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Cost of living: if you can't afford your essential costs

Deficit budget

You may find that rising prices push you into a deficit budget. You have a deficit budget if the money you need to spend each month on living costs is higher than the money you receive each month from work and benefits.

Consider essential costs only

A deficit budget means not having enough money to pay for essentials such as your home, food or travel to work. Do not include debt repayments at this point, just essential living costs. Debt payments are paid after essential household bills. Does your income cover your household bills if you don’t pay any debts?

If you are worried about not being able to meet your debt repayments, see the later section Unable to make a payment.

One impact of having a deficit budget can be that you start to rely on credit to top up your income. For example, you may find that you are using a credit card, going further into an overdraft, or asking friends or family for help. If you remain in a deficit budget situation, your debt levels will keep increasing and eventually it may not be possible to borrow any more money.

A deficit budget can also mean you cannot afford to pay for essential bills like your mortgage, rent, or gas and electricity.

Missing essential household bills

Your home or essential services could be at risk if you miss payments on household bills. Contact us for advice if you are struggling to make payments on your bills or if you have already missed some payments.

A deficit budget can also stop you from being able to put money aside for one-off bills such as car repairs, house maintenance or emergencies like a washing machine breakdown.

Completing a budget sheet

You may be able to complete a business and household budget sheet using the Your budget tool on our website. If the tool does not have an appropriate budget sheet for your circumstances, contact us for advice on how to complete a budget.

The budget sheet is split into fixed costs and flexible costs. Fixed costs are items such as mortgage or rent, council tax, gas, electricity, water and insurances. Flexible costs include spending on food, clothing, hairdressing, socialising, meals at work and pocket money.

Take time to complete your budget sheet and think about whether it is accurate. For example, if a family member pays something for you, make adjustments for this in the budget sheet. Make sure you are realistic, even if you are spending more than you have coming in. Don’t be tempted to stop putting figures into the budget sheet just because it shows you are spending more than your income. You need to work out what you need to spend and what you would like to budget for. Once you have done this you can start to look at where you might be able to make changes.

If you have a debt such as a county court judgment (CCJ) or a magistrates’ court fine that is up to date, you need to add it to the budget. Not paying could have serious consequences. Contact us for advice if you cannot afford the payments you are required to make. You can also find more information in our Varying a CCJ fact sheet and our Magistrates’ court fines fact sheet.

If you have other priority debts with a payment plan in place, these payment arrangements may also need to be changed. Contact us for advice if this affects you.

Increasing income

Some people do not get all of the income they are entitled to. This makes it harder to afford living costs. There are a number of ways you may be able to increase your income.

  • Check if you are claiming all the benefits you are entitled to. You can look at GOV.UK or Turn2us for benefits calculators that you can use. If you are in Wales, Advicelink Cymru can help you check and claim benefits that you may be entitled to.
  • Can you increase your hours at work or get any overtime?
  • If you don’t work, can you look for work, either part-time or full-time? If you have a part-time job, could you ask for more hours or look for a second part-time job? Could your partner look for some work? Are there any other members of the household, such as adult children, who can contribute? Can they contribute more than they do now?
  • If you have a spare room, could you rent it to a lodger? The government has a Rent a Room Scheme that allows you to earn some income from a lodger tax free. The Citizens Advice website has information on important points to consider if you are thinking about taking in a lodger, such as whether you need permission and the possible impact on insurance and benefits.

Impact on benefits

If you are receiving any benefits, check whether taking on extra work or a lodger will affect your benefit entitlement.

Reducing costs

Reducing living costs can be difficult to do. You need to think carefully about this. Ask yourself if you can really live on the amounts you decide to set for yourself. Think about how long you need to live on a reduced budget and ask yourself if it is realistic to manage for so long with lower spending.

Reducing your flexible costs

  • Can you reduce how much you spend on clothing? Don’t be tempted to remove this figure from the budget completely as you are likely to need some clothing or footwear in the long run. If you have children, remember they may need school uniforms too. See GOV.UK for information on getting help with the cost of school uniforms.
  • Can you take food from home to eat at work rather than buying food at work?
  • Can you reduce your food and toiletries bill by shopping around?
  • Can you reduce your smoking costs? Your GP may be able to help with this. The NHS has a Quit Smoking website and mobile app that can help.
  • Make sure you are not paying for health costs that you could get reduced or free. If you live in England, see the NHS website. In Wales the situation is slightly different, and the information is on the Welsh Government website.
  • Use price comparison websites to shop around for cheaper car and home insurance.
  • Look for the best mobile phone, TV and internet deals. If you get certain benefits, you may be eligible for a social tariff which offers reduced prices for broadband and some landline services. For information on social tariffs that are available, see the Ofcom website. If you cannot find a cheaper tariff and you are struggling to pay a broadband or mobile bill, you should contact your provider. The UK’s biggest providers have committed to help customers struggling with the rising cost of living to stay connected.
  • Can you travel by public transport instead of using a car? If you use public transport, is it cheaper if you buy a weekly or monthly travel pass or a season ticket?

For more tips on saving money on essential costs, see our Costs of living: making the most of your money page.

Short-term steps

You may be able to take short-term steps to help balance your budget quickly. Stopping some spending may allow you to have enough money to pay for essential bills such as your mortgage or rent, council tax, gas and electricity and TV licence.

Steps you may be able to take include stopping spending on items like clothing, socialising, meals at work, house maintenance, gifts, pocket money, hairdressing and opticians and dental costs. However, in the long-term, you will need to add this kind of spending back into your budget.

Long-term steps

You may be able to reduce your spending on some fixed costs. This could reduce your spending now and in the long term.

  • If you pay your council tax over 10 months, you may be able to pay over 12 months instead. This will reduce the amount you pay every month, but you will not get a payment break in February and March. Contact your council to ask about this.
  • If you pay for a car or household items on hire purchase, you may be able to return these goods. This will mean you will not need to include these items in your budget as an essential payment. Contact us for advice if you are thinking about doing this. You can also find more information in our Hire purchase debt fact sheet.
  • Check if you can reduce the cost of your water bills. The CCW website has details of help that may be available, including tariffs which can reduce bills for some customers.
  • You might need to consider whether you can afford to pay the mortgage or rent where you live. Could you think about downsizing? Sometimes mortgage lenders might offer help such as extending the term of the mortgage to reduce your monthly mortgage payment. Contact us for advice.

Still in deficit

It is not always possible to sort out your deficit budget by increasing income and reducing costs. If your budget is still in a deficit after you have reviewed your income and expenditure, you may need to decide which essential costs are not affordable. Contact us for advice if you feel that you are in a position where you have to stop paying an essential household bill.

Missing essential household bills

If you miss payments for essential household bills your home or essential services could be at risk. Contact us for advice before you miss any essential bills.

Emergency situations

Some of the steps above might take some time to put in place. While you are taking steps to change your income and expenditure, you might struggle to buy essentials such as food. When you apply for benefits, there is often a waiting period before your first payment.

  • Food banks can give you a minimum of three days' food in an emergency. For information about your nearest food bank go to the Trussell Trust website or contact us for advice.
  • If you are claiming benefits, you might be able to claim an advance payment. This is repayable but might help with one-off expenses or allow you to pay for essentials until your benefits start. See GOV.UK for more information about a Universal Credit advance. If you claim Jobseeker’s Allowance, Employment and Support Allowance, Income Support or Pension Credit, see GOV.UK for more information on advances you could claim.
  • If you live in England, your council may have a local welfare assistance scheme that can help in an emergency situation, such as not having enough money for food or to put your heating on. Councils decide their own rules for their schemes. Contact your local council to see if they have a scheme that can help you.
  • If you live in Wales, you may be able to apply for an Emergency Assistance Payment to help with your costs such as food, gas, electricity or clothing in an emergency situation.
  • If you are moving, you could stop paying some essential bills. It is important you are sure you are moving before you do this. If this is something you are thinking about, contact us for advice. Whether you can stop making payments will depend on what you can afford and what the law says about what can happen if you miss payments.

Increasing debt

If you don’t pay an essential bill, it will create debt. Stopping essential payments could see further charges being added and is likely to leave you with a debt to pay later.

Unable to make a payment

If you know that you will struggle to make a payment to a creditor, contact them as soon as you can to explain your situation. Your creditors are organisations or people that you owe money to, for example banks, councils or family and friends. Most organisations follow rules or codes of practice that say they should offer help if a customer is having difficulty making payments.

Telling your creditors if you are struggling will also give them an opportunity to let you know how they can help you. Help that creditors may be able to offer includes:

  • flexibility with repayment dates;
  • offering a payment break or payment holiday;
  • agreeing an affordable repayment plan based on your budget sheet; or
  • offering you a cheaper alternative if you are struggling to meet the ongoing costs of an essential service.

Contacting your creditors can prevent things getting worse, for example it may:

  • stop creditors adding interest or late payment charges;
  • stop creditors starting debt recovery action; or
  • reduce the risk to goods and service that are essential to you.

Credit reference file and future borrowing

Lenders usually use your credit reference file when deciding whether to give you credit. Your credit reference file holds factual information, which can include your payment record on some agreements. Ask your creditor whether the options they offer you will affect your credit reference file.

For more information on credit reference files, see our Credit reference agencies fact sheet.

Who to contact first

Some creditors are more important than others as they have greater powers to recover money that is owed to them. Make a list of your creditors and contact your priority creditors before non-priority creditors.

Priority creditors have more power to get you to pay. For example, landlords and mortgage lenders are usually priority creditors because your home could be at risk if you do not pay them. Common priorities include rent, mortgage, council tax, TV licence and hire purchase agreements.

Non-priority creditors have less power to get their money back. Common non-priorities include credit cards, unsecured overdrafts, unsecured loans, payday loans and catalogues. You do still need to deal with non-priority creditors as they could still take you to court.

Contact us for advice if you are not sure which creditors should be treated as a priority.

What to say when you contact a creditor

You should be able to find contact details for your creditors on any letters you have from them or on their website. Most creditors provide different ways to contact them. Choose the method that you are most comfortable with.

List what you want to discuss with your creditor before you contact them. The following is a list of things you may want to say.

  • Tell your creditor that you are struggling to pay and explain why. For example, a sharp increase in your gas and electricity bill may mean that you don’t have enough money to meet other payments.
  • If you have completed your budget sheet, let your creditor know what it shows or provide them with a copy of your budget summary. This will help your creditor understand what options are realistically available to you.
  • If you have a disability, are suffering with poor physical or mental health or are in a vulnerable situation, let your creditor know if this makes it more difficult to deal with your finances or to deal with them. Your creditor may have a specialist team that can offer you more support if you are vulnerable.
  • Ask your creditor how they can help you. Don’t feel pressured into accepting a particular option straightaway. Let your creditor know if you would rather make a note of what your options are and then take time to work out what suits you best.
  • If you have not already had debt advice, ask your creditor to give you time to get advice. See the later section How to deal with your debts.

How to deal with your debts

There is no set way of dealing with debts. The best solution for you will depend on what your situation is. By speaking to a debt adviser, you can get an understanding of what steps you need to take to deal with your debts in the best way for your circumstances. See the Contact us section of our website for details on how to speak to a Business Debtline adviser.

You can also find useful fact sheets on different types of debt and debt solutions in the Fact sheet library section of our website. Our Ways to clear your debt fact sheet also provides an overview of the different ways you can deal with your debt and how each debt solution works.

Breathing Space

If you need time to get debt advice and find a debt solution, you may want to consider applying for breathing space. Breathing space will stop most types of enforcement, and also stop most creditors applying interest and charges, for 60 days.

To find out more, see our Breathing space fact sheet.