22 Mar Coping with debt

PX Wealth is concerned with wealth: preserving and creating wealth through the provision of regulated financial advice in areas such as savings, investments, and mortgages.

This week [22 to 26 March 2023] is Step Change Debt Awareness Week, and we thought we’d highlight some of the potential solutions for those who find themselves struggling to cope with debt.

First steps in coping with debt

Seek professional advice

If you find yourself in debt, it’s best to seek professional advice as soon as possible. The longer you leave things, the harder it can be to get back on track. An expert such as a financial advisor or debt counsellor can help you to develop a personalised plan to get out of debt and manage your finances more effectively. There are a range of debt management solutions available including debt management and consolidation plans, individual voluntary arrangements (IVAs), or bankruptcy.

Seeking advice early can avoid further financial difficulties, such as legal action from creditors or damage to your credit score. Seeking advice is nothing to be embarrassed about, it’s simply a positive step towards taking control of your finances.

Consolidate debt

If you have multiple debts with high interest rates, consolidating them into one loan with a low interest rate can help you to pay them off faster – saving money in interest. It can also make your monthly budgeting easier to manage.

Create a budget

Creating a monthly budget will help you to understand your income and expenditure and identify areas where you could cut back on spending. Helping you to avoid overspending and prevent further debt from accumulating.

Safeguard your financial future

Protect your income

A stable income is the bedrock of financial security, so what happens if you’re suddenly unable to earn? Income protection insurance and critical illness cover are both designed to provide financial support in case of illness or injury that prevents you from working.

Income protection (depending on your policy) may pay out until you can return to work or up until you retire. Critical illness cover, on the other hand, pays a lump sum if you are diagnosed with a critical illness, such as cancer or heart disease. It can be the lifeline that will get you and your family through a time of personal and financial crisis.

Diversify your pensions & investments

Diversifying your pensions and investments can help to protect your portfolio from unexpected market fluctuations. Try and aim to have a mix of assets spread across different sectors and geographical locations. We work with our clients to create a wealth portfolio that is right for them, factoring in risk and diversification.

Consider non-correlating assets

Including some non-correlating assets in your portfolio can be another excellent way to diversify and reduce risk. Non-correlating assets include things like real estate, commodities, and cryptocurrencies that have little or no correlation with traditional financial instruments, such as stocks or bonds. Inclusion of them can help protect you against market volatility and you could potentially see greater returns.

Include dividends in your portfolio

Dividends are a form of payment made by a company to its shareholders based on the company’s earnings. They can provide a steady source of income for investors, regardless of market conditions. Companies that pay dividends are often considered to be more stable and reliable than those that don’t and could provide a consistent source of income.

Have an emergency fund

Unexpected events can happen to any of us, so it’s important to have a safety net in case of a job loss, long illness, or other unforeseen circumstances. Ideally you should aim to save between three to six months’ worth of living expenses held in an easily accessible savings account. If you have funds beyond this amount then consider investing them into a high interest savings account, bonds, or an ISA to gain a higher rate of interest. Note, these usually have a longer lead time to access your funds.

Seeking professional advice and taking practical steps to manage your finances can help you regain control of your finances and move towards a brighter financial future.

If you’d like to take control of your finances, protect your pensions and investments, and secure your future wealth, then please get in touch, and talk to a member of our team.

This article does not constitute personal advice. Find out more about Step Change Debt Awareness Week.