Payday has finally come: everything's fine again - until next week
If you're feeling the overwhelming sense of relief that only ever hits quite so hard on payday in January, then enjoy it while you can, because a new study has revealed the feelgood factor is going to be one of the shortest on record - and you may be back in the red by next week.
The study, by comparethemarket.com (for the Institute of Inertia), found that almost one in five people will be in debt again by 4th February. Millions of us have struggled to make it through the six weeks from December's payday to January's. As a result, a horrible combination of payday loans, credit cards and loans from friends and family mean we've already spent the lion's share of this month's money. February is set to be every bit as tough as January.
Denial
Even more worryingly, we're in denial about the true state of our finances, so in the first few days of feeling flush, we're likely to make some poor spending choices. Nearly 40% of people will go shopping or book a holiday before they get down to the business of paying debts and allocating money for bills.
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Dr Thomas Webb, a social psychologist at the University of Sheffield and Chair of the Institute of Inertia, said "Just like in the run up to Christmas, where people are often tempted to bury their heads in the sand and not think about money, people may assume that January's pay day will go further than it actually does while not confronting reality." He added: "This "ostrich problem" occurs, in part, because peoples' main priority is to feel good about themselves - and confronting the reality of poor budgeting can compromise this."
He says the only solution is to face up to reality sooner rather than later. We need to work out what we have coming in for the month, what is already allocated to repaying debt, and what we have left. Next, check regular bills and calculate what you are likely to need to cover the essentials. If you have any cash left over, you need to divide this on a weekly basis, and keep a close eye on whether you are sticking to the weekly budget.
If you are already falling short before the bills are covered, you need to think about how you can cut these bills - and whether you have the best possible deals on everything from utilities to groceries (and whether you need all the luxuries you are paying for).
If you still don't have enough money to go around, you may need to consider the most suitable way to borrow in order to meet your short-term cash flow problems, without paying through the nose for it. It may be a loan, structured to spread your repayments over a manageable length of time. Alternatively, it may be an interest-free credit card if you are confident you will repay the debt before the interest-free period comes to an end.
If your debts have gone beyond short-term cash-flow issues, you will need to talk to a debt charity, who will explain your options and help you get back on track. Michelle Highman, Chief Executive of the Money Charity explains "At the Money Charity we see on a daily basis members of the public who treat credit and overdrafts as 'free money'. Many of these people bury their heads in the sand and take far too long to pay off their debts, racking up interest and cutting into their disposable income. Through the Institute of Inertia we are encouraging people to take control of their spending throughout the month to ensure that come pay day you are not going straight back in the red. And if you are experiencing debt problems, don't put it off, seek help today."
