Simon Trevethick, Head of Communications, StepChange Debt Charity
You might be wondering why a debt advice charity is writing about saving – surely our priority is to help people work out how to repay debt, rather than worry about saving? Well, the truth is, yes and no.
Obviously, it isn’t easy to save if you’re trying to repay debt that you’ve fallen behind on. Yet it’s a chicken and egg situation, as without savings, you’re much more likely to experience problem debt. We so often help StepChange clients who were just about managing until something went wrong – like a car breakdown or a washing machine that stopped working – the kind of thing that, without a rainy-day fund, means you end up borrowing to fix. Too often this small beginning can escalate into a cycle of more expensive borrowing, and problem debt.
That’s why, where possible, we encourage our clients to begin saving modestly as soon as their finances are in a position to allow it. Even when you’re on a debt management plan, the organisations that you’re repaying are usually prepared to accept a budget that allows you to begin saving modest amounts and hopefully start building up a savings habit and a rainy-day fund for the future.
At StepChange we’re big fans of the Help to Save scheme. This allows anyone who is claiming Universal Credit and working to save between £1 and £50 a month, either regularly or intermittently, and receive a 50% bonus from the Government on their savings after 2 years – with a further bonus two years later if additional savings are added. That’s a big boost to modest savings and could make all the difference in future. Saving a regular £10 a month over four years, with no withdrawals, would mean you had a rainy-day fund of £720, including the bonus.
Even if you’re not eligible for Help to Save, there are lots of other clever ways to build up a savings pot. For example, we’ve come across the ‘1p savings challenge’, where you start by saving 1p on the first day, 2p on the second day, and so on. By the end of a year doing this, you’d have a healthy £667.95, although it gets more expensive on a daily basis as the year goes on, and averages out at £1.83 a day for a year which is not affordable for everyone. But it might be within reach if, for example, you regularly buy a coffee on the way to work, and choose to swap it for daily savings.
Lots of banks and building societies offer apps that help you to set up a separate savings fund away from your main current account, that you can dip into if you need to but that encourage you to save.
However you choose to do it, saving gives you a bit of extra security and a bit more protection against the risk of unaffordable debt. While saving can’t solve every problem, it’s a great habit to get into and one that we’re really keen to help our clients establish wherever this is realistic and possible.
You can find more information on StepChange here.
