Three Ways to Beat the Credit Crunch

October 1, 2007 By

The credit crunch is quickly becoming the media’s favourite word. However, while the media loves to bandy around words and phrases to reference something easily, this one actually is likely to stick. Banks and lenders have taken huge hits after investing in risky debts that have gone bad, and now they’ve become far more cautious about who they’re going to lend to. Effectively, the days of easily obtainable cheap credit are over. This is going to affect a lot of people across the UK, as they confront their part of the £1.3 trillion debt mountain that has been accumulated in the last ten years. Here are three methods that can help you to beat the credit crunch.

Overpay Your Mortgage

Many people see their mortgage repayment as a fee that they meet every month, and then, passed all of the other bills, anything left over is a surplus. However, if you ever find yourself in the situation of having a surplus, then you should consider making extra payments to your mortgage. You might not be overly enthused about cutting out luxuries to pay more to your bank every month, but it will mean that you’ll stop paying your mortgage earlier and save a huge amount of money in the long term. For instance, if you had a 7.75% mortgage over 25 years you would pay £125,204.68 in interest. Meanwhile, if you made overpayments of £200 per month, your term would decrease to 14 years 6 months and your interest would be cut almost in half – to £66,046.56 (source – The Halifax)

Make Regular Savings

This might sound barmy if you’re already overpaying your mortgage, and you might want to get rid of debts before you start saving, but some savings actually have such good rates of interest that they should be taken out as well as debts. For instance, on Alliance and Leicester Premier Regular Savings Accounts, which are linked to Premier Current Accounts, the interest rate is a huge 12% gross after 1 year. You arrange how month is taken out from what you pay into your current account every month – between £50 and £250. So if you saved the maximum £250 a month, after one year you would have £3250 left over. Then you could use this to overpay your mortgage. It’s a more complicated way of going about things, but as the interest rate beats having a 7.75% debt by 4.25%, it makes sense to save this and continue to pay on your debt. Again, in the long run, you’ll fair as better off.

Insure Your Earnings

Losing your job or being unable to work can be financially crippling for people who need to make monthly repayments, but you can protect yourself against this. One of the most common ways to do this is through taking out a life insurance policy that offers accident, sickness and unemployment cover (ASU). This is an insurance plan where you pay a particular amount a month that insures you to get a much larger set figure in the event of you being unable to carry on working. There are many different plans available, but take a look at ASDA Finance’s life insurance plans for a good place to policy that can include ASU.

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