How to handle debt in the time of coronavirus

19 June 2020

Spiralling into debt because of the financial pressures of the pandemic? Read our tips on how to cut your debts and where to find financial support if you are struggling to make ends meet


The financial fallout from the pandemic has hit households hard. Millions of workers have seen their incomes plummet, while some have been laid off – despite the financial support offered by the Government and financial services.

Some 15.5 million Britons dipped into their savings to cover essentials such as bills, rent, mortgages and food just one month into the crisis, according to research published by AJ Bell.

New financial pressures mean some households will have fallen into debt for the first time.

Take a payment holiday

Many borrowers who were able to service their debts before the government lockdown are struggling now that their incomes have fallen.

Mortgage lenders are offering payment holidays to those who find themselves in this position.

One option is a three-month mortgage holiday for homeowners struggling with monthly payments.

These are also available for those struggling with credit card debts or personal loans.

Debts and interest accrued will still need to be paid at a time agreed with your lender. If you are struggling with a debt, do not just cancel your payments – make sure you set up a formal repayment agreement with your lender.

“Payment holidays can be helpful for people who are experiencing temporary payment difficulties and are well worth considering before people turn to additional high-cost credit during the current crisis,” says Nick Hill, money expert at the Money and Pensions Service.

“This could provide much needed help if you need it, but it won’t be suitable for everyone and it won’t be free money. Only take it if you really need it and use the time to plan what you will do when the payment holiday ends,” he says.

Ask early for a payment break

Lenders are working to agree payment holidays as quickly as possible, but it is worth applying as soon as you think you will need it.

Demand is high – more than 13 million people have already been unable to pay or expect that they will be unable to settle at least one bill because of the coronavirus outbreak, new research from Citizens Advice has found.

Although credit reference agencies have agreed that taking a payment holiday will not affect your credit score, missing payments outside this agreement could do so.

Akansha Nath, credit expert at financial services company Credit Karma, says: “Try not to wait until you are out of money to apply for a break – if you leave it too late you may run out of time, which can have an impact on your credit score.”

Pay back smaller amounts when you can

Taking a break from your repayments will only provide short-term relief.

“You will still owe the amounts that were due during the payment holiday and often interest will continue to be added,” says Laura Mostaghimi, money adviser at debt charity National Debtline.

“Where possible, paying back smaller amounts during your payment holiday can help bring down your overall debt.

“You can also ask if your lender or supplier will consider freezing interest and charges during the payment holiday,” adds Mostaghimi.

Manage your debt strategically

When in debt, it is very tempting to bury your head in the sand. But a clear plan is the best way out. These steps can help you tackle your debt head on.

1. Work out how much you owe

Tot up everything – every credit card, store card and outstanding debts. If you have taken a payment holiday, work out how much your new repayments will be when the payment holiday ends. Once you have a total figure, decide on a realistic timeframe to clear your debts.

2. Make strategic repayments

As a general rule, you should aim to clear your most expensive debts first. While these are usually credit cards or overdrafts where interest rates tend to be higher, missing some debts can have greater repercussions than others. For example, failing to make mortgage payments can put your home at risk, so keep on top of these by paying or negotiating with your lender if you are struggling.

3. Reduce your debt

You can cut the cost of your credit card debt by using a 0% balance transfer credit card. This will allow you to shift what you owe to a card that charges no interest for a certain period of time. Setting up a monthly direct debit can help you reduce your debt.

You can also cut the cost of your mortgage by switching to a cheaper deal at the end of your fixed term.

4. Avoid taking out more credit

While living expenses are unavoidable, making cutbacks through budgeting can help stop your debts mounting.

Make a budget that works


Having a budget in place is essential for keeping your finances on track. The following steps will help you create an effective one.

1. Calculate your income and expenditure

Work out exactly what you have coming in and going out each month. Your income includes your salary, pension, benefits and other allowances; while your expenditure includes bills, food, travel, entertainment and other purchases.

Be as specific as possible when categorising your payments to give you an accurate picture of where your money is going –  for example, separate your bills into utilities, mortgage payments or rent, credit cards and personal loans.

Citizens Advice, Money Advice Service, National Debtline and StepChange all offer free budgeting tools that help you log your income and expenditure and show you how much you will have left at the end of the month.

2. Review your non-essential  spending 

Once you have a clear picture of what you are spending on, it is time to run some analysis.

First review your non-essential spending, which includes things such as takeaways and video games. Cutting back on your non-essential spending can help you reduce outgoings quickly.

3. Review your essential spending

You can cut the cost of your bills by making sure you are on the best deals. For example, switching your energy or insurance provider could save you hundreds of pounds a year.

“If you cannot afford your essential costs or debt repayments due to Covid-19, contact your suppliers and lenders and ask them for help. You may be able to get temporary payment breaks but this will depend on your circumstances,” says National Debtline’s Laura Mostaghimi.

4. Boost your income

Make sure that you claim all of the benefits and allowances that you are entitled to, as this will help boost your income. For example, you may be able to apply for universal credit if you have lost your job.

“If you have only recently been let go, ask your previous employer if they would consider furloughing you instead as they may still be able to do this,” Mostaghimi adds.

5. Monitor your spending

Keeping track of your spending is key, and there are many free budgeting apps that can help you.

Money Dashboard is a digital personal finance assistant and budget planner that allows you to view all of your spending in one place. 

Other apps, such as Yolt and Emma, also allow you to track your outgoings and manage your budget for free.

Digital-only banks, such as Monzo, Starling Bank and Revolut, allow you to keep an eye on your spending through their banking apps.

6. Review your budget regularly

Make sure that your finances are on track every month. If you find that you are continually struggling to make ends meet, even after making cuts to your expenditure, it may be a sign that you need more support.

6 quick ways to slash your outgoings


1. Reduce your supermarket spending

Switching to own-brand products at the supermarket can help you cut your grocery bills by 30% a year. See the Downshift Challenge tool on

2. Switch to a cheaper electricity deal

If you are on a standard variable tariff, switching to a cheaper fixed energy deal with another provider could cut your bill by hundreds of pounds a year, according to Uswitch.

3. Cut back on takeaways

On average, UK adults each spend £451 a year on takeaway food, according to a survey in September 2019 by KPMG.  Ordering less could cut your outgoings instantly.

4. Use less energy

Turning down your thermostat by 1°C could save as much as £75 a year, according to Uswitch, while unplugging devices not in use could save up to £85 a year, says Energy Saving Trust.

5. Use vouchers and discount codes

Search online for vouchers or discount codes to cut the cost of food, clothes and toiletries.

6. Audit your direct debits

Make sure that you are not paying for goods or services you are not using. Apps such as Bean and Smartbill can help you identify regular payments from your bank account and cancel them for you.

Seek expert help

If you are worried about managing your debt, get help as soon as possible.

The following charities offer free debt advice to help you get your finances back on track.

Citizens Advice:

Money Advice Service:

National Debtline:



StepChange Debt Charity:

First published on 29 May 2020

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