How to survive the credit crunch

By Chris Clare | February 5, 2010

Recently I have been receiving an inordinate number of enquiries from customers asking for advice on how to survive the credit crunch. It is because of this new influx of queries that I am putting together this brief guide as to what is the best action to take. However, before you read on, you must be aware that this is not a quick fix. A quick fix for the situation we are all facing simply does not exist. We live in a world where to borrow is the norm and to save is not, hence the current financial situation. In order to survive it will take a lot of adjustment, a lot of sacrifice and probably a lot of time.

One of the first steps to take if facing financial difficulty is to look at it for the problem that it is. Borrowing can be like a drug addiction, as the more you get into it, the more difficult it can be to get back out of and the more difficult it can be to stop. As such, the first step to recovering from debt is to admit you have a problem. Only by recognizing the situation can you seek adequate solutions. So before you go any further, you must “kick the habit” of borrowing. Only spend the money that you actually own and only spend it on the things that you really need. Deal with your obligations first and foremost. By doing this, you will feel better at the end of each month instantly and will grow to respect the true value of money once again.

A lot of people are now feeling the pinch because they have fallen into the habit of overspending, and the money they have been spending is all borrowed. This in itself would not be a problem were the market stable today. However with borrowing now being so difficult because of overspending in the past, the cost of borrowing has gone up considerably, so if you can borrow at all, it is at a much higher rate.

So the very first thing you should do is make what is known as an income and expenditure sheet. This will detail all your income such as income from employment any tax benefits and allowances. In addition all your outgoings such as mortgages loans HP and credit card payments fuel costs such as electricity gas, and also food and other expenditure. Things that should be detailed on this list are things you have to pay and not things you don’t have to pay such as going on holiday etc. If you follow this plan you will be able to reap the benefits soon enough and mark my words you will appreciate them far more if you do wait as you will be able to fund them without having to resort to debt to cover them.

The next thing is to reassess your outgoings. Look at ways of reducing the costs, such as changing your mortgage or remortgaging. I would never recommend interest only mortgages as a long term option, but if it is just to bridge a gap until you are back on your feet again, interest only for a while is an option. Better to meet interest only mortgage payments for a while than to fall behind completely and be looking at even more trouble. At least you will be able to keep up your other outgoings also. Once you have your finances in better order again, you can revert back to your repayment method.

Another way of cutting down costs is to change credit card company. Although many credit card providers have bumped up their rates recently, they still offer good introductory rates to new customers with good credit history. Avoid misplaced loyalty to credit companies as they are only making more money off you the longer you stick with them.

You can also consider if the need is great consolidating all your loans onto your mortgage or a secured loan. Now this is never good advice, because consolidating loans and credit cards onto any long term debt will always cost you more as you will be paying for that debt over a longer term. That said it may be your only option to reduce your outgoings to a more affordable level, but I would only consider it if it is the last resort and failure to do it would result in you falling behind, but to reiterate whilst it may be a lot cheaper each month, you will be paying more for your credit over the long term so take this option only if you have to.

Have a look at your utility bills see if there is something you can do to reduce them. Obviously using less power or turn the heating down is always a good start but also get online to see if there is a cheaper supplier for you. This sort of practice can be used for virtually anything and everything you buy so get on the internet and see if you can save some money by just changing who you deal with.

Unfortunately, as I all too aware, there are many people who have tried and exhausted all of these methods and are still in dire straits. Some people are just too far committed to their debts and simple money saving ideas after the amount of borrowing they have been doing just isn’t enough. Things are dearer now than they used to be, I admit, but the simple fact that people have bought so much with money that is not theirs means that now they are up to their eyes in debt. For some people, the debt they are in has just gotten to be too overwhelming.

The best way towards finding a solution to the problem, and I know I may be stating the obvious here, is to communicate with the people that did the lending. I know I said that this would seem like the obvious thing to do but some people would not give this idea the first consideration. The recurring problem in my line of business is that people have an innate fear of talking with the people they borrowed money from in the first place, preferring someone else, maybe more professionally qualified, to deal with the situation. I can only say that if a financial adviser makes the contact as opposed to the client then the outcome may not be favorable.

So start by get all your statements together along with your income and expenditure and get in touch with the lender. Make sure that all your facts are straight be prepared and you should get the result you want. In addition be realistic, if you are supposed to pay the lender 300 per month don’t think you will get away with 10 pm . Whatever you do decide to pay them make sure it is a fair distribution between all the lenders of your disposal income, failure to do this will result in them not accepting your proposal, in addition be prepared to tell them what you are paying other lenders so they understand that you are not short changing them.

You will need to explain to them why you are in the situation you are in, above all you will need to make an agreement to pay them something and that is best done from the basis of some sort of calculation, for example get your income and expenditure worked out, tell them what you can afford to give them and why. In addition try and give them some light at the end of the tunnel in so much as a proposal, once you have cleared one of your other debts you can start paying them more. You will find that this approach will make most lenders far more receptive to any deal you offer them. Remember all a lender wants is the prospect of a full repayment and if you can give them the assurance that this is going to happen in time, they will invariably work with you.

And so to recap, you just have to change the way you spend to get back on track. Only spend what you have to, and only on the things you actually need. Look at ways of reducing your utilities by seeking out better offers from heating, telephone, mortgage and credit card companies. Think about changing your mortgage to interest only for the short term, and as a last resort consider consolidating your debts. As a final solution, get in touch with your money lenders and see how they can help, but not without getting all of your financial information in order first. One thing lenders don’t like is having to ring you before you ring them, so be proactive about your own finances and seek help if you need it.

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