With the Government’s furlough scheme set to end on 31 October 2020, it is predicted that thousands of people are facing redundancy over the coming months. For those who are concerned about losing their job, it can be a stressful time, especially for those with limited savings and high debts.
To help lessen the stress of redundancy having a plan in place in case the worse happens helps to make the process easier, especially if finances are in order. Below we have put together some tips on how to prepare finances in case of redundancy.
Having an overview of the financial situation is important and one of the easiest ways to do this is carrying out a finance audit. Create a list of essential and non-essential outgoings and look at what non-essential outgoings can be stopped if necessary. Also look at where savings can be made on essential outgoings, for example shop around for cheaper deals on essentials such as home insurance, energy supplier, broadband, and car insurance. As well as this, look into whether there is the option of switching to cheaper options on essentials – for example investigate whether there is the option to switch to an interest only mortgage repayments for a short-term. Although switching to cheaper payment options should only be done if absolutely necessary, knowing that this option is available will help to relieve stress.
In addition to this, look at what savings and investments have been built up over the years, so that in the event of redundancy a clear idea of what income or money is available to help cover essential outgoings.
For many facing redundancy one of the biggest stresses is having debt. Ideally, debt should be tackled before redundancy happens and it is a good idea to start looking at clearing debts as soon as possible. To get on top of debts it is important to write down what is owed to who and how much. The general rule with debts, is to focus on clearing the largest, which is usually, the most expensive debt first and work through until all debt is clear. But, depending on how much debt is owed and to how many companies, a better option could be consolidate debt.
Those with credit card debt can consider moving outstanding balances to a single, 0% interest balance transfer credit card, which will provide an interest-free period to pay off the balance. Currently the longest interest-free term on a 0% balance transfer credit card is 29 months being offered by TSB on its Platinum Balance Transfer Card Mastercard.
An option for those with debts owed to varies companies is to consolidate the debts using a personal loan. This can not only make the debt more manageable by having just one repayment to make each month, but can also reduce the interest being paid on the debts. As well as this, personal loan rates have remained competitive so they can be cheaper than other forms of borrowing. For example, those looking to take out a loan for £12,500 to be repaid over 36 months will find that the lowest rate on offer is 2.80% APR, which is being offered by both cahoot and TSB.
It should be noted that the APR on both credit cards and personal loans may not be the rate offered, as this, along with whether the application is accepted, will depend on the applicant’s credit score. Credit scores can be checked for free on our credit check page.
Along with checking credit score, those considering consolidate debt should also factor in whether that can make the repayments on the credit card or loan if made redundant. Those that will struggle should considering speaking to a free debt advisor.
For those with a significant amount of debt, there is the option of a secured loan. While this type of loan does lend higher sums of money, usually from a minimum of £20,000, security has to be taken out against the loan, which is usually the borrower’s house, which could result in the borrower losing their home if repayments are not met. This may make this too risky and option for those facing redundancy and advice should be sought before taking this option.
Those struggling to make repayments on debt should get help as quickly as possible to stop the debt from spiralling out of control. Organisations such as Citizen Advice or free debt charities will usually be able to provide advice and support to those with debt and unable to make repayments due to redundancy.
Another important step when preparing finances in case of redundancy is to get an estimate of what redundancy money will be offered. In our previous article, Your redundancy rights – what money are you entitled to if you’re made redundant , we provided an overview of the different redundancy pay offered. It is usually advisable to have a rough idea of what to expect if made redundant so that a general idea of what money will be available in this situation.
The impact of the Coronavirus pandemic on the economy has highlighted the need to have an emergency savings fund to fall back on in the event of unexpected circumstances. Generally, it is advisable to have between three to six months’ of outgoings saved in an instantly accessible savings accounts, such as an easy access savings account, or for the more cautious, three to six month’s salary. While it might be too late to start an emergency savings fund if the threat of redundancy is imminent, those who are not made redundant or who are back in employment, should start saving for an emergency fund as soon as possible.
Normally, an easy access savings account is the best option when saving for an emergency fund as they allow instant access to yourmoney. The highest rate on an easy access account is currently 1.20% AER, which includes a 0.50% bonus for 12 months, being offered by Skipton Building Society on its Online Bonus Saver Issue 7. Savers should re-look at their finance budget and calculate what money they can spare each month without impacting on their essential outgoings or debt repayments. Even if £100 can only be spared each month, over a year this will add up to £1,200 and over five years £6,000 – not including any interest added to the savings pot.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.