Payment freezes are ending – this is what you should do to handle the additional interest

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Payment holidays were first extended to mortgage repayments in March by Rishi Sunak. These freezes were designed to help people who had taken a hit financially as a result of coronavirus.


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This was quickly followed with payment breaks for credit cards, car payments and other types of personal loans.

While the freezes have generally been met with support from the public, many have warned that they may have longer term costs that could be missed.

It’s been highlighted that when taking a payment holiday, the interest on the loan or debt still accrues.

These additional interest rate costs will be added back onto the payments once the holiday concludes, making repayments higher in the long term.

This could become an issue for many as the first set of payment holidays will likely end in June and throughout the summer months.

Managing these higher payments will be difficult for struggling families, especially as coronavirus is still having an impact on income and employment.

Jane Goodland, a Director at Quilter, commented on the government’s support schemes, highlighting their necessity in the current environment: “It is no surprise that people in the UK are seeing their budgets stretched as a result of the pandemic.

“The economic outlook is deeply uncertain and job security will be a source of considerable anxiety for many in the coming months.

“Government support schemes and repayment holidays have been a lifeline for many struggling to make ends meet because of the pandemic, particularly given how reliant we are as a nation on short-term credit and personal loans.

“Recent statistics from the Money Charity show the UK holds more than £72 billion in credit card debt and that on average we have more than £4,000 in unsecured debt per adult.”

However, she cautioned that people must remember their obligations once the holiday is over: “It is crucial that anyone using a repayment holiday remembers that the measures are a payment freeze, and not an interest holiday.

“A payment freeze, or deferral, will not wipe out any interest or the principal owed, it simply delays the repayment of the debt whilst the outstanding balance remains unchanged.”

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While the post payment freeze world will be difficult to manage, consumers will still be able to take action to ease their burdens.

Jane went on to provide tips and advice for managing finances during this difficult period:

Don’t bury your head in the sand

“If your circumstances have changed then you need to have a look at your incomings and outgoings. “Having a clear picture of your finances is the first step to getting them under control.”

Once a person has a clear understanding of how their finances are coping, they can then move on to making practical changes, as Jane continued:


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Make small changes and get a good savings habit

She provided a list of all the questions a person should ask themselves when they have a stable footing: “Is there anything you can do to bring down outgoings in this period? Do you need all the services you’re paying for such as gym membership or media streaming? Can certain bills be reduced? Purchases that can be limited?

“While you may feel it’s impossible to save, putting just a few pounds aside each month can be helpful not only financially, but mentally too.

“Challenge yourself to find a way to save some money regularly, however little it seems, it’s a good habit.”

While the advice so far could be suitable for a majority of financial situations, the problem of additional interest payment costs could require more robust support.

If this is the case, Jane advises that people should take action:

Speak up and talk to an expert

“If you are struggling with your finances there is no reason you should bear the burden alone, there are many who are in the same position as you.

“If you are not in charge of the household finances then ask the person who is. This needs to be an open and honest conversation.

“There are many government backed services such as the Money Advice Service and The Pensions Advisory Service, which are free to use, as well as charities like StepChange or Citizens Advice.

“For some people getting a third party professional opinion might be the best option and so seek out professional financial advice.

“Advisers are well equipped to help you make a long term plan.”

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