The credit crunch is clearly having an effect on all of us as we are becoming more hesitant and cautious with what we spend our money on. With inflationary rises in basic living costs such as housing and utilities, there is no other option but to be careful with our purchases. We also now have a tendency to make fewer transactions with credit cards. This is likely to help us with saving money, as we don’t have to pay the added interest expense that we would if we bought items on credit (and sometimes that can be hundreds of pounds!).

Also, we are more likely to save for products before we pay for them (the trend is back to the traditional ways) and at least that way we aren’t spending money we don’t actually have, and are avoiding getting into debt (or further debt in my case).

More importantly, I’m glad to say that individual insolvencies and the number of Individual Voluntary Arrangements (IVAs) (and bankruptcies) are also decreasing. In the second quarter of 2008 there was a decrease of 2.0% (compared to the first quarter of 2008) of Individual Insolvencies and a decrease of 8.3% on the same period a year ago. Additionally, bankruptcies also decreased- 1.3% on the previous quarter and a decrease of 5.7% on the corresponding quarter of the previous year.

The Insolvency Service, Individual Insolvencies in the second quarter 2008

This is hardly surprising since the Northern Rock scare and the fact that people are being more careful with their spending and trying to avoid getting into debt. I think a lot of this is down to the press for encouraging the general public to save as they keep drumming the importance of it into people, which is beneficial to us all.

But on the other hand, credit card repayments are slower than usual and the trend is continuing to decrease, according to the British Bankers’ Association. Repayments are becoming more difficult due to the consequences of the credit crunch and also, many people are being made redundant, prices are constantly souring, etc. This certainly implies that we may face an expected increase in the number of individual insolvencies and consequently, an increase in the number of IVAs and bankruptcies.

It is important to start saving and paying these credit card repayments as soon as we have the ability to, but with the inflationary rises in basic living costs, this is becoming much more difficult and complicated. There is a vital decision- either we prepare ourselves for an Individual Insolvency or we start assessing ways we can save costs immediately- even if it means eating value products and cutting back on the things we indulge on. Sounds easy, but I think it’s fair to say it’s very challenging!

by Heeral Shah
Debt Free Direct