GET ON TOP OF THE ECONOMIC DOWNTURN
By Credit Expert
Wednesday, July 30, 2008.
Officially it’s billed as economic uncertainty – but if there’s one thing you can be sure of with the current downturn, it’s that your wallet is going to be affected.
The latest statistics in the UK show that consumer inflation leapt 0.3 per cent in the last month to 3.3 per cent. It may not sound much but the higher-than-expected jump means that interest rates are also set to rise.
What’s more, according to the governor of the Bank of England, Mervyn King, the doom and gloom is going to continue. “Inflation is likely to rise sharply in the second half of the year to above four per cent,” he says.
And it’s not just borrowers who will suffer. The rocketing price of oil and food is already having a devastating effect on day-to-day expenses, with one index showing that the combined cost of our household bills, transport and grocery shopping has soared nearly 20 per cent in the past year.
But if you think it’s all sounding hopeless, think again. There are plenty of things you can do now, soon and later to see the downturn through.
Things to do now.
Draw up a budget.
List all your sources of income and all your outgoings, then work out where there are shortfalls and where you might have some surplus. Be honest – you’re only cheating yourself if you miss anything out.
Find out how you can make the most of your money by checking out financial advice websites, personal finance magazines and newspaper sections. The Financial Services Authority has a database of authorised advisors at www.fsa.gov.uk/register
Tighten your belt.
Make a list of ways you can cut back without pain. It might include car-sharing, making packed lunches, swapping DVDs with friends or perhaps turning down the hot water thermostat by a couple of degrees.
Keep up repayments.
Don’t be tempted to take an unofficial repayment holiday while you’re working out what to do – missed payments will stay on your credit report for at least 36 months and damage your credit history, making it more difficult to get good deals in the future.
Check your credit report. This is a key part of your financial CV and gives details of your credit accounts, such as cards, loans and mortgage, along with your repayment history. Lenders usually check it when you apply for credit and it shows what you owe and how well you’re coping with your borrowing. Click here to see your free Experian credit report and find out how you’re doing.
Things to do soon
Clean up your act.
Now’s the time to start tidying up your credit report – correcting any errors, adding a note of explanation if necessary to explain an entry and closing unneeded accounts. An accurate and up-to-date report could make the difference between getting the offer you want or being turned down for credit.
Register to vote.
This costs nothing, is quick and easy to do and may help improve your credit rating. It confirms to potential lenders that you live where you say you do – and it can also help protect against identity fraud.
Your credit report can help you to identify the accounts that are costing you the most. When you have a hit list, shop around to see if you can roll up more expensive debts into a single, cheaper loan.
Find the best deals.
Price comparison sites can point you in the right direction for everything from fuel bills to supermarket shopping, credit cards and insurance and help you save money on life’s essentials.
Safeguard your ID.
Take some basic precautions against a thief running up debts in your name and trashing your credit history. Start by shredding everything carrying your name and address, especially bills and statements, before throwing them away. You’ll find a full checklist at www.stop-idfraud.co.uk
Things to do later
Grow financial roots.
It’s probably a good time to start a new savings plan – but you need to pay off your debts first, unless you can get more interest from investing than you have to repay on your borrowing. If you have money to spare, set yourself a target – for example, building up a deposit for a home of your own.
Set up a treats fund.
Saving money is like dieting – if you cut back too hard, you’ll fall off the wagon. You might want a night out every month, the occasional massage or an annual holiday.
Find a new source of income.
If you have a spare room, you could take in a lodger – up to £4,250 a year is tax-free – but don’t forget you’ll need to get permission from your mortgage lender. If you have a garage or parking space, that could also generate extra cash.
Talk to your lenders.
If you fear you’re getting into trouble, you need to face it as soon as possible. Lenders are used to this situation and will help you to find a way forward – perhaps through a payments holiday or a new schedule of repayments.
Ask the experts.
If times are really tough, get free, expert advice before doing anything drastic such as handing back the keys of your home. Try Citizens Advice – you’ll find a local office in the phone book or at www.citizensadvice.org.uk – or the Consumer Credit Counselling Service (CCCS) at www.cccs.co.uk. National Debtline at www.nationaldebtline.co.uk is another good option.