Euro-zone troubles

In what can only be described as a short-term measure, the Central European Bank is preparing to buy up Italian and Spanish debts in an attempt to stabilise the Euro. This comes in the wake of the down-grading of the US credit-rating - which to be fair, is nowhere near as bad as actually defaulting on debt re-payments.
However, the market is jittery and some steady nerves are needed along with some strong leadership. Like it or not, you cannot spend your way out of debt, and the over-spending of recent years is starting to reveal itself.
The parallels with personal spending are obvious, we the consumers have been overspending, this has triggered government and municipal overspending, and once the debt starts to get to the unmanageable stage, some hard-hitting cuts have to be made whether you are talking about a household or as a national economy.
Member nations of the European economy must face cost-cutting head on, jobs will be forfeit as over-spending produces unrealistc demand for employment - when the spending is curbed, the jobs will go. Of course this is not a perfect model as the fallout is not limited to the specific over-spend areas, the effect will be economy wide.
It has long been my belief that much of this overspending is a result of the over-riding appetite for consumable gadgets that is prevalent in the Western economies. However, demand is so insistent, that consumer choice may dictate that gadget-related jobs can be sustained and more fundamental consumer goods manufacturing and marketing might be under threat. I'm not saying that people prefer iPads to food, but somewhere along the line, gadgets are becoming more of a necessity in the public consciousness and less of a luxury. Personally I am quite sure that this is not a good thing when along with the desire for the gadget, comes the likelihood that in 6 months time, the same piece of kit will be on eBay for a quarter of it's original price, sold to partially-fund the purchase of the next generation must-have kit (which, it turns out, the consumer can ill-afford).
The only good thing to come out of the uncertainty (if you are NOT a nett investor), is that interest rates remain abnormally low, and the BoE have not the stomach to raise them and the mortgages of half the nation along with them..

RBS still happily handing out bonuses

UK Financial Investments (UKFI), which manages the Government's bank assets, is expected to give its approval of RBS CEO Stephen Hester's (near £8m) pay packet at the group's annual meeting in Edinburgh. Mr Hester took over the job from Fred Goodwin in 2008, and has been awarded an additional £4.5m potential shares windfall on top of his £2m annual bonus and £1.2 million salary. He and eight of his top team will share a bonus and shares windfall totalling £28m for its 2010 financial year.

RBS is 83% owned by the taxpayer following the bank's near collapse at the height of the financial crisis, and is expected to face wider shareholder anger when the remuneration motion (of almost 400% of salary) comes to a vote.

Saving money in the recession

There are any number of useful online resources for saving money in the current economic decline. These range from helpful sites like MoneySavingExpert.com to comparison sites which help you to not only get deals on insurance, but to reduce your weekly shopping like with 'MySupermarket' which allows you to compare the major retailers.
Another helpful site is the Energy Saving Trust website which helps you to reduce your energy bills as well as giving information on grants and offers. There are sites like Kelkoo which compares retailers of electronic goods, Quidco is a site that gets cashback from retailers across the board, and MyVoucherCodes features deals and discounts from both online and offline retailers.
All these sites are worth checking out if you are serious about shaving some expenditure from your personal budget - I have not supplied links (they would have to pay me for that!!), but doing a quick online search should take you to the relevant sites.
I have a couple of other sites that you may also find useful, PetrolPrices.com allows you to search for the cheapest petrol and diesel in your locality, and Freecycle is a site that works along the lines of the old 'SwapShop' TV programme.
Let me know if you have any other suggestions for sites that have genuinely helped you to save money. (Please don't suggest sites for cheap viagra!)

Related posts:
the decline of my debt
how to get out of debt
Are we in too much debt?
credit card warnings

So the Recession is over?

It's officially over... statistically we are no longer in recession. So why is it that the economy is still repressed, jobs are hard to find and money is hard to come by?
It's simple really, recession is merely a comparative measure - it only looks at productivity compared to last quarter. Now we have been in this recession state for a long time (the longest sustained period of recession for fifty or sixty years), so that means productivity has declined quarter on quarter for an entire year or more. An upturn is good, but a small upturn is actually little better than a leveling out of the bad times - we have sunk so low, but things are not going to get any worse (on average) for now. That scenario whilst generally positive should not be mistaken for a return to how things were - I'll say it again.. it just means that for now, things aren't getting any worse. For a proper recovery, best estimates are in the region of two years or so before we can effectively put this recession behind us and get 'back on track'.

Naturally, some politicians will pick up on the positive signs and try to paint a rosy picture, but the reality of slashed jobs, and static wages is the best that most of us can hope for for the next couple of years. I know I tend to paint a grim picture, but there is good reason. There are people sitting at home wondering why, if the recession is over, they are staring at house repossession and little prospect of work. I don't think it is right that the people who have suffered, and are yet to suffer as a result of this financial crisis should be overlooked in our eagerness to announce the end of recession like it were an event to be heralded. Sure the end of the decline is to be welcomed, I only hope there is enough of an economy left to build productivity back up again.

Related posts:
Is there really a credit crunch?
Is this a recession?
How long will the credit crunch last?
UK reports GDP decline

Personal money troubles

There are two main aims of this blog, one is to report on the global economic crisis, the other is to talk about personal debts with emphasis on using 0% credit cards to pay off debt.
I recently got very close to completely wiping out my own debt using 0% interest deals but have had a bit of a hiccup when I was within sight of my goal. I reverted to using my credit card safe in the knowledge that I would (soon) be able to clear my debts, but unfortunately have been adding to the balance at a greater rate than I am paying it off. I am resolved to be more disciplined before the onset of the expenses that will precede Christmas...
In the meantime I have been grappling with my household fuel provider (dual gas and electric) and began to think about how creeping household bills have helped to build up debt without many people even realising what is happening to their bank balance.
The scenario goes like this:
House fuel bills have been growing at an alarming rate and as most people pay these bills by Direct Debit, they have not really realised how much is leaching out of their bank accounts (recently my provider tried to increase my payments by 60%). The upshot of this is that a lot of people just accept their increased payments (or more likley don't even notice until it's too late). My own approach is to have all my outgoings in a spreadsheet which makes them easier to manage.
My questions to the householder who has just received a huge increase in their Direct Debit would go as follows:

• Have you had a corresponding rise in income? (I expect the answer to be NO)
• Have you adjusted your outgoings to allow for this extra expenditure? (In reality I would also expect this answer to be NO)

If the two questions above are answered in the negative, there could be a problem when it comes to reconciling income with expenditure, and the pressure valve in most cases is the good old credit card. I would realistically expect credit card spending to take the strain of the increase in household bills and this applies to food, insurance or any other expense that can creep up on you unexpectedly.
There are only two answers to the problem:

• Increase your income
• Cut your spending to allow for the increase

Otherwise you are heading towards debt that could take an awful long time to pay off.

Related posts:
the decline of my debt
where did it all go wrong?
how to get out of debt
Are we in too much debt?
credit card warnings

Credit Cards for the Credit Crunch

I have spoken on many occasions about how I have crawled out of the pit of debt by using 0% credit cards and am now very very close to paying the entire original debt off (although I have recently started to build up a balance on my 'normal' credit card which I will now have to work hard to pay off!!).
I am reminded however about my first application for a 0% card... I saw adverts for the wonderful 'Capital One' card which was advertised on the TV and I decided that this was the card for me. I duly applied and was turned down as I had a poor credit rating which turned out to be due to a number of still active credit accounts I had more or less forgotten about. I got a report from Experian or one of those agencies which listed accounts which, although I had not used them for years, were still having an effect on my creditworthiness.
Imagine you have four accounts each with a £10,000 limit that you no longer use - a potential lender can see that you have potential access to £40,000, therefore if he extends your credit even further, you could end up with debts that are beyond your means... So I took the step of formally closing any accounts that I wasn't using. Generally banks do not reconsider once they have decided not to open an account for you, so I went cap in hand (and with a better credit risk) to the nice people at Virgin Credit Card and they took all my debt and placed it in a 0% account, Hoorah for Richard Branson!
However, that is not the end of the story, Oh no... Capital One were still to play their hand. I had applied to them originally, so they knew exactly how much debt I had - they also assumed that I might not be able to get a 0% deal (if my apparent credit risk remained) so what did they do?? They plagued me for months with offers to lend me money (not at 0% I hasten to add). So not only do they NOT give me the account I wanted, they sought to exploit the knowledge they had about my financial position by trying to get me to take out a loan. There's something suspect in my opinion about a bank that thinks you are not worthy of their credit card, and then proceeds to persisently try and get you to take out a loan, and so I have vowed NEVER to enter into any agreements with Capital One under any circumstances. I do not know that any other banks would have behaved any better, but I know unethical practice when I see it and I firmly believe in voting with my feet so to speak... I also resent the implication that I would be so devoid of alternative plans that I would gladly grasp at whatever crumbs Capital One would throw my way. I have news for Capital One - I have had three o% cards in succession over the last few years and am within £100 of seing a zero balance - and have never even had to consider them as a credit provider in all that time.
For anyone who has a debt like this that is on the verge of becoming unmanageble, my advice is to take the same route and explore the possibility at least initially of getting the debt transferred to a 0% card and paying off what you can during the 0% offer (definitely DO NOT SPEND anything on this card...). When the offer expires, don't let the principle attract interest - move it on to another 0% deal straight away. The psychological boost one gets from seeing every penny of your payments coming off the debt rather than being sequestered away to pay off interest, is tremendous and just the ticket to make you want to pay off as much as you can as soon as you can..

related:
more posts on 0% interest
more posts on credit cards
tracking my debt

Bank of England expresses concern

Bank of England Governor Mervyn King states that the UK economy is 'more uncertain then ever'
describing the level of Government debt as 'extraordinary'. According to leading economists the UK will sink into more debt than any other developed country in the world next year.
If this were coupled with an upturn in the economy in general then you could offset the cost against tangible results, however although some industries are reporting stability, there are likely to be significant job losses yet to come in many sectors.
Any hopes that the government had of significant progress before the next election were never really realistic, but look even less likely as each day passes. Right now, Gordon Brown's personal political capital is vastly diminished even the most unbiased political observer must concede that the current administration are in considerable trouble. I would not make so bold as to say that ANYONE could have steered us around the obstacle of global recession, but I maintain that the massive commitment that we have made in order to try and stave off the worst effects of the crisis has always been likely to lead to throwing good money after bad - a precise definition of 'gambling' if ever I heard of one. The trouble is that gambling very often ends up in financial ruin - one thing to subject yourself to that type of fate, entirely another when you do it with a national economy.
Nobody knows what the worst possible scenario might be, but I have a sneaking feeling that we might yet find out. Even a change of government at this stage guarantees NOTHING, much of the damage has surely already been done. It is likely that even the Governor of the Bank of England is not above trying to make some political capital out of the situation, and his comments may well be timed to tip the balance of doubt over New Labour and Gordon Brown specifically. The fact remains however that whatever happens, this administration will be leaving a heck of a legacy in terms of unprecedented national debt which no pretender to the throne should disregard. It is not enough for opposition leaders to shout about recent failings, we need to hear something positive about where a new leadership (from ANY party) will take us which will help us out of this mess.

Related posts:
Is this the new Great Depression?
How to survive recession
Government Intervention
The unsinkable Gordon Brown

Need a new line of credit?

Whilst it is true that credit cards have been one factor in bringing about the Credit Crunch that has wrought havoc on economies over the globe, selecting the right credit card for you can help bring you out of personal financial difficulties.
I will say right at the start, that this advice is not aimed at those who are seriously in debt and struggling to meet repayments - this is for those who are slipping into a 'manageable' debt but would like to be debt free. If you find yourself relying on a credit card for every day purchases like food and consumables, then you may need to seek professional financial assistance.
If you have a small debt that you are determined to pay off then a 0% interest on transfers credit card would be perfect for your needs. I have had three 0% credit cards over the last few years and have managed to shrink a $13000 credit card debt down to around $300 in that time without paying a cent in interest.
In order to do this too, you must be determined to cut out excess spending and certainly to stop using your credit card for purchases - if you do this, then every cent you pay each month will come directly off your debt. If you can't manage to pay off your debt within the 0% interest on transfers period, then you can just switch the remaining balance to another 0% card at the end of the offer.
If on the other hand, you manage to pay your card off every month and have no debt, then you could actually save money by using one of the many cash-back credit cards available. Also worth considering are other incentive and reward schemes such as air miles cards.
The fact is that you can make credit cards work for you if you control your card rather than allowing your card to control you. If your card is not working for you, then ditch it right now and get one that does.

TalkMoneyBlog review

The internet is a great resource for finding helps and tips for frugal living and coping with the Credit crunch, presumably you are aware of this fact and that is why you are reading this blog.
I like to report on financial stories and how they might impact on the average household, and I also like to find good advice and resources for surviving the financial crisis that we are currently in the middle of.
The ‘TalkMoneyBlog’ offers advice on all types of topics related to financial matters, three of which I have chosen to highlight here:

• The first issue is whether Buy to Let Landlords can survive the current financial crisis. This is a comprehensive and detailed examination of possible pitfalls for landlords and how to avoid them, particularly in the light of tightened mortgage offers.
• There are some general money saving tips where the idea of combining ‘freecycle’ and eBay is mooted as a money generating ruse…
• There is advice on Credit Cards Debts Cleared Legally. This last article is the most intriguing of all. The argument is that most credit card agreements actually violate the Consumer Credit Act and therefore can be legally challenged in court. Your previous debt could even be turned into a compensation payment.

This blog is worth bookmarking as articles are added frequently, and the advice is always up to date in this fast-moving environment. Interest rates and exchange rates are currently in a constant state of flux and advice needs to be updated on a daily basis. Every consumer can find something useful at TalkMoneyBlog.

End of Year Summary

'Positive results from a Negative Economy' is the way I am going to sum up the year for me financially. Although the Western economies are in a steep decline this does not mean that individuals cannot create a positive financial environment. I am pleased to be able to report that my goal of paying off credit card debt is now within reach (and don't forget I have paid NO interest on this debt for two years)The green graph above was my debt progress about ten months go. The latest version (pinky-blue below..) shows how I have been able to continue to shrink this debt down to a manageable size.
Some major factors in this have been a small bonus from work which I have used to clear debts, the massive drop in mortgage interest which has freed up more disposable income, and some online earnings which although not used directly for debt, enable me to spend some money without touching my 'off-line' income.
The whole picture is a demonstration of how, even when things are tight, we can still make a positive impact on our finances. The major reason I have been able to achieve this is through sensible budgeting and self-denial with the ultimate aim of having sufficient disposable income in the long-run to be able to save significant amounts of money. In order to do this I had to learn that a 'treat' now could have an unwanted impact (a lot like dieting...) in the long term. I also had to learn that having money in the bank AND interest-accruing debt, was a nonsense - paying off debt is a better investment than saving. However I also learned that getting 0% financing through a credit card helps enormously, but ONLY if you NEVER use the credit card to buy more 'stuff'. In essence I had to reach the point where getting out of debt was more attractive than all the things I could have by increasing my debt (along with the inevitable consequences).
I really hope my story help others, and rest assured when the debt is finally paid off, I will be posting about it at least one more time...watch this space

Related posts:
where did it all go wrong?
how to get out of debt
Are we in too much debt?

Credit crisis

In these tough financial times there are many resources we can use locally, nationally and on the internet. There are services for debt consolidation, financial advice and Debt Counseling, and we can have little excuse for being uninformed about our options.
If your debt has reached a level which is difficult to manage, then there is a possibility that you may need some good advice. Resources giving advice like 'The Credit Cruncher' can be useful up to a point, but beyond manageable debt levels more professional advice may be required.
There are a number of options that people consider, firstly you might consider a loan to cover your debts or a consolidation loan bringing all your debts together - but unless you can get a very good rate, this may not be helpful. For more manageable amounts, a 0% for transfers credit card deal can be very useful for clearing credit card debt. When things get a little more serious, bankruptcy or an IVA might be advisable, but these options require detailed expert advice.
Many, many people have debt at some level, and different advice is available for each individual situation. Our advice is to trawl the internet for advice appropriate to your situation, but take on board opinion from a couple of different sources. Before taking any steps, it would make sense to find out what free advice is available locally as many places provide free advice on debt.

Less than ideal financing...

The latest offering from dNeero surveys is all about 'Payday loans', personally I was glad to have the chance to express some of my doubt about the effectiveness of this type of debt. My philosophy of budgeting and only spending the cash you have is severely challenged by schemes of this type.
To take part in the survey, click on the widget below and make your opinion heard too:




Related posts:
the decline of my debt
where did it all go wrong?
how to get out of debt
Are we in too much debt?

Credit Card Sins

We all surely know that credit card debt is usually a very expensive form of debt, but are we fully aware of some of the tricks that the banks employ to maximise the revenue on their cards?

• First off, there's the way that they allocate your monthly payments. Let's say you have a 0% transfer deal which leaves you with $1000 at 0% on your card. You spend $200, and pay $200 back at the end of the month - you imagine that the $200 will be taken from your spending, but think again...the cheapest interest items will often get paid off first leaving the 'expensive' debt generating more income for the bank. Read the small print - many, many cards operate this way - use my philosophy: Get a 0% card for transfers for all your debt and NEVER use this card for purchases EVER....
• Cash withdrawal on a credit card will often attract far higher interest than the normal rate for purchases, add to this the cash withdrawal fee that you will be charged and Bingo, the most expensive way to borrow money ever! Charges will accrue immediately on withdrawal, leaving no breathing space, no interest free period. We have often seen interest charges in excess of 30% for cash withdrawals, and the best trick of all is that despite plummeting base rates, credit card interest rates are going up! (gotta get the money in from somewhere...).
• Beware of the current trend for offering lower minimum payments - if you're serious about paying off your debt, then having a low minimum payment is NOT an advantage. Low minimums are designed to keep you paying off your debt for decades... don't look at this as being a benefit! Also note that if you meant to clear your balance and accidentally underpay by just $1, you could be charged interest on the entire balance.

The banks will be using credit card debt earnings to shore up their cash flow after foolishly buying all those worthless sub-prime debts. Don't be the one to pay the price, shop around and pay attention to the APR, and read all the small print about how payments will be allocated. My stance remains that the best way to deal with credit cards is NOT to use them. If you must, use the 0% for transfers to pay off your debt (but don't spend on the same card). If you have a card that you spend on, pay off the balance immediately otherwise you are walking into a potential trap. The credit card is NOT your friend!

Related posts:
the decline of my debt
where did it all go wrong?
how to get out of debt
Are we in too much debt?

Credit crunch advice

One of the main themes of conversations at the moment is how to survive the credit crunch and the coming recession. Everyone has their own ways that they have found to promote frugal living and as I have been doing this seriously for a couple of years already, I think I am well-placed to offer some advice.
Here are my hints and tips:

1.Look after the pennies - it's an age-old adage but one I have been forced to use as the bedrock of my financial planning. I don't smoke or drink to any degree, I hardly ever go out for meals or entertainment (such as films or clubs) these days, so where are the savings to be had?
Take a look at the smaller expenses, the snacks you buy on a daily basis, the regular outgoings that you don't really use (gym membership etc..). Imagine the money that you spend this way in a month is sitting in your pocket as a lump sum - does that feel good?
I have a simple strategy for coping with impulse buying including snacks (I have a very healthy appetite), my strategy is that I don't carry any money, therefore I can't impulse buy! If I feel the need to supplement my (home-made) daily lunch, then I make a special trip to the supermarket and buy cheap snacks in bulk packets to make sure I get the best value for money. This usually has to wait for the weekend because I just don't carry ANY money on a day-to-day basis.

2.Make a budget - if you do only one thing after reading everything written about saving money let it be a BUDGET. You cannot seriously engage with your finances without getting busy with a spreadsheet whether it be in EXCEL or an a scrap of paper. List ALL your monthly outgoings that you are aware of - every regular payment and include anything that you can think of even haircuts and anything else that involves money leaving your pocket or bank account. Balance that against your net income for the month and calculate the difference - hopefully this will leave you some spare 'disposable' income - but in the event that it doesn't - get busy with the red pen and strike out any stuff that you don't need - even if you thought you needed it, ask yourself if it's worth going bankrupt for and I bet the answer is no!
If you still come up short, and you have a mortgage, get in touch with the mortgage providers straight away and start a dialogue with them. If on the other hand you have come up with an amount you can work with, this is the money you can spend - this and no more!

3.Don't spend twice - This is the favourite trick of the optimist - if they have a disposable income of £50 for this month, and see just what they always wanted in a shop for £49.99, the temptation is to say 'I can afford that' without remembering to stop spending the £10 a week that the budget usually allows for. The easiest way to cope with a tight budget initially is to deal in cash. Have your monthly disposable income in your pocket and you will be completely aware when it has gone! I would recommend this as a way of doing weekly shopping too - take your shopping budget in cash to the supermarket and calculate your spend on the way round, this is by far the best way to discipline yourself to stick to a budget.

4.Pay off your debts - this should be a priority, and if you have not allowed for paying off debts (not just minimum payments) in your budget, then you must allocate some of your disposable income to actually reducing your debt. I recommend keeping track on a spreadsheet (or even a graph) so you can see your debt coming down - this will encourage you when it all gets a bit much (see how I made a graph of my debt). When you are finally debt free, all the money that was going towards this will then suddenly become disposable income. Until you are debt free, my advice is not to even think about 'saving for a rainy day' - I would pump everything into paying off the burden of debt and think about how I can invest some of my income later. The only time this is not advisable is if you can make more interest on an investment than you are paying for interest on your credit. This includes 0% interest deals - all 0% interest for balance transfer deals are time limited, often for 12 months - you should really be making good use of this interest-free period to pay as much off your card as you can afford. If you are not making use of it in this way, you are just putting off the inevitable and no advice I can offer will help.

These are the thoughts that occur to me now, by no means are these exhaustive, I'm sure I will be able to come up with more, and I really feel I can expand on the o% interest credit cards as these have been the main vehicle that I am using to be debt-free by before the end of next year. Feel free to suggest your own money-saving ideas in the comments.

Related posts:
How to survive recession
Worth investing in a pension?
Will we all end up broke?
How long will the credit crunch last?

Queen questions the Crunch

HM Queen Elizabeth II visited the London School of Economics yesterday and had a question for economics professor Luis Garicano:

Why did nobody notice?

The professor replied that everyone seemed to have been relying on someone else - which is probably about right. He went on to say that everyone thought they were doing the right thing, which seems a little kind on those that mis-sold mortgages in the sub-prime market unless you argue that they thought the right thing was to raise as much commission as they could regardless of the consequences to their clients. But to be fair, even these sharks would not have been aware of the effects of their actions, even when it got to the stage of the major banks buying these value-less mortgages.
The queen rarely allows herself to be quoted on current affairs of any kind, it shows concern for the nation, but the chances are that her own money is safe... Her verdict on the current financial crisis: "awful"...

Related posts:
Prices effected by the Credit Crunch?
Effects of the crunch in the UK
Is there really a credit crunch?
Mortgage lenders in trouble

Best buy balance transfers

Most credit card comparisons involve a combination of interest on purchases and interest of cash withdrawals, minimum payments and the like - when it comes to 0% balance transfer credit cards the only significant comparison is how long the deal will last for.
The 'norm' is to offer 12 months, so be aware of those who are only offering something less than the full year.

The 'Top Dog' spot has been fiercely contested, with Virgin money offering the longest period of 0% on balance transfers (I know because I used this particular offer myself...). Capital One then came along with a deal that lasted up to 16 months, snatching the number one slot.

Virgin credit card have now reacted by matching the 16 month deal - this goes to show that the market does not stay static for long and it's always worth doing a Credit card comparison to check what deals are currently on offer. Be good to yourself, get your finances in the best possible shape right now so that you are in the best position to survive the crunch.

Now is the time for mutuals..

How is it that building societies have become victims of the credit crunch?
It is simply because they are now banks having de-mutualised themselves in the rush to become financial houses able to borrow money. The traditional building society was owned by the depositors since their money was the only cash reserves that the society had. They could only lend out money that was on their books and were not allowed to borrow from banks - in fact they were not allowed to go into debt. Since the eighties, we have been cashing in our good old building societies and turning them into banks. The members have been only too keen to let go of thier assets in return for some good hard cash and really who can blame them?
Now the chickens are coming home to roost with the unthinkable happening - building societies having behaved like banks investing in the sub-prime market, going into debt and finally going bust. Rest assured if your money is in a mutual society it is as 'safe as houses' (pun intended).
Meanwhile, the UK government's own new bank, Northern Rock has proved so popular with investors (after all it can't go bust now it has been nationalised..) that it has been asked to withdraw some products as the other banks see it as unfair competition. More mess created by this crazy interventionalist action. Northern Rock is now seen as THE place to put your money at the expense of other banks simply because it has performed so badly that the government has seen fit to underwrite the whole business - pure madness!

Related posts:
Government Intervention
CBI predicts 'shallow' recession
25% house price drop expected
Fanny&Freddie are nationalised

House prices to fall by 25%

Chief Executive of the nationwide Building Society Graham Beale admitted to the BBC that he felt house prices would drop by 25% by 2010. This at least goes some way to make my own crude prediction of 50% by 2015 look a bit more realistic. I still think that the market could overshoot that 25% mark and bottom out at 50% of the peak of two years ago.

If Beale's predictions are correct, then more than two million homeowners may find themselves in negative equity along with anyone who buys a house within the nest two years... If I am anywhere near the mark, it will be a heck of a lot more than two million who may suffer. Negative equity will only have an impact on those that experience an inability to pay their mortgage or would normally liquidate some of their property equity, so it is not always a disaster, and if they can carry on paying the mortgage ultimately the equity will stabilise and regain it's previous level.

What can we do about it?
Firstly do not try to liquidise any of the capital in your house, do not borrow against your property and make sure you do your budgeting so that you can always pay your mortgage. Do not assume that the housing market will recover any time soon. If you are looking for your first house wait for maybe two years if you can. If you are thinking of buying a bigger house, probably best to wait for two years if you can. Re-asses the market in two years and be prepared to hold out even longer.

Popular Questions:
Will we all end up broke?
How long will the credit crunch last?
Sub-prime mortgages to blame?

There is no Credit Crunch

The Credit Crunch does not really exist because it has not been properly defined.

The economic crisis we find ourselves in is a combination of the collapse of the sub-prime mortgage market in the USA, rapidly rising fuel costs and static wages.
Although you may call it a credit crunch, or any other name, until it is strictly defined, you cannot measure it and therefore you cannot know when the crisis is actually over.

When you listen to people's comments it is obvious that the credit crunch means different things to different people. To some it is about interest rates, to others exchange rates, to many it is the fact that our food and fuel is becoming more and more expensive whilst our wages remain unchanged. All of these are elements of what seems to be a common crisis and what will eventually see us entering a recession. In contrast, a recession is a defined economic term which can be properly monitored, therefore we can know for sure when a recession is over.

The danger of using a loose term is that those using the term will interpret it in different ways. This still happens when the term recession is used, for some they will see it is a time that they lost money on a property, others may see it as signifying job losses. The credit crunch will be blamed for all these things and more, yet what we are really looking at is irresponsible mortgage selling which tipped lending over the edge to the point where debt exchanged hands for more than it was worth. This precipitated by a drop in house prices and coming at a time where we rely far too much on credit and in at atmosphere of rapid inflation. Because it is not defined, the crunch is what you want it to be, you can be sure that the politicians will be exploiting this fact to their own ends time and time again.

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Credit cards for bad debtors

There are many credit cards on the market: some with lower interest rates, some with short-term 0% interest rates and there are also some bad credit rating credit cards that are designed to help people who want to rebuild and strengthen a bad credit rating, or create a credit rating when they don't have one.

These cards may well carry higher interest rates, but whilst you use them and pay them off in full every month you can use the card to build up an improved or new credit record whilst taking advantage of the interest-free period (up to 56 days in some cases). It is important however, that you don't fall into the trap of building up a debt on cards with high interest.
Using debt to build up a credit-rating may seem a strange concept and it is important that you use the opportunity to demonstrate an ability and willingness to pay promptly.

If you use a good credit card comparison site, you will find that some cards offer added benefits, for example Capital One's Classic credit card offers free access your credit report twice a year for free - so you can see exactly by how your credit rating is performing.
Barclaycard Initial credit card, offers the lowest APR of the 'bad credit rating' credit cards available and also comes with the same cardholder services and benefits as a Platinum card.

Always shop around for the best card that suits your needs rather then just accepting the one offered by your bank. This applies as much to those who are seeking a 0% for balance transfers card as to those who need a card to 'repair' a bad credit record.