The pandemic has put a strain on everyone. Many mortgage providers or money lenders agreed Covid payment holidays to ease some of the pressure, giving people who borrowed extra time to breathe while times are tough. But what do you do when that holiday runs out?
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“It’s not surprising that several million have sought much-needed breathing space by taking payment holidays on a wide range of regular commitments, from mortgages to car finance,” said Experian’s head of consumer affairs, James Jones.
“It’s wise to arrange a payment holiday only if you really need one. Even though your credit rating should be protected, interest is still likely to be charged so you’ll end up owing more money.
“But if this gives you some essential breathing space during these challenging times then it can be a good option.”
So what do you do once it’s over? James explains.
Step one: Budget
If you took a payment holiday already and saw a drop in income or your household finances have changed during that time – for example if you were made redundant or your hours cut – you need to work out new budgets that realistically reflect your new circumstances as a priority.
Here are things that can help planning your budget:
Work out the essentials that you spend on regularly, and compare prices before buying. You could get your regular supermarket items cheaper by switching to a different retailer.
Money saving apps such as Mint and You Need A Budget (YNAB) are two of the most popular budgeting apps around. They help you create a budget, track your spending and encourage you to live within the budget you’ve set for yourself.
If you think you’re paying a bit too much interest on your existing credit card balances, a 0% interest balance transfer card could help you avoid interest on your card debts for as long as three years.
Use comparison sites to see if you could get a better energy tariff, especially if working from home has driven up your bills. And think about whether a flexible variable tariff might be better for you than a fixed deal year-round.
Get your house in order
Take a look at mortgages to see if you could get a cheaper rate. You might find you could save hundreds, or even thousands of pounds a year. The same applies to any bills you pay, particularly when it comes to energy bills. It’s worth checking to see if you can get a better deal somewhere.
Step 2: Take action and get support
If once you’ve worked out your new budget you find you can no longer afford payments for things like credit cards or your mortgage, you need to contact your lender as soon as possible, let them know your circumstances have changed and discuss what you will do next.
They might typically suggest for example either adjusting payments so you pay less for a fixed period of time, extending a loan period, or taking another holiday as a short-term measure. Payment holidays are capped at six months, so if you’ve already had a holiday for the full term you won’t be able to extend it further.
The deadline to apply for a new payment holiday is March 31 2021 and most lenders at the moment are offering holidays on the payments.
The important thing is that you don’t miss payments and that you speak to your lender about the options available. The overwhelming majority are reasonable and flexible in helping people repay the money they owe. And if you think you’ve been treated unfairly you have the right to file a complaint with the Financial Ombudsman Service.
With credit payments, if you simply cancel your direct debit or fail to make a repayment on the usual date without prior agreement it will register as a missed payment on your credit report, which may result in you being charged a fee. You should try to meet your regular payments if you can and only ask for support like a payment holiday if you really need it.
“If you’ve taken an agreed payment holiday on one or more of your credit accounts, measures taken by Experian and the other agencies should have protected your credit score,” says James. “However, where lenders provide additional tailored help, this could be visible on your credit report, so do discuss this with the lender.”
James Jones is head of consumer affairs at Experian @AskJames