Surviving the credit crunch

The current credit crunch looks set to be here for some time, with high fuel and rising food prices, restricted access to credit and mortgages increasingly difficult to obtain.

It looks like the good times of the past 10 years are coming to a temporary halt and we are going to have to learn to live within our means again. But what can individuals do to help themselves survive over the next couple of years?

Financial research analyst Defaqto offers some tips to help you survive the credit crunch:

Budget

It is time to return to the old days of seriously managing your money. Make some time to plan and manage your finances. 1 hour per week as an absolute minimum

Keep a weekly diary of what you spend, and what you spend it on. You will be amazed when you realise where all your money is going

Prioritise your spending and identify all non-essential expenditure.

Restrict your non-essential spending

When you know where your money is going the obvious thing to do is cut back on what you spend.

And it doesn't have to be dramatic to have an effect

Stay in and cook, rather than eating in restaurants or buying takeaways - rediscover the joy of cooking for yourself

Why not cancel the gym membership and buy a bike and cycle to work

Before making car journeys think whether it really is necessary, not only will you save money but it will be good for the environment

Take sandwiches to the office rather than going to a sandwich shop

Don't buy coffee in expensive coffee shops

Read your news online rather than buying newspapers

Drop one or more of your satellite TV subscription channels

Now is the time to cut back on alcohol and stop smoking, saving you money and keeping you healthier.

Maximise your savings

If you aren't doing so already you need to start saving, even small amounts will help

If you do have savings make sure you are getting the best savings rates. Use websites like defaqto.com to find the best home for your money

Study the terms of the savings account before you invest. Many accounts have withdrawal restrictions or penalties so make sure that you're happy that the details suit your circumstances.

Make sure you use your full ISA allowance to avoid paying tax on your interest. Even if you can't lock the money away for the long term but need to access the funds it still makes sense to garner the tax advantages of an instant/easy access Cash ISA.

Think about switching your current account to a better deal.

Use the web for smarter spending

Even if you cut back on spending there will still be things you need to buy, so why not make the web work for you:

Use online cashback websites such as quidco.com and topcashback.com to get some extra money back when you buy online

Look for shopping discount vouchers on websites like moneysavingexpert.com and hotukdeals.com

Use online shopping sites like mysupermarket.co.uk to find the cheapest place to shop for your groceries

If you are buying DVDs or games to while away your evenings in then use find-dvd.co.uk and find-games.co.uk to find the cheapest online sellers

If you're going on holiday or travelling use sites like expedia.co.uk; laterooms.com and lastminute.com for your travel and accommodation

Control your credit

Only borrow money if absolutely necessary

Don't miss monthly payments on your credit card or go over your overdraft limit and pay unnecessary penalty fees

If you can try and repay more than the minimum repayment amount as doing so will shorten the duration of the debt. A £1,000 balance charged at 1.25% per month would take 21.5 years to repay if you only repay 2% each month with repayments (including capital) totalling £2,354. Up the repayment to 5% of the balance each month and the debt will be cleared in 6 years 11 months with repayments totalling £1,311.

If you repay your credit card balance in full every month use a reward card to get something back on your spending (cashback, air miles etc).

If you have a good credit rating consider changing your credit card every year or so to take advantage of introductory offers.

If you're going to use your credit card abroad get a card that does not levy a surcharge on overseas purchases: Abbey, Nationwide Building Society, the Post Office and Thomas Cook all offer such cards. Most cards levy 2.75% to 3% on overseas purchases.

Nationwide's current account should also be considered by frequent overseas travellers as its debit card does not levy additional charges on foreign use.

If you have a mortgage and a reasonably high level of savings think about the possible benefits of an offset mortgage.

The mortgage world is a strange place at the moment but those with a good credit rating and a reasonable level of equity in their property should not have a problem accessing the best deals.
- Remortgages: it's difficult to prejudge with certainty what the bank base rate will do but the general consensus now seems to be that they'll decrease in the short term. Sentiment changes however. If you're taking out a mortgage consider whether you want the certainty provided by a fixed interest rate or whether you would prefer a discounted variable, tracker or capped rate. You can get a lot of information on current mortgage offers from comparison websites but you may prefer to use the services of a broker. If so, go to a ‘no fees' broker.

It can be very expensive to remortgage so think about whether you really want to go through the process every 2 years - would a 3, 4 or 5 year initial rate term suit better?

Security

DO NOT cancel insurance and protection policies to save money without giving it serious thought. Car insurance is required by law, and home insurance is vital to protect your house and belongings

If you have any payment protection insurance don't just cancel it (with rising unemployment now is probably a good time to have unemployment insurance). Either keep it, or look to replace it with a cheaper short-term Income Protection policy from providers like postoffice.co.uk, britishinsurance.com, or antinsurance.co.uk

If your insurance renewal is up consider using an online aggregator to shop around, but make sure you know what cover your new policy will provide (you can check how your home or motor insurance compares at defaqto.com).

Where should you NOT cut back?

Despite feeling the need to cut back there are some areas where you should think hard about before making the decision. One of these is not cutting your children's pocket money. Don't get them worried unnecessarily!