Pension contributions, mortgage term, credit card: the last resort money options if you’re struggling

If your budget needs a helping hand and you’ve made all of the obvious changes, there are certain options that can be considered as a last resort.

Inflation may finally be falling back towards 'normal' levels, but that doesn't mean the cost of living crisis is over. 

As we explained in more detail here, just because inflation is lower that doesn't mean things are getting cheaper. 

Last resort options if you're struggling

Many of us have already gone through our monthly spend, trimming the fat of unnecessary expenditure wherever possible.

If you’ve already been through the usual money-saving techniques and found that you are still a little short of what you need, what are your last resort options for giving your finances a hand?

These aren’t things that you’ll want to persist with for long, but they can provide a little bit of breathing space while you get through the worst of it.

How to get out of debt: cheapest ways to pay off what you owe

1. Pausing pension contributions

When things get a bit tougher, many of us will go through our monthly outgoings to see if there are areas where we can make a few savings.

And one option will be to pause or at least reduce pension contributions.

After all, what’s the point in putting money aside that you won’t be able to access for decades when you need it right now?

What’s more, given the long-term nature of pension saving, you will have time to make up for that shortfall today by increasing contributions in the future.

It’s far from ideal. 

Pausing or reducing contributions has a long-lasting impact on the size of your eventual pot ‒ the longer the money is invested, the harder it is working to boost your pot.

You could also miss out on further money being added to your pension pot by your employer by doing so.

But if it can help you get through a tricky spot, it may provide a little breathing space.

2. Extend your mortgage term

For most of us, the biggest monthly outgoing will be the mortgage bill. Potentially the size of that bill will have grown off the back of the chaos within the mortgage market over the last few weeks.

One of the key features in determining the size of your repayments is the term of the mortgage, essentially how long you have in which to pay it off.

The shorter the term, the higher the repayments will be.

If you need to give your finances a little wriggle room, then extending that mortgage term can work.

Be warned though, while it can save you a few quid in the short term, it will mean that your mortgage costs more overall, since you’ll be paying interest on your outstanding balance for longer.

3. Take a mortgage holiday

A similar option may be to speak to your lender about the potential to take a mortgage holiday.

It’s not a well-named feature, to be honest ‒ you aren’t skipping a repayment or two, you are simply deferring them since the money will still need to be repaid eventually.

However, your lender may be willing to let you have a couple of months where you don’t make repayments towards your mortgage balance.

4. Moving to interest-only

A third mortgage option may be to adapt your repayments so that you are only paying off the interest.

This will mean that the size of your monthly bill falls dramatically, which can help in the short term.

Again, there are long-term consequences here: by only paying off the interest, you leave a portion of the mortgage that will remain unpaid when you reach the end of your mortgage term.

You’ll need to have a plan in place to pay off that remaining balance at the end of the term, or else make overpayments once things return to normal.

5. Postpone the rainy day fund

Far too few of us have much money set aside in savings, and that’s a real problem.

It means that when something unexpected happens, like the car needing emergency repairs or needing to replace the boiler, we are unable to pay for it.

That can push people into taking on yet more debt that they can’t really afford, which is why it’s a good idea for all of us to try to squirrel away some cash ‒ even if it’s only small amounts ‒ each month.

However, when times are tough, it can make sense to pause contributing to that rainy day fund.

That said, it’s important that it doesn’t become a habit ‒ if and when your finances are in slightly better shape, you need to get back into the routine of saving some money each month.

6. Can a credit card help?

Credit cards can be a terrific tool that boosts your financial health, but they can also make a bad situation far worse, so it’s important to be careful here.

If you are certain that your current issues are only short-term and will be resolved within a couple of months, then a credit card can prove helpful.

It might be a money transfer card, which allows you to transfer money from your card to your bank account ‒ it can help you get out of an overdraft for example, or at least ensure there’s money in there to cover the essential direct debits.

Alternatively, you could look to an interest-free purchase card, meaning you only have to pay a small portion towards your balance each month, without having to worry about interest charges.

We must emphasise that this can only be a short-term fix, however.

That debt will have to be repaid by the time the 0% period ends, otherwise, your debts will only snowball. Tread cautiously.