August by 12% to £1,277 for the average bill. The energy price cap is only applicable to those on a default energy tariff, so does not apply to those on a fixed term tariff or on a green energy tariff that Ofgem has exempted from the cap. As well as this, the cap is only the maximum a supplier can charge to an ‘average user’, which means that if the consumer is an above average energy user they will be charged more.
Although many consumers opt for a fixed energy tariff, the recent collapse of a number of energy suppliers has resulted in millions of households being moved to a different supplier and automatically moved onto the best tariff available, which for many means they are now on the new supplier’s standard variable rate default tariff. These consumers, or those who are coming to the end of a fixed tariff deal, may want to compare energy prices to see if a cheaper deal is available, but with rising energy prices they may be better off staying on their current tariff.
Christmas can be expensive, especially when factoring in buying gifts, decorations, food and drink, along with travel and socialising costs. Ideally, consumers should budget for the festive period early and may even want to consider opening a regular savings account now for next year’s Christmas. Those who have not planned in advance and who cannot meet the full cost of Christmas in their monthly budget, should look at the cheapest borrowing options possible. Often, a good option is to use a 0% purchase credit card to help spread the cost of Christmas. These cards have an interest-free period on purchases, giving borrowers time to repay the debt without incurring interest charges.
The start of the new year is often a good time for consumers to improve their finances over the coming 12 months. A common goal at this time of year is to reduce, or clear, debt. One way of helping to clear debt is to reduce the amount of interest being paid. Those with credit card debts may want to consider moving their outstanding balance to a 0% balance transfer card. These credit cards allow consumers to move credit card debt to a new card and provide an interest-free period in which to repay the balance. After the interest-free period has ended, interest is then added to the remaining outstanding balance. Although this can be a good way of clearing credit card debt it does require consumers to be disciplined with their repayments and borrowers should have a repayment plan in place to ensure that as much of the debt is repaid before the interest-free period ends. As well as this, consumers should be aware that most 0% balance transfer credit cards charge a fee when moving outstanding balances to the new card, which should factor into their repayment plan.
Consumers with outstanding debts with various lenders may want to consider consolidating debts into a personal loan. Personal loan rates remain competitively low at the moment, making this potentially a good way for borrowers to move all their debt into one manageable loan at a low interest rate.
Along with clearing debts, another common new year goal is to start a savings habit. While lockdown has seen an increase in savings deposited into savings accounts, many consumers still have less than the recommended three to six months’ worth of income saved in an accessible savings account. Although rising everyday living costs makes it hard for some to save, starting to save monthly, however small, can get consumers into good financial habits. For those who have difficulty establishing a savings habit a regular savings account can be a good option as these accounts usually require savers to deposit a certain amount each month into the account. Another option for new savers is an easy access savings account, which often allows savers to make further deposits into the account and allows instant access to money saved, although some easy access accounts have restrictions on the number of withdrawals that can be made.
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