Seven things you must NOT cancel if you’re short of money | The Sun
MANY of us are being forced to cut back because of the cost-of-living crisis, but the danger of slashing to save is that you could make a costly mistake.
Cutting monthly payments into a pension or insurance may seem a good way to balance your budget but could end up costing you plenty.
Here are seven things you should probably not cancel…
Pension
A pension is a long-term savings plan so any decision you make about could hit your retirement plans.
“You’ll be paying the price immediately, because you’ll be falling behind your retirement goals,” says Sarah Coles of Hargreaves Lansdown.
To make things worse, you’ll also be giving up the government top-up and, if it’s a pension at work, you’ll be losing your employer contribution too: you’ll lose far more than you’ll gain.
“If you contribute 4% of your earnings into a workplace pension, adding in tax relief and employer contributions means that 8% is actually paid into your pension,” points out Carla Morris of wealth manager Brewin Dolphin.
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“Pensions are one of the last things you consider cancelling – you can pay into a pension even if you are bankrupt,” says Sara Williams of the Debt Camel blog.
Before stopping pensions or insurances, talk to a debt adviser about your options and whether there is any other help you can get, she advises.
Home insurance
It can be tempting to cancel home insurance policies to save money, but it means taking a huge risk.
Home insurance isn’t a legal requirement but being without it could leave you homeless and penniless if the worst happens.
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“While hopefully you’ll never need to claim, if you ever do experience a disaster at home, being without adequate insurance can be catastrophic,” warns Sarah Coles.
It’s especially important not to cancel a buildings insurance policy: it covers the structure of your property which means if you’re hit by a flood or fire, the insurance will pay for your home to be rebuilt.
Contents insurance covers your possessions but bearing in mind that many insurers building the two different policies together meaning that even if you think it’d worth scrapping contents cover, the saving won’t be that great.
Car insurance
Depending on your age, motor insurance can take a big chunk of your cash.
But if you every contemplate stopping paying in to your policy to help save money, think again.
“If you’re tempted to cancel your car insurance, it’s important to know you’ll be breaking the law,” says Sarah Coles.
It’s illegal to drive a vehicle on a road or in a public place without at least third party insurance.
If you’re caught driving without insurance you face a fixed penalty of £300 and 6 penalty points.
Your vehicle can be seized and destroyed and, if the case goes to court, you could be disqualified from driving as well as being hit with a much bigger fine.
Life insurance
Many people don’t realise that if you cancel a protection policy such as life insurance or income protection you might not be able to get it again if your health changes.
Also if you cancel now but plan to start again later, it is likely to cost you more.
“This is because these types of insurances are very price sensitive to your age at the time you take them out, so the £30 per month plan you cancel now that you took out in your 30s, could cost you £45 per month when you look to take it out again later simply because you’re older,” says Scott Taylor-Barr, of Carl Summers Financial Services.
It’s also true that prices are climbing, warns Emma Walker, chief marketing officer at Lifesearch.
“Prices for life cover fell on average for about 40 years but have started to edge up again,” she says.
Some insurers offer payment holidays which can be a good way to reduce outgoings in the short term but not lose out on the peace of mind that life cover can bring.
Mortgages and loans
When you’re tightening your belt, it can be very tempting to consider a mortgage or credit payment holiday in an effort to save money.
But stopping payment will effectively increase the amount you owe to the bank which ultimately means you will have to pay back more.
“The interest you would have been repaying is added to the amount you owe and that then starts to incur interest on it as well,” says David Robinson, co-founder at Wildcat Law.
“This really should be a last resort as it may help with your immediate cash flow but could cause greater issues in the future for your finances, especially as interest rates are likely to continue to go up.”
Subscription services
Depending on your deal, stopping payments on a subscription service, such as mobile, broadband or television contract could leave you with a steep termination charge.
“It’s important to check to see if you are still in a contracted period and if so whether you cancel the agreement early,” says David Robinson.
Also don’t think it’s simple to walk away – firms will chase you for money if you don’t end things properly.
“Failure to correctly end your service could result in expensive debt collection on what otherwise may be a relatively small bill,” says Mr Robinson.
Mobile phone
Cutting back on your mobile contract can be a false economy unless you consider carefully how much you actually use your phone.
“If you opt for a lower limit on data and calls, you can end up paying a fortune for going over your limit,” says Sarah Coles.
It means you’d need to be very disciplined about using your mobile at all to avoid being hit with huge charges.
There are also six big changes to your finances coming in the next six months including interest rates and energy bill changes.
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