It could be weeks or even months before the true financial impact of coronavirus is felt nationwide. It won’t be pretty.
With the government taking decisive action on our personal and national financial affairs, it is time for us to do the same to ensure we can weather whatever this storm becomes.
Pay down the debt
Almost 27 million people – around half the population started 2020 in debt – according to money.co.uk.
The Money Charity estimates the average credit card debt per household currently stands at just under £2,600.
We know the Bank of England reduced the base rate to just 0.1 per cent in the latest emergency move, but that’s unlikely to help reduce the average 21 per cent interest you’ll pay on credit card debt.
Providers are infamous for ignoring underlying downward rate moves while responding quickly to add costs when the base rate rises because, they say, the rates are based on the borrower’s risk profile more than central bank rates.
Interest rates on this common type of borrowing are now at record highs – more expensive than they were before the 2008 financial crisis.
Meanwhile, a huge hike in overdraft charges are just around the corner, with no sign yet that the powers that be are about to stop them. The increases, which will make the typical overdraft interest rate 39.9 per cent was the countermeasure introduced by banks after legislation prevented them charging unreasonable fees when millions of us slipped into the red, even for a day or two.
The hike means overdrafts are one of the most expensive ways to borrow money.
And yet those two routes to cash are probably the first places we will turn if things get tight through unemployment, reduced hours, or the impact of the wider economic downturn.
In the USA, two Democratic senators have this week filed legislation to temporarily ban overdraft fees there. But so far there has been nothing from the government to address the issue here.
“During the current crisis, more and more consumers are going to have to rely on their credit cards for essential household spending, because they will have lost their jobs, or be put on zero hours contracts, or be waiting for government help to begin, or are ill with the coronavirus. In these circumstances, how can banks justify charging record interest rates?” asks Dr Ros Altmann, economic and personal finance commentator and former pensions minister.
She calls for banks to immediately reduce credit card interest rates to 0.5 per cent for six months, abandon plans to increase overdraft interest rates, and show leniency for those who need unarranged overdrafts.
“Many customers will also find themselves in desperate circumstances unexpectedly. Nobody was prepared for the coronavirus lockdown measures or the business dislocation that has ensued.
“If they are forced to borrow to pay for essential supplies or services, it would seem only reasonable to ask banks, who were bailed out at huge public expense in the last crisis, to abandon plans to increase overdraft interest rates so sharply and ensure people can access borrowing at much lower rates than the 40 per cent currently proposed, which represent extremely high cost credit, rather than reasonable commercial bank rates.”
Until such time as these recommendations – echoed by a growing number of financial experts across the industry – are acted upon, consumers are being urged to pay off any debts on credit cards or overdrafts they have, or switch them to a low interest rate personal loan as soon as possible.
Elsewhere, the StepChange Debt Charity and the Money Advice Trust have called on the chancellor to pause all debt collection, including benefits deductions and bailiffs visits to those who cannot afford payments as a result of the Covid-19 crisis.
Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said: “Coronavirus is crippling the UK’s household finances – and the government needs to do even more to help households financially through the coming weeks and months.
“Direct cash support to affected households, an immediate suspension of debt collection and bailiff visits, and widespread payment holidays sound like drastic measures – and they are, but they are needed right now.
“In the meantime debt charities are doing everything we can to help people through this extraordinarily difficult time. We hope that further government action to support households and the self-employed in particular will be forthcoming very soon.”
Scrape together unexpected savings
We’re advised to have three months’ worth of accessible cash savings to help us cover unexpected costs. And usually at this time of the year, the next tax year “Isa season” is a key focal point.
As things stand, savers have until 5 April to make the most of their tax-free Isa allowance for this year. Again though, there are calls for this to be extended and leniency applied in unprecedented times.
Encouraging people to save what money they have could make all the difference further down the line, not least because some protection policies are currently closed to new customers in light of Covid-19.
But while we may temporarily find our usual spend on entertainment, eating out, events and retail browsing is curtailed, giving us a few extra pounds to bolster our buffers, the one place the record low base rate will be felt is savings.
“Savers who are keen to lock in some money into a fixed rate to try and weather the storm should consider opening an account as soon as possible,” warns Anna Bowes, co-founder at Savings Champion. “This new but highly anticipated cut by the BoE is a huge blow to savers, bringing the base rate to a record low level.
“There’s no doubt that we may see a flight to safety in the current climate, with more people hoarding cash that was earmarked to spend elsewhere. If you are building a new nest egg or have existing money in cash then its wise, even in this low interest rate environment, to make that money work as hard as it can.
“What we hope is that in the current situation NS&I could be mobilised to help the government raise money to support the economy and help beleaguered savers”.
It is vital to only use trusted sources of information about coronavirus, government measures to help you manage your financial affairs, the latest announcements and the financial help available to you.
Scammers are, despicably, using the fast-changing nature of the virus’s public health and financial impacts to defraud people at their most fearful and vulnerable.
Accurate and trustworthy information and further sources of help for anyone worried about their financial situation as a result of coronavirus are available from: