Cost of living – frequently asked questions
If you’re worried about the cost of living increasing, you’re not alone. In this page we’ve answered some commonly asked questions that should help you to:
- Manage your bills.
- Work out how higher interest rates could affect you.
There’s no single reason the cost of living is increasing, but factors include:
- Worldwide demand for oil and gas to power homes, manufacturing and transporting.
- Social and economic upheaval caused by the coronavirus pandemic.
- The war in Ukraine restricting access to fuel and grain.
- Political and economic uncertainty.
Inflation affects the cost of everything, from groceries to household bills. Because wages haven’t risen to match, many people are now feeling the pinch.
The Bank of England defines inflation as:
‘The term we use to describe rising prices. How quickly prices go up is called the rate of inflation.’
While inflation is high, the faster prices and the overall cost of living will increase.
The buying power of your savings will also decrease – if you spent that money, it wouldn’t go as far as it did. Inflation can increase the interest rate you earn on your savings.
Tracking the rate of inflation
The Office of National Statistics (ONS) monitors the cost of over 700 common goods and services which consumers put into their shopping ‘basket.’
This creates a Consumer Prices Index (CPI). Price changes are compared each year to define the rate of inflation.
The Bank of England aims to keep the rate of inflation at around 2% each year, although it’s now much higher.
The main way to control inflation is through interest. That’s the amount of money you pay when you borrow, or earn when you save.
When interest rates are low:
- There’s less incentive to save money.
- Borrowing is cheaper, so people tend to spend more.
- The rate of inflation starts to rise.
When interest rates are high:
- People are more likely to save due to earning higher interest.
- It costs more to borrow, so people tend to spend less.
- Inflation drops and price rises slow.
Having difficulty making payments?
Don’t wait to ask for support – we could help.
While there’s a balance on your credit card, you need to make a minimum payment each month.
By paying on time, you’ll avoid:
- Losing any introductory or promotional interest rates.
- Negative records on your credit score.
- Extra fees and charges.
To reduce your balance and the amount of interest you’ll pay, it will help to repay as much as you can afford each month. You can pay extra at any time – not just when you receive a statement. This could also help prevent you falling into persistent debt.
Managing your credit card
Having difficulty making payments?
Don’t wait to ask for support – we could help you.
With regular payments and a fixed term, a personal loan can be a predictable way to borrow.
If your interest rates are fixed, your monthly loan repayments will be too, making it easier to keep track and understand your borrowing costs.
Some lenders offer personal loans with variable interest rates. In that case, your payments could go up or down over time.
Cutting the costs
Some loans give you the option to make overpayments without extra charges for early repayment. This could reduce the term and amount of interest you pay overall.
Check your loan terms and conditions for details.
Need a break?
You could apply for up to two loan repayment holidays each year, subject to approval. It’s just important to know that you’ll pay more interest overall and your loan term could increase.
Managing your personal loan
Visit our help and support page for useful information when you’re thinking of taking out a loan or need support with your existing loan.
Finding it hard to manage your household bills and credit card, loan or home insurance payments? Find out how we can help.
By following a budget, you could:
- Limit impulsive purchases.
- Avoid persistent debt, or financial difficulties.
- Focus on saving, making it easier to manage future challenges.
- Repay debt balances faster, helping you to save on borrowing costs.
- Have money in your pocket to take advantage of any price reductions or offers.
- Feel less stressed and not argue about money.
- Feel more in control.
We recommend reviewing your budget when:
- Your regular outgoings change.
- You’re planning a significant purchase.
- Your income changes – whether that’s up or down.
- You’ve paid off a debt – how will you make the most of any extra money?
Important legal information
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Page last updated: November 2022.