Majority of consumers fear for their finances

Money worries are no longer a taboo subject and the increasing strain of higher living and borrowing costs is taking its toll. But it is not just the heavily indebted who are concerned about making ends meet.

Last week, we asked if you were worried about your financial situation and the response was overwhelming. More than 3,400 people had responded to our poll at the time of publication and only 16% said they had no financial concerns at all. More than 50% said they are worried to a certain extent because they are definitely feeling the impact of higher outgoings, but can still afford to cover the bills at the moment. 

However, nearly one in three – 30% – said that things are so tight that they won’t be able to cope for much longer.

Widespread concern
UK consumers now owe more than £1.3trillion on loans, credit cards and overdrafts, yet while our debts are still rising our ability to pay them back is declining.

The net income of the average working family has slumped from £26,200 in 2006 to £25,900 today and according to research by Moneysupermarket earlier this year, 53% of us already consider ourselves to be in debt.

To make matters worse, outgoings are rising at a rate that far exceeds that of the average wage rise. After this year’s pay rises, research suggests UK workers will take home an extra £44 a month on average – an increase of 3.4%. However, families are facing a 9% increase in the cost of living, which equates to an additional £148 a month.

This has lead to belt-tightening across the board. Financial hardship is no longer the curse of the working classes – now even those with above average incomes are feeling the pinch created by the credit crunch and rising bills.

How to cope with debt
If you feel the purse strings are starting to tighten, then don’t bury your head in the sand – you must act quickly to keep all your finances in order.

Gather together all your paperwork and get your head around the true scale of the problem. From there, prioritise your bills and pay the essentials first – for most people the mortgage or rent will be at the top of the list. At the bottom of the pile will be some non-essential items, some of which you may be able to sacrifice – such as magazine subscriptions.

Get a copy of your credit profile and look for unusual entries. Obtaining a copy of your profile costs about £2 from credit reference agencies such as Experian, Equifax and Callcredit.

Consider consolidating your debts
According to statistics from UK payments association Apacs, there were 1.9billion plastic card purchases made in the UK during the last three months of 2007 alone – totalling £91.5billion. The number of purchases was 6.4% higher than the fourth quarter of 2006 and spending was 7.7% higher.

Some £32.3billion of this spending was made on credit cards – leaving many users with additional concerns as they struggle to meet minimal monthly payments in an effort to keep up with high interest rates.

If you fall into this category, debt consolidation could be the solution – this means transferring the debts to a card with a lower rate of interest (preferably a 0% rate) or consolidating with a loan.

Credit cards could present the cheapest solution as long as you can secure a balance transfer card with a lengthy 0% rate. There are several on the market, such as the Virgin credit card which offers 0% for 15months, though the balance transfer fee is high at 2.98%. If you can repay your debts quickly the Capital One Platinum, with a 0% rate until November 1 2008, may be more appealing due to its low transfer fee of 1.7%.

However, the temptation with many credit cards is to keep on spending – something you should not do, especially if your card does not carry a 0% purchase rate (the Halifax One Online Special carries a 0% balance transfer and purchase period for 12 months; with a fee of 3%).

You should also set up direct debits to ensure you at least meet the minimum monthly repayments.

Another issue with credit cards is that the 0% rates are only available to those with excellent credit scores.

If you have larger debts, want to spread the payments over a long period, lack self-discipline, or don’t have a perfect credit score, consider a secured loan as a solution. This will mean offering your home as equity to the lender but because of this security, providers will generally make their best rates more attainable. The leading secured loan rate is a Moneysupermarket exclusive on offer from First Plus at 6.6%.

For those who don’t want to offer their home as security, personal loans are available from 6.7% – Moneyback Bank, owned by Alliance & Leicester, currently offers the market-leading rate. However, due to the increased risk to the lender the leading rates are only available to those with ideal credit scores.

If you’re unsure about your credit rating use the loans and credit cards Smart Search tools to compare deals based on your profile.

Remember help is available
It’s absolutely crucial to remember that whatever your financial situation, you’re not alone.

If your debts are out of hand, our debt guides will point you in the right direction with advice on IVAs, debt management plans and bankruptcy. However, before you consider these more drastic options seek independent and free advice from organisations such as the Citizens Advice Bureau and the Consumer Credit Counselling Service. The latter speaks to more than 6,600 people a day about debt-related issues – and should be able to point you in the right direction.

Top money-saving tips
Even if debt isn’t a problem for you at the moment, there are still some simple things you can do to reduce your monthly outgoings and offset some of the increases we’ve seen in tax, food, fuel and energy costs:

  • Shop around for cheaper deals. Thanks to the emergence of comparison websites, this need only take minutes and could save you hundreds of pounds on essential outgoings such as utilities and car insurance, and slash other costs such as broadband and mobile phone bills.
  • Change your spending habits slightly. This doesn’t mean you’ll need to live a frugal existence but if you cut out the daily coffee from Starbucks and bring a packed lunch in to work instead of buying a sandwich, you could easily save yourself between £50 and £100 a month.
  • And what about doing your weekly shop online rather than going to the supermarket? If you’re easily tempted by special offers and regularly find you come home with far more than was on your shopping list, ordering online could save you a fortune.

THINK CAREFULLY BEFORE SECURING DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.

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