HOUSEHOLDS battling to make ends meet can easily be pushed to the brink by surprise costs – but there is help available.
A rainy-day savings pot is the ideal way to cover an unexpected hit.
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But a stash of surplus cash during the cost of living crisis is a tough ask for many.
Borrowing money to get by should be a last resort. And you should always check you are getting all the help you are entitled to before turning to borrowing.
However, if other options have been exhausted, it’s important to consider the best and cheapest way of taking on debt.
And make sure you understand your commitments at the outset.
Richard Lane, director of external affairs at StepChange Debt Charity, said: “Using credit may seem like an easy and convenient way to get money quickly, but it’s really important to pause and think about the consequences of borrowing and whether you will be in a position to meet the repayments in a month or two plus any interest and fees.
“If you’re struggling to cover your essential spending, or you’re worried about problem debt, a reputable charity like StepChange can offer free and impartial debt advice.”
Unfortunately, borrowing has on average become pricier over the past year as the Bank of England has raised central interest rates.
However, there are still ways to access low-cost or even interest-free cash.
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Here we outline some of the options that could be available to you…
Interest-free loans for food
If you need money for food, Iceland has an interest-free borrowing scheme that could help.
Anyone can apply for between £25 and £75 through the Food Club Card.
If approved, money is loaded on to a card to be spent online or in-store at Iceland.
Many applicants will receive a decision within an hour and receive the card within five to seven business days.
Repayments are then set at £10 a week.
As a result, the loan won’t work if you are already at a point where you can’t afford your food shop.
However, if money is looking tight for the month ahead it could be a way of helping to see you through.
Money from your job
Tapping into money through your employer could be another option, as more companies offer salary advance schemes or flexible pay.
The schemes let workers access cash they have earnt before payday arrives.
Tesco, Asda, Bupa, ASK Italian, and Zizzi are among the firms offering employees more choice on how they are paid.
Jonathan Watts-Lay, director at retirement specialist Wealth at Work, said: “These types of schemes normally come with a charge.
“So, while they can be helpful as a one off, for example if the car needs fixing, they are not such a good idea if they become the norm to pay for usual weekly or monthly expenditure.”
Charges vary by employer and could be around £1-£2 for each advance you take, which may be far less than other means of borrowing and some firms will also cover that cost.
However, it’s important to check the individual terms and conditions on offer to you.
Free overdraft
Some current accounts give customers a free overdraft that they can dip into when needed.
For example, First Direct offers a £250 buffer interest-free.
And Nationwide’s FlexDirect current account has an introductory offer where it won’t charge any interest for the first 12 months.
However, many banks charge high interest for using an approved overdraft – and charges are even higher for overdrafts that haven’t been arranged.
So, make sure you check before you borrow.
Interest-free purchases
If you need to buy a big item, such as a sofa or TV, some stores will allow you to spread the cost without charging interest.
Furniture firm SCS allows some buyers to repay items over a period of up to four years without paying any interest.
Access to this credit will involve a credit check and depend on you having a relatively good history.
If you are refused credit, it will be noted on your record and could make it more difficult for you to borrow in the future.
Buy now pay later
Another way of buying from stores without paying interest is through Buy now pay later (BNPL).
More and more retailers now offer this as an option for customers.
It is not a loan but rather a way of paying for your basket in smaller chunks.
You won’t be charged interest however, you could be hit with late payment charges if you miss a repayment.
Fees vary by provider so look at the small print before going ahead.
Klarna is one of the most popular of BNPL and will let you pay in three instalments over 60 days, with repayment at purchase.
Or you can pay nothing when buying but then must repay the full amount within 30 days.
Repayments are automatically taken from your card, so you must be sure that will have enough to meet the payments when they are due.
You will usually have to go through a credit check before you can use BNPL and missed payments could result in a black mark on your record.
Interest–free credit cards
Some credit cards will let you borrow without paying any interest over a set period.
This could be anything up to 23 months with a credit card from NatWest/RBS – though the exact period you are offered will usually depend on your credit score.
You will still have to make a minimum repayment each month or you could find the lender pulls the deal.
And before applying for any credit card, use an eligibility calculator to see how likely it is that you’ll be accepted to avoid hurting your credit score.
If using the card to borrow a big sum, it’s a good idea to work out how much you need to repay each month before the interest-free period ends.
Zero interest balance transfers allow you to move an existing balance and not pay any interest on it.
Again, you will need to meet minimum repayments and work out how to clear the debt before the interest-free offer ends.
Interest-free help with mortgage repayments
The Support for Mortgage Interest (SMI) is a government loan scheme available to people on Universal Credit and other benefits.
The low-interest loan can go towards mortgage repayments or debt from repairing damage to your home.
You will need to repay the loan and interest due when you sell your home. The current rate of interest is 3.03%.
The amount you get will vary depending on the size of your mortgage.
You can get help paying interest on up to £200,000 of your loan. This reduces to £100,000 if you’re getting Pension Credit.
Contact the office that pays your benefit to find out if you could be eligible.
Universal Credit Budgeting Advances
Some people receiving Universal Credit can get an emergency so-called Budgeting Advance and is available to help cover unexpected costs, such as your boiler breaking or car repairs.
You can get up to £348 if you’re single, £464 if you’re part of a couple and £812 if you have children.
The exact sum offered will depend on your ability to repay. but you won’t pay back any more than you borrow.
Repayments are deducted from future Universal Credit payments over up to 12 months – so you’ll find your benefit will be reduced while repaying the money.
To apply you should contact your local job centre.
Budgeting Loans
A budgeting loan is similar to a budgeting advance but available to people getting either income support, income-based jobseeker’s allowance, income-related employment and support allowance, or pension credit.
As with advances, you can get up to £348 if you’re single, £464 if you’re part of a couple and £812 if you have children.
Repayments are deducted from benefit payments.
Credit union loans
Credit unions are usually set up by a not-for-profit organisation, offering cheaper loans to local people who need them.
Savers of the Credit Union pool their cash to lend out to others.
The saver gets a return on their money through the interest paid by the borrower.
Rates are often lower than what a borrower might be able to get through a traditional lender.
You may need to be a member of the union to get a loan but this will vary so check around your local options.
You can find your nearest credit union through the Association of British Credit Unions Limited website.
Interest-free local council loans
If you are looking to borrow money, it’s definitely worth checking if your local council can help.
Many offer interest-free loans to people on a low income but the exact criteria and circumstances in which they offer loans vary.
For example, Croydon council provides interest-free loans of up to £20,000 to help people pay to fix serious disrepair to their property.
Some also work with local Credit Unions to offer help.
Brent Council is one that has teamed up with the local credit union to offer interest free loans for debt consolidation, for example.
You can apply online through the website.
Ryedale District Council, Citizens Advice North Yorkshire and Community First Credit Union have also teamed up to offer a Hardship Grant Fund for locals in need.
People can borrow as much as £500 interest-free, subject to availability and affordability.
Where to get debt help
If you are feeling overwhelmed by money or debt, it’s important to get free and independent help.
We’ve previously looked at all the places you can get debt help for free, including Citizens Advice, StepChange and National Debtline.
Don’t take money from loan sharks, and try not to resort to very expensive debt, such as doorstep lending.
If you are in arrears with any payments, don’t shy away from speaking to the company – it should help you work out a manageable payment plan to get you back on track.
You might be able to apply for Breathing Space, a scheme which pauses interest charges for a certain period and stops you from being hassled for payment.
A benefits calculator can help you work if you might be entitled to extra cash.
A number of energy firms also offer hardship grants to people who are in arrears with their bills.
You should also check whether you’re eligible for grants or extra help, such as from the Household Support Fund or your local council.
