Dealing with the credit crunch
Credit crunch survival checklist
There is a lot to take in at the moment and advice about how to prepare for an economic downturn coming from everyone from the prime minister to your spouse. Whether you're in the black or the red, there are both precautions and opportunities for everyone.
1. Review your budget
Yes it's dull, but it's important. If you're in the red, this will help you work out how much overspending you are doing and where the money is going so you can cut back and plan ahead to avoid and decrease debt. If you're in the black, this will help you identify opportunities to save and invest more effectively and make your money work harder.
2. Cut back
This is crucial for anyone in debt or who might slip into debt. At the moment it's better to save than to spend so look for ways to reduce spending in shops, bars - just about everywhere.
It could be small things that chip away at your income - buying just one CD a week for £9.99 will cost more than £500 a year. A good look through your bank statements should help you spot any errors - refunds that never happened and charges that should not be there. It will also reveal ways to cut back and give you a chance to spot any rogue direct debits or standing orders for forgotten gym membership.
3. Bank online
If you don't do it already, this is a great way to help you keep a closer eye on your balance and stop you going overdrawn.
4. Switch and save
Think about how you can make your biggest bill - your mortgage - cheaper, either now or in the near future if your current deal is coming to an end soon.
The same applies to just about everything you spend money on from your mobile phone, broadband, satellite TV, landline, gas, electricity, water, loans, credit cards and even your current account. You can also switch off and save to keep energy bills low.
5. Boost your savings
It's depressing to see that while many banks are not passing on the interest rate cut to borrowers, they are quick to pass it on to savers.
There are still some good savings and ISA rates out there though so check your saving rates regularly as they often sneak cuts in without you realising. Consider tying some of your savings up for a fixed period to get the higher rates and look at fixed income bonds. If you're paying off debts then aim to have something put aside for emergencies.
6. Make your debt cheaper
Don't feel overwhelmed by debt but take the sting out of it by switching to make it cheaper.
Look for 0% balance transfers for credit cards but make sure you know how much the new card will charge for purchases as the rates are often high. You may want to use a separate card for purchases. Better still, stick to cash and avoid using credit cards altogether.
If you are tempted to take out a loan to pay off debts then make sure you do not turn several unsecured credit debts into one big loan secured on your house. And avoid debt consolidation schemes and loans which charge fees and cost a fortune. www.payplan.com offers a free service.
7. Pay off as much as you can afford
This applies to your credit card, where repaying the monthly minimum will ensure it takes about 40 years to clear your balance. Bump up the payments to as much as you can spare and stop using the card so that you are just reducing the debt.
For your mortgage, speak to your lender about paying off some capital or increasing repayments now to reduce repayments - or the overall term - in the future, if you can spare the cash. Check with your lender first to make sure there are no penalties for doing this.
8. Keep your credit record healthy
With lenders getting fussier, this will be an advantage. Start by checking your records with the three agencies - Experian, Equifax and Call Credit - to ensure there are no errors.
If you are still trying to get credit and being refused don't be tempted by expensive bad credit deals or credit repair companies, it may just be because everyone is finding credit harder to get at the moment.
9. Review insurance
You may be tempted to buy more insurance or get rid of what you have. Check with your employer before buying any life or accident policies as you may already be covered through employee benefits.
Ditching payment protection insurance on a loan or credit card will depend on how confident you are about your circumstances both now and in the time it will take you to pay off the debt.
If you would prefer to keep the cover, then at least shop around for a cheaper version. If you don't need payment cover then check it has not been added automatically. Shop around for the cheapest card insurance then ask your existing provider to match the quote when renewal time comes.
10. Keep your budget under review
It will be a crucial planning tool, especially if your circumstances change. It will also help you save as much as you can and help you focus on longer term goals from buying a house to saving into a pension.
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