Tackling Debt During Volatile Times
The media can be filled with warnings about economic uncertainty and turbulent times, and while these headlines can be alarming, it’s worth noting that economic volatility is not uncommon. In the past few decades, we’ve experienced periods of financial instability, such as in 2008-2009, which many may recall vividly.
Understanding the Risks
During volatile times, the economy often slows as people and businesses cut back on spending. One of the biggest risks you may face is the potential for redundancy.* Preparing for this possibility can help you stay ahead of any challenges.
How to Prepare
Your top priority should be building a financial safety net. Having a savings buffer, or emergency fund, can buy you valuable time to find a new job if needed.
- Start by saving enough to cover at least three months of essential bills.
- Once you reach that goal, aim for six months, or even up to a year, depending on how competitive your field is.
The Double Challenge
In addition to economic uncertainty, rising costs of essentials like food and fuel are affecting many households. With central banks increasing interest rates to manage inflation, the financial landscape has changed in two key ways:
- Borrowing costs, such as mortgage or credit card rates, have risen.
- Savings accounts now offer higher interest rates.
While this is good news for savers, it’s less favorable for those carrying significant debt.
Managing Debt
If you have variable-rate debt, prioritise paying it down. For mortgages:
- If you’re on a fixed-rate mortgage, use this time to prepare for potential increases once your agreement ends.
- If your fixed rate is expiring soon or you’re on a tracker or variable rate, be prepared for higher monthly costs.
Looking Ahead
Most of us will need to adjust our budgets and tighten spending during these period of uncertainty. However, taking proactive steps to manage your finances now can make a big difference.
Remember, economic ups and downs are a normal part of history – occurring roughly every decade. While these times can feel challenging, there’s plenty of support and advice available. By planning ahead and staying informed, we can navigate these volatile times together and emerge stronger on the other side.
* https://www.bbc.co.uk/news/business-52986863
https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_Kingdom
V2 January 2025
The information in this text is correct at time of publishing and should not be regarded as advice.
SpringGen Advice Ltd, 928966, is an appointed representative of Acumen Financial Planning Ltd, which is authorised and regulated by the FCA, FRN 218745.
