Is It a Good Idea to Borrow Money Amid the Cost Crisis?

Amid the cost crisis, growing numbers of people are turning to credit cards and loans to pay their energy bills. The depressed economy of the UK has left no option other than borrowing money to cover the cost of energy bills. 

The numeral of individuals labouring to keep up with increasing prices is adding by the day. Unfortunately, the government has not yet developed a robust scheme to bail out citizens. Surveys have reported that a large number of households expect a desperate financial situation down the line, and the unemployed are on the top.

 If you are on benefits and need a loan today to cover the cost of your energy bill, you will likely rush to a direct lender. The abrupt move can take a toll on your budget. Experts have warned that borrowing money against the cost of energy bills will refuel inflation.

In order to curb inflation, the bank of England will raise the base rate resulting in a further rise in interest rates. It means mortgage rates will go up, allowing direct lenders to raise interest rates for credit cards and other loans.  

Why borrowing money is risky amid the cost crisis

Not to mention, the cost crisis is a global concern, but it has badly hit the UK economy as people are paying more money on housing, transportation and energy. Borrowing money is not a solution to skyrocketing energy bills. 

As of now, they do not seem to abate, but you will have to figure out a way to stay on top of your finances. Here are the damaging effects of taking out a loan when prices continually go through the roof. 

You will fall into debt

You must have already encountered various financial problems due to uncontrolled inflation. If you borrow money to pay energy bills, you do not just have to pay back what you borrowed, the amount you were already short of, but also interest. 

Not being able to pay off the debt on time means attracting more interest and late payment fees. Although some loans allow you to roll them over, you will see no difference in your financial situation. 

Interest will accrue over time, and eventually, you will fall into an obligation trap. Your lender will hand you over to a debt collection agency. Even though you comply with their repayment plan, your credit score must have been severely affected. 

A deplorable credit file will make it all the more challenging for you to borrow money down the road. Even lenders will not sign off on applications for emergency loans. 

How to tackle finances when prices have refused to slump

Household budgets are brutally shattered because of the rising cost. Although the government plans to brainstorm ideas to let up the burden of inflation on people’s pockets, they seem to be far away. 

In the meantime, you will have to take inventory of where you stand financially and what you can do to up your budget. 

Rigorously cut back on expenses

Cut, cut and cut. Just whittle down your expenses to ensure your money goes toward essential expenses. While you need help paying off your energy bills, you cannot afford to spend money on entertainment and dine-outs. 

Grab your bank statement to see where your money goes and compare the total spending against your income. As prices have climbed, your income surplus must have fallen short. This is why you will have to rely on a lean budget.

After leaving out all discretionary expenses, check how much you are left with after paying essential costs. If you are yet to labour, you will require to find a scope to cut back on necessary expenses. 

Save energy

The less energy you consume, the less bill you will generate. Many people have been found overlooking meals to stay floating. Before you find yourself in the same horrifying situation, you should consume less energy than the usual requirement.

For instance, instead of using a tumble dryer, notorious for sucking high amounts of electricity, use a cloth line to hang clothes to dry. You will likely save up to 20% on your bill. Further, you should avoid keeping blowers turned on all day and night, the biggest culprit for costing you a fortune. 

Put on extra layers of woollens to protect yourself against cold. Have your diet according to the weather, so your body can maintain its temperature. 

Find a side gig

In addition to cutting back on your expenses, increasing your income is also an alternative. Find a job with high pay. However, it is only feasible for some, but you can find a side gig. 

Various job portals offer part-time work or freelance projects. Taking on additional projects will help you have some cash coming in. It will make it easier for you to cover your living cost without compromising your emergency cushion. 

What if you need money for urgent reasons?

If you need money for an urgent reason, you should borrow money only when you know you can afford to pay it back. It is always recommended only to borrow your need. 

Try to seek alternatives, such as borrowing from your friends and family. You can avoid paying interest. However, make sure that you pay them back on time to avoid a strain on your relationship.

The final comment

Borrowing money amid the cost crisis is undoubtedly not a good idea if you cannot repay the debt on time. Further, it affects not just your personal budget but also the inflation rate. You are more likely to fall into debt.

To stay on top of your expenses, you should rigorously cut back on costs, find a side gig, and consume less energy. Constant tracking is what can help you stay organised financially. 

Description: Only if you can repay the debt on time without compromising your regular expenses should you borrow money amid the cost crisis.