5 Steps to Surviving the Credit Crunch

By MT on Tuesday, March 18, 2008
Filed Under: Financial News

Currently, the financial markets are in turmoil and there are serious questions over whether some countries are headed for a recession or not. With the current economic climate, it is a wise idea to take stock of your finances, particularly as many experts are predicting that we could be in this for the long haul.

Here at Moneytowers.com, we have put together a list of five easy steps we can all look at doing to help to protect ourselves during this credit crunch.

1. Reduce your outgoings
Now is not the time to be frivolous – so the first step is simply to look at your outgoings and try to cut down on life’s non-essentials. If you minimise your outgoings, you are likely to be better situated if the economic climate takes a further turn for the worse - and sometimes the simplest changes can save the most money!

The cost of living has already gone up with the price of some foods and petrol soaring. Cash is one of the most risk-free assets that you can hold therefore it makes sense to try and protect what you have.

No-one is saying to live like a hermit, but making the small changes can really help – make sure you shop around for your car insurance and utility bills, and try to cut down on the excesses such as that coffee you buy each morning, or cutting down on eating out.

2. Reduce your debts
If we do end up in a recession, having large amounts of debts is not a good idea. Recent figures show that in the UK alone, around 6.5 million have consolidated their debts in the past three years, and 1.29 million of these have unsecured debts of more than £20,000.

High levels of personal debt is never really a good idea at any time, but in times of economic instability where there are increasing redundancies and credit is harder to come by, high levels of debt are much worse.

So, now is a good time to try and get those debts sorted. Consolidation is not always the answer – it is worth looking at the snowballing technique to see if you can help make a good dent in the debts. If you have credit cards and don’t clear the balance in full each month, it may be worth looking for a 0% interest card to help you out.

3. Mortgages
It is important to try and ensure you are on a good mortgage deal as mortgages are likely to be the single largest debt that you have.

In recent months, lenders have pulled cheap deals and have also pulled out the high loan to value ration loans on offer. Fixed rate mortgages are a popular option because it is easy to budget – you know exactly how much money will be taken from your account each month. However, in a time when interest rates are being cut, tracker mortgages can work out cheaper.

It is important to note that the lowest interest rate packages may not actually work out the cheapest – if you are planning to remortgage, make sure you take all the fees (such as early repayment and setting up fees) into account as low rates often have high set-up fees which can often outweigh the benefit of having the lower rate, particularly on smaller sized mortgages.

4. Credit Record
Check your credit record to ensure that it is correct. In a time of financial uncertainty, lenders tend to get quite picky about who they will lend to therefore it is imperative that you try and keep your credit record as clean as possible.

If there is information on your credit record that doesn’t look good but there was a good reason for it (perhaps serious illness or redundancy) you can attach a note to your credit file and ask lenders to take this into account when reaching their lending decisions in future.

If you haven’t got a good credit record, don’t despair - read our free guide to your credit score here.

5. Save!
Become a saver, not a spender. At credit crunch times, banks like to try and get as much money through the door as possible and this is good news for savers as rates should be competitive.

However, it is advisable to spread your money around – in the UK, if a bank or building society goes bust, savers will be compensated up to a figure of £35,000. Therefore it is wise not to have more than this saved with any one bank or building society because if the worst does happen, you will not receive all your savings back.

If you are looking to invest, spreading your investments is also probably a good idea with diversification of your investments being the key. This means that you can balance your investments so that the volatility of one stock can be countered with another in a different sector.

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