How to Survive an “Income Shock”

Suddenly single or lost your job? Many people who realise they can no longer cope with their debt do so after a life event which causes a shock to their income.

 
What sort of things can be grouped together as income shocks? Pretty much anything which suddenly and radically lowers income, such as the end of a relationship through separation or death of a partner, severe illness and job loss. Even Christmas can be a catalyst, as people try to spend three months of spare money in one month- and borrow to make up the shortfall.   
 
Because of this, there is no typical person who is most likely to get into financial difficulty. It can literally happen to anyone, at any time. 
 
In most cases there is existing debt at a manageable level, but there isn’t adequate provision for any surprises like redundancy. It normally takes at least three months before people get to the point of calling for help.  One missed payment is enough to tip someone into a serious debt problem, but people often wait until debts to a number of creditors build up, then call in a panic. 
 
Here are some of our top tips to surviving an “income shock”:
 
Don't bury your head in the sand.  If you have an existing debt problem, deferring the inevitable is just going to make the situation worse. Take a look at your bank statements for the last two months, either via your banks mobile app or using the posted versions. If you use the app, there is often a “regular payments” tab, which makes it easy to see who you pay and when. Create a list of all your regular payments, then create a list of one offs. 
 
How many of these things can you do without? Some of the easiest things to cull are paid subscriptions to things like gyms and TV services. “On-demand” channels can be a very cost-effective alternative to Sky packages and many are completely free.  Cancel everything you don’t really need, and you can always restart them when the situation improves. Cancel betting and bingo accounts and delete the apps from all phones.
 
Next, start to compare prices for things like electricity, gas, mobile phones, broadband and insurances. You will be amazed how much you can save by switching. New deals appear all the time and brand loyalty doesn’t reward like it used to. 
 
Look at your financial commitments. Reducing outgoings to give yourself a bit of breathing room is your main priority. If you own your own home, speak to your mortgage company, as they are likely to be sympathetic to short-term problems and may give you a repayment “break”. If you’re going into an overdraft on a regular basis, make an appointment to chat to your bank about changing your overdraft into an agreed one, as overdraft charges can be astronomical and eat up any extra money you are putting in. 
 
Are you paying a lot of interest on a credit card or do you have several small but expensive loans? Switching to a credit card with 0% balance transfers may ease the pressure for a while, but remember that the interest will be high when the introductory rate ends and there is also often a fee for the transfer. Getting a personal loan with a low overall interest rate and consolidating your debts may be the best solution, as it will reduce both the monthly repayments and the overall amount repaid. 
 
Surprised at how much you spend on food? Supermarket deals can be tempting and confusing. Make a food list for the week ahead and shop online. This will reduce the risk of impulse buying in the supermarket and stop you running out of food mid-week and spending a fortune on prepacked sandwiches at lunchtime or takeaways on a Friday night. 
 
Check your benefit entitlement. Your new circumstances may now mean you are eligible for things you weren’t previously, such as single parents being able to receive tax credits or free school meals. Visit the Government debt calculator to find out where you stand. 
 
Do you have a secret talent? Small eBay and Etsy businesses are easily set up, and may generate that small bit of extra income you need…or may lead to a whole new career. 
 
Despite often not being the fault of the person suddenly struggling with their finances, talking about debt still seems to be taboo. Talk to your friends, family and partner about the situation and the need for you to stick to a budget. Trying to hide difficulties from family and friends just increases stress and everyone will feel better when things are out in the open. 
 
Older children may be upset at the loss of some activities, or the reduction in birthday/Christmas spending, but they are far more likely to be understanding if they can see the bigger picture.  Also avoid the temptation to overcompensate for upsetting circumstances like illness and divorce by buying children expensive items. Work on finding fun and free activities that you can do together. 
 
Take care of yourself and your mental health. Life events and debt can lead to a vicious circle; causing problems such as depression, which can in turn cause us to make bad financial decisions. If you’re feeling down or have a history of a mental illness such as bipolar disorder, make sure to visit your local GP or healthcare team. Invite friends around for a coffee so you don’t become lonely whilst you work through this tough time. You can take a look at TheMoneySavingExpert guide to debt and mental health here.
 
Now you fully understand your outgoings and have taken real control of your finances, you can create a budget with your new figures, with the aim of meeting all your financial responsibilities. If you can’t, don’t panic.  Speak to a debt advice charity like Debt Advice Foundation as soon as possible - you'll be much happier knowing you're on the road to recovery.
 
The charity’s helpline advisers are available to talk to Monday to Friday 8am to 8pm and Saturday 9am to 3pm. Call our helpline on 0800 043 40 50.