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 can complete a personal budget sheet using My Money Steps.

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.

If you have priority debts with a payment plan in place, these payment arrangements may 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?

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?.

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. 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.
• 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.

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.

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. Telling your creditors if you are struggling also means creditors can let you know how they can help you. 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.

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, 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.

If you want to learn more about this topic, you can read our in-depth guide.

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 guide.