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Cost-of-living crisis: Top tips to help your personal finances

·Business Reporter, Yahoo Finance UK
·6-min read
Rising cost of living: UK households are facing a sharp squeeze
More than one million people will fall into poverty, including some 500,000 children, thanks to the cost-of-living crisis, it has been warned. Photo: Getty

The UK is facing its worst cost of living crisis in 60 years, with businesses and households tackling soaring inflation and higher taxes, as well as rising energy, food and fuel costs.

Consumer confidence has fallen in recent months on the back of the income squeeze, with Brits seeing real wages unable to keep up with inflation.

There have also been stark warnings that more than one million people will fall into poverty, including some 500,000 children. It is the first time Britain has seen such a poverty rise outside of recessions.

In response to the rising cost of living, Which? is advising consumers on how they can save money and improve their finances.

“Many people are feeling financial pressure at the moment as soaring fuel, energy and food prices squeeze household budgets,” Which? consumer rights expert Adam French said.

“However, there are steps you can take to save money and cut back on unnecessary outgoings. Start by taking a look at your finances and giving yourself a ‘money makeover’ in order to save where you can.”

Read more: European stocks muted amid warning 1.3 million Brits will fall into absolute poverty

Here are a few effective ways to reduce spending and tackle rising costs:

Transfer credit card debt

Those making large interest payments on credit card debt can move it all onto a 0% balance-transfer credit card deal. This type of credit card does not charge interest on transferred debts for a set amount of time so that users have some relief to repay any money owed.

However, the interest tends to jump at the end of the promotional period, so be sure to pay off the balance in full before this happens and opt for a fee-free card.

For example, a £2,000 ($2,639) debt on a card charging an 18.9% APR that you pay £60 a month towards will take 46 months and cost you £2,755 to clear.

By contrast, a £2,000 debt moved onto a 0% balance transfer card, with the same repayments of £60 a month will take 34 months to clear and cost £2,000 – saving you £755.

Watch: How to prevent getting into debt

Check the overdraft fees on your bank account

Going overdrawn can be costly, especially as some accounts charge up to 39.9% EAR (effective annual rate).

If your bank account has a high EAR, it could be worth checking to see if you can switch to an account that offers a lower one if you regularly use it.

Nationwide (NBS.L) currently offers a free authorised overdraft on its FlexDirect account, but this only lasts for a year, and is not ideal for long-term borrowing. It is also worth keeping an eye on the best current account switching offers, Which? advised.

Check if you have any unclaimed benefits

More than £15bn goes unclaimed from the Treasury each year, and more than seven million UK households could be missing out on benefits like council tax discounts.

People on low incomes may be able to claim universal credit (UC), replacing legacy benefits such as tax credits, housing benefits, income-based jobseeker’s allowance, income-related employment and support allowance, and income support.

Read more: UK consumer confidence continues to fall as cost-of-living crisis deepens

Those already claiming child tax credit may also be able to apply for working tax credit to help with day-to-day expenses. Child tax credit is available for those on low incomes who are responsible for at least one child or young person.

Which? has suggested checking what might be available to claim by entering details into the entitled to calculator.

Reduce tax bills

Consumers can keep hold of a bigger chunk of their earnings by claiming all the tax reliefs they might be entitled to. Reliefs such as the marriage allowance and rent-a-room relief can all save significant sums.

For example, those renting out a room, rather than a whole property, can take advantage of the rent-a-room scheme, which means they can earn up to £7,500 tax-free.

Use price comparison websites

Insurance policies, credit cards, and broadband bundles usually have huge differences between the cheapest and most expensive, Which? said.

Before signing up for new financial products and policies, the group suggested browsing the best deals available by using price comparison websites to select the best for your individual circumstances.

When comparing the cost of a 12-month broadband package, Which? found a £15.04 difference between the cheapest and most expensive deals available.

Read more: Spring Statement: Rishi Sunak cuts income tax and fuel duty

Sign up for loyalty cards

Many retailers, restaurants and supermarkets offer loyalty schemes to customers. Often, the points earned can be converted into discount vouchers, or offer one-off discounts and deals.

When shopping, it is worth choosing a retailer that offers a decent reward scheme, such as Tesco’s (TSCO.L) Clubcard.

Earn rewards and cashback on spending

Cashback credit cards can help shoppers make money every time they spend, with some paying as much as 5%.

A number of retailers also offer credit cards that offer rewards for shopping with them.

Shoppers using cashback or reward credit cards must make sure they repay what they spend each month to avoid being charged interest.

Watch: Spring Statement: Key takeaways from Rishi Sunak's speech

Cancel unnecessary direct debits

It is worth checking bank statements regularly to keep an eye on direct debit payments and cancelling any unnecessary payments that can quickly add up.

Which? recommends consumers get into the habit of logging into their online bank account and checking statements to ensure they're not shelling out for services they no longer need or use.

Get a better mobile phone deal

Evaluating phone bills may also help save some money. Which? previously found that a low data contract such as 5GB of data from ID Mobile costs £6 a month, whereas 100GB of data from EE costs £34 a month - switching to this deal could save £336 per year.

Consumers should also consider haggling to get the best deals. The company’s research found customers who haggle saved an average of £35 per year on mobile contracts.

Read more: UK facing worst cost of living crisis in 60 years

Use budgeting apps to keep an eye on spending

Budgeting apps are a great way to get an overview of account activity and spending habits. Many apps allow users to link multiple bank accounts to help keep track of their overall spending.

By checking regularly, consumers can keep an eye on unnecessary costs and budget more effectively. Which? has rounded up the best budgeting apps, to help savers choose the best one for them.

Watch: How to save money on a low income