For many of us, the end of 2020 cannot come soon enough. As we begin to think about what the next year will bring, it’s worth considering how you can make resolutions to whip your finances into shape.
Are you looking to clear your debt or save for a home deposit? Here are some goals you can set yourself.
COVID-19 is likely to have had an impact on your finances in one way or another. The pandemic has caused a personal debt crisis, according to the debt charity StepChange.
On top of all this, some may be considering paying for Christmas gifts via their credit card or ‘buy now, pay later’ options. If this sounds like you, there are some things you can do to give yourself some breathing room to help you pay down your debts.
One relatively simple option is to transfer your existing credit card debt to a 0% balance transfer credit card. These cards will stop you being charged any more interest on the existing debt you’ve transferred over for a fixed period of time.
Please note, a 0% balance transfer card is a tool which gives you time and space to focus on clearing your debts without having to worry about further interest payment. You should not make any new purchases on the new card.
If you’re finding that you need to borrow money to pay your bills, then you should consider getting help from a debt charity. These organisations can do a great deal to get your finances back on track.
When a lender is deciding whether to offer you a mortgage, they consider a number of factors to determine if you can afford to make your monthly payments.
A big part of this process involves banks and building societies checking your credit record. This is a report card that lays out your financial history. It shows:
Whether you pay your bills on time
How much debt you have
How many times you've applied for credit
Whether you've missed any payments
If you've had any county court judgments (CCJs) filed against you
Your current and previous addresses
Any other applications you have made (e.g. for credit cards and mobile phone contracts)
Any time a company has checked your credit record in the last two years
Financial links with anyone you share an account with (e.g. a joint mortgage)
Lenders use this information to try and predict your future behaviour and determine whether you are a reliable borrower. So, anything you can do to improve your credit record is going to be a big help in increasing your chances of getting a mortgage.
Those with a better credit score are much more likely to be able to access better mortgage rates, loans and credit cards.
It’s important to bear in mind that any changes you make to improve your credit rating can take some time to show on your credit file. Improving your credit score cannot be done overnight, but there are a few simple things you can do to help boost it.
This may sound odd, but using a credit card can improve your credit score, especially if you pay off your balance after making a purchase on your credit card.
Doing this helps you to build a credit history, which means that companies who check your credit file will be able to see that you can be relied on to regularly pay back any borrowing.
However, you should avoid withdrawing cash from a credit card, as this will leave a mark on your credit record and cost you interest.
Your credit score may be affected if information about your financial history is incorrect on your credit record. Look for anything that isn't true, such as a wrong address or a missed payment that you had paid on time.
Check your credit record before you apply for any credit accounts to improve your chances of getting accepted.
If you have not already explored your credit file, there are some easy, free ways to do it. There are three main credit referencing agencies (CRAs) – Equifax, Experian and TransUnion.
These firms compile great swathes of information about you (including the things listed above) to build a picture of your financial history. Banks, utilities providers and lenders also report into these agencies with information about your finances.
You can sign up to a range of free services to check what is on your credit record with a credit reference agency, including:
*These services offer access to your credit report free for 30 days, before charging for a monthly subscription
Again, another one that sounds odd, but when you sign up to your local Electoral Registration Office, two things happen:
You will become a registered voter for your address
There is an official record you live at your address
This improves your credit score, as lenders can easily identify where you live by accessing the electoral roll.
As we discussed above, making purchases on a credit card that you regularly pay off helps you build your credit history. You can also ensure that your rent payments are also recorded on your credit file.
This can be especially useful if you’re thinking about trying to get a mortgage to buy your first home. A common complaint from people who find it hard to prove to a mortgage lender that they’ll be able to make regular mortgage payments is that they have been paying rent regularly, many for a very long time.
There are now a range of free services that allow you to record your rent payments on your credit report. Many of these are available to use for free (they make their money by selling you services on the side, like home insurance and mortgage broker services).
Budgets can take different forms, but at their simplest, they help you plan your spending based on the money you’ll have coming in.
We have a free budget planner tool to put you in control of your spending. You keep track of your pay, benefits and your regular outgoings in one place. You can save your budget plan and return to it at any time.
Once you’ve compared the money coming in to what you want to spend, there are several ways that you can put together a budget.
One of the most simple and effective is an ‘envelope’ budget. This simply means separating your money out into pots, or envelopes, for spending on different things.
For example, you can create a pot each for household bills, food shopping and rent or mortgage payments.
Once you have a budget in place you can use it to work out what you can afford to save over the coming year.
Thanks to the COVID-19 pandemic, this year has taught us the importance of being prepared for financial shocks. While the last few months have meant a precarious financial situation for millions of people, it’s worth trying to put aside money every month if you can.
Some financial experts recommend creating an ‘emergency fund’ with at least three months’ worth of essential living expenses set aside in a savings account.
You may also have big life events coming up or simply want to put cash aside for big purchases, like a car.
There are several types of savings accounts on the market and choosing the right one can help you boost the interest you earn.
Instant access accounts: These usually pay the lowest interest rate, like 0.1%, but you can withdraw and add money whenever you want. If you want to make a decent return, try and avoid these accounts
Notice accounts: These can offer a slightly higher interest rate than instant access, but you need to give notice to make a withdrawal, like 60 days, or face an interest charge
Regular savings: These can offer the highest interest rate of any savings account, but there is usually a limit to how much you can pay in each month. Some even restrict you from withdrawing in the first 12 months
Fixed term accounts and bonds: These tie your money up for a set term, like one year. They do not offer rates that are much higher than notice accounts and restrict the access to your money even more
Cash ISA (Individual Savings Account): These are tax free versions of the savings accounts above, but you could earn up to £1,000 in interest before tax from any savings account each year, making these accounts less competitive
High interest current accounts: These can offer higher interest rates than savings accounts. However, they usually set a limit on how much you can earn interest on, for example £2,500
Although interest rates are low at the moment, think about the access you want to your money. Usually, the more restrictive the account is, the more you could earn in interest.
If your main financial goal over the coming year is to save towards buying your first home, there are a few things you can do to help boost your deposit.
A Lifetime ISA can help you build up a deposit to buy your first property, or to fund your retirement, by giving you a 25% tax-free bonus each year.
You can choose from two types of Lifetime ISA:
Cash: You qualify for the bonus and earn interest based on what the savings provider you choose offers
Stocks and shares: You are eligible for the bonus, but your capital will be at risk due to the volatility of the stock market
You should speak to an independent financial adviser if you’re unsure if a stocks and shares Lifetime ISA is right for you.
There are a number of government initiatives designed to help you afford your first home.
The Help to Buy Equity Loan scheme offers an interest-free loan for five years towards a new build property worth up to £600,000. It is only available for first-time buyers in England.
The government has also announced a second Help to Buy Equity Loan scheme only open to first time buyers purchasing a newly built home. This version of the scheme will run from 1 April 2021 until 31 March 2023.
Under this second scheme, the maximum price of the property you can buy will depend on where in the UK you’re looking to live.
There are separate schemes for:
Wales, where the scheme works in the same way but with a maximum purchase price of £300,000
Scotland, where the Affordable New Build Schemes let you buy a home with a 5% deposit and a 15% equity stake provided by the government
Northern Ireland, where you can buy a home worth up to £150,000 through their Co-Ownership scheme
Whether your home is heated with gas or electricity, it’s easy to check if you could be saving on the cost of your energy. The quickest and easiest way to check and switch is online.
You can use our comparison to shop around and find the best energy tariff to suit you. Some companies may not supply your area, so use our postcode checker to see what is available where you live.
If you switch, you could:
Save more than £200 a year on your energy bills
Find a more energy efficient tariff
Get greater flexibility to switch in the future
Read our guide on how to switch energy supplier for more information.
There are a range of different energy tariffs out there, so picking one that meets your needs could help you save hundreds of pounds a year.