The Bank of England cut the interest rate by 0.5% to 4.50% even though inflation remains above target. The decision was due tomorrow.

At the exact same time, the Federal Reserve, European Central Bank and Swiss, Canadian, Swedish and Chinese central banks all announced similar cuts.

In this shock move, central bankers around the world took emergency action to end the market meltdown and hope the co-ordinated interest rate cuts will ease the credit crunch and lift the global economy.

It’s some encouraging news but the question is, will it work?

Growing food, petrol and utility prices have made it hard for many of us in the last few months, and things don’t appear to be getting much easier as winter sets in.

It’s not surprising that growing numbers of us are thinking about our finances as Christmas approaches. And its clear that for some of us, we aren’t worried about what we might spend on presents, but whether we can simply afford to eat or keep warm.

Debt calls on the rise

Debt, concerns most of us and the National Debtline is one of the many debt advice organizations on the front line of the credit crunch.

The scale of the problem facing them is shown by the fact that they estimate their debt advisers will take 200,000 calls this year.

The helpline, which gets one third of its funding from government and the rest from the finance industry, doesn't advertise its services but is listed in telephone directories.

In the three-month period to August, 16% of callers were in arrears on their mortgage, compared with 12% in the same period last year.

The National Debtline offers what advisers call 'assisted self-help'. Advice is free, impartial and not time-limited. Case notes are taken by trained staff and you can ring back. More often than not people do, some as many as 20 times.

Information is vital

Some debt advisers believe that if you present people with suitable debt information, the majority of them can deal with it themselves.  That appears to be borne out by a new survey of clients who have contacted the National Debtline since 2003. 90% who have made new payment arrangements with their lenders have been able to stick to them.

The average level of debt for those of you ringing in with mortgage arrears is between £20,000 and £30,000. Some people owe even more though, as it was revealed that one man owed £255,000 on credit cards. 

So,far most lenders are reticent about coming down heavily on their customers in debt, but debt advisers say that that have begun to see more aggressive behaviour towards those of you heavily in debt. 

Free debt advice

Money Hospital also provides a free debt enquiry service. We have partnered with a number of trustworthy debt specialists, so you should speak free of charge to an independent debt adviser who can provide you with advice and solutions to help you resolve your debt and credit problems.

What you can do

• Complete a budget sheet and prioritise your debts. Reduce payments on credit card debts so you can afford your mortgage payments.
• If your budget sheet shows that you can afford the contractual monthly payments plus a little extra towards your arrears, your mortgage lender should not be able to repossess your property.
• If your budget sheet shows you are still unable to afford contractual monthly payments, try to negotiate with your mortgage lender.
• Are you able to extend the term of your mortgage?
• Are you able to refinance to a cheaper mortgage? Although there are not as many products available on the market, if you have a large amount of equity and an excellent credit rating you may still be able to remortgage.

Other sources of free debt advice:

• Citizens Advice: The Citizens Advice service is a network of independent charities that helps people resolve their money, legal and other problems by providing information and advice and by influencing policymakers.
• Consumer Credit Counselling Service (CCCS): the impartial finance charity
• Payplan: Debt management and free confidential debt advice on resolving debt problems.
• Shelter:  If you are struggling with the cost of your mortgage or with any other housing problem, call Shelter's free housing advice line on 0808 800 4444. 
• The Financial Services Authority: The industry regulator has a series of practical guides on managing your money. 
• Speak free of charge to an independent debt adviser who can provide you with advice and solutions to help you resolve your debt and credit problems.

Credit cards are very useful or very problematic, depending on your attitude to using them.

Now, hundreds of thousands of us will see the minimum repayment on our credit cards rocket to £25; this could hurt many of us already struggling to repay our debts.

In October, if you are an Alliance and Leicester credit card customer, you will see your minimum repayment terms switch from the lesser of 3% or £5 plus any interest charges to the greater of £25 or £5 plus any interest charges.

While any move that reduces the size of your underlying debt is a good one, the hike will worry many of you whose budget doesn't stretch immediately to such levels.

The changes will chiefly affect those of you with 0% credit cards who have been paying the £5 minimum but now face a huge jump to £25, and those of you with smaller credit card balances.

Unfortunately this means that those of you in lower-income households in careful control of your finances could find your monthly repayments rise to unmanageable levels.

Cash strapped customers

Sean Gardner at price comparison site Moneyexpert.com said that this is not good news:

'Such a move could cause problems with people who are managing their debt carefully, especially when everybody's income is so much tighter. And because people are becoming more stretched, an increasing number are now paying back the minimum.'

MBNA, the credit card company that provides A&L with its cards, will roll out the same changes to other lenders it supplies, including Virgin Money and its own-brand customers.

But although the higher £25 minimum repayment could cause a few of us a measure of financial distress, the greater monthly sums will chip away faster at our outstanding debt and slash the overall amount of interest needing to be paid.

7 reasons why you should use your credit card for everything

Why not compare other credit card deals to see if you could get a better deal?

In debt for decades

Repaying credit card debt by spending just the minimum amount each month (usually 2.25% of the outstanding sum) can leave you in debt for decades. Yet about 3.38 million of us make only the minimum repayment, compared to 20.9 million who repay their credit card bill in full. 

Finance website Moneynet.co.uk shows that if you have the average UK credit card balance of £1,384 at 18.9% and make the the 2.25% minimum repayment each month, it will take you a staggering 27 years and eight months to pay it all off!

Worse, you would pay £2,673 in interest charges!

Spokesman Andrew Hagger commented on this crazy situation saying:

'Imagine someone told you that your £1,384 purchase would cost you a total of £4,057 (including interest) and would take you nearly three decades to repay, you would think you'd be mad to entertain such a buy. But because consumers don't appreciate the real cost of their credit-card spending with low minimum repayments, many will just carry on regardless.’ 

This kind of danger stems from the credit card lenders' allowing us all to to pay a tiny percentage of the outstanding debt each month, rather than sticking to a set payment that eats into the underlying amount owing. This way, interest can continue to build up in the bank's coffers as the debt is slowly eroded over many years.

Minimum repayment madness

For those of you owing thousands on a credit card, the minimum repayment trap can get ludicrously expensive.

According to consumer revenge website Moneysavingexpert.com, a £3,000 debt at 17.9% on a 2% minimum repayment (£60 in your first monthly payment) would take you 41 years to pay off and cost you £6,400 in interest alone.

Need help with your debts? Check out our debt section for advice and debt management solutions.

Debt charities, (which have seen record numbers of heavily indebted individuals get in touch for advice on coping with their borrowing) are recommending that you pay more than the minimum, even if it is just a few extra pounds each month.

Take that same balance of £1,384 at 18.9% and minimum repayments of 2.25%: if you made the minimum repayment and an additional £10 each month, the time taken to repay the debt would shrivel by 20 years to seven years and eight months, and you would pay just £890 in interest charges, Moneynet's research shows.

A mug’s game?

Frances Walker at the Consumer Credit Counselling Service (CCCS) debt charity said:

'It can make such a massive difference, and so we always advise people to pay over by a slight amount, even if it's just a couple of pounds. The real problems begin if you've more than one card and you are paying the minimum on both; you can get locked in for years and years. It really is a mug's game; you absolutely need to clear as much as possible.'

Only two card lenders (Capital One and Coutts, the private bank) insist on a 5% minimum repayment, and the Capital One 'Classic' Visa card carries a monster 34.9% APR!

As a rule, you should pay off the most expensive credit card debt first if you have more than one, and (if possible) try to shift your existing debt to a new card that offers a cheap balance-transfer deal.

Use our Defaqto credit card calculator to get a great deal on balance transfers.

Another option is to set up a direct debit to ensure you never miss a credit card repayment (this costs you a £12 fine) and then make overpayments by telephone or direct from your current account each month.

Sources of free debt advice include:

• Citizens Advice: http://www.adviceguide.org.uk/ The Citizens Advice service is a network of independent charities that helps people resolve their money, legal and other problems by providing information and advice and by influencing policymakers.
• Consumer Credit Counselling Service (CCCS): http://www.cccs.co.uk/
• National Debtline: http://www.nationaldebtline.co.uk/
• Payplan: http://www.payplan.com/
• Shelter:  If you are struggling with the cost of your mortgage or with any other housing problem should go to http://www.shelter.org.uk/ or call Shelter's free housing advice line on 0808 800 4444. 
• The Financial Services Authority: The industry regulator has a series of practical guides on managing your money at http://www.moneymadeclear.fsa.gov.uk/
• Speak free of charge to an independent debt adviser who can provide you with advice and solutions to help you resolve your debt and credit problems

With lenders becoming more strict over who they give money to, it’s been pretty tough applying for credit in the last year or so.

That is reflected in a new survey showing that over 5% of us have been rejected for a mortgage or loan application since the beginning of 2007, with 13% of us making at least four applications before we were successful!

The survey was carried out by GE Money Home Lending also suggested that a further 1% of us who were rejected, had to apply for a mortgage or loan at least 8 times before we were accepted.

Because of the trend of tightening lending criteria due to the credit crunch, many people with healthy credit scores are being classed as ‘higher risk’; this means that many of us were finding it more difficult to secure the credit they needed.

Nearly 30% of us gave up after being rejected the first time, but a further 12% of us went on to make multiple applications with no success.

• Multiple applications are risky

The risk with making multiple credit applications is that it could increase your risk of being turned down, as failed applications could be logged on your credit report and count against you.

Mark Maguire, spokesman for GE Money Home Lending, said multiple failed applications can be time consuming and detrimental to a borrower, saying:

"As lenders continue to amend the profile of the borrowers they seek to attract by changing their acceptance criteria, it is a good idea to seek help from an adviser.”

• Get independent advice

In recent months, some lenders who traditionally offered better rates through advisers to attract more business stopped doing so, making it more attractive to make an application direct to the lender. However, the trend appears to be reversing once again with better rates once more appearing through advisers, as Maguire pointed out:

"Independent advice remains invaluable as it still remains very difficult to navigate the market and get an acceptance for a loan.”

He also added that it was important to check your credit record to make sure you don't have any errors, or dispose of the half dozen credit cards lying unused in your bottom drawer. Something like that could be the difference between a yes and being declined.

Historically it is the number of searches that is most damaging to your credit file but the higher frequency of searches from firms like mobile phone companies means the key issue now is how recent the latest search was, and not the number of searches.

• Speak free of charge to an independent debt adviser who can provide you with advice and solutions to help you resolve your debt and credit problems
• See your free Experian credit report and start putting your financial bad habits behind you.

We’ve all got bad habits…its just part of being human. 

But with the price of seemingly everything in the entire world rocketing skywards quicker than a NASA project, poor money management shouldn’t be a bad habit you have to keep.

Take a gander at these common financial faults to see which ones you recognise…and what you can do to clean up your act.

1. Living beyond your means

Stop us if you have heard this one!

If your pay is never quite enough and you have to borrow to make ends meet, you are already on the slippery slope to financial difficulties.

The first step to sorting yourself out is to stop thinking of budgeting as a scary word.

List all your income and outgoings to give yourself a clear picture of your spending and then look for ways to cut back (yes, there are ways you can).

Ask yourself if you really need so many glossy magazines each month or that expensive satellite TV subscription and shop around for cheaper deals. Price comparison sites can help you to find the best offers on everything from gas to personal loans.

2. Too many credit cards

Do you accumulate credit cards like boys collecting Matchbox cars?

If so, you could be doing serious damage to your finances. Yes, the introductory offers are very attractive, but before you know it your debts can pile up and you could be struggling. Try to pay off the balance on cards with the highest interest rates.

You also need to learn to say no; and mean it!

3. Living for today

We’ve all done it! Blown that money we were putting aside for a boring necessity on something a bit more exciting.

But spending everything you earn and not putting anything by for tomorrow is a recipe for disaster. Even saving a small amount will give you greater financial security and help you through an emergency, such as a boiler breaking down, car repairs or losing your job.

4. Letting your finances slide

It’s one thing not knowing exactly how much you have in the bank (assuming you actually have anything left in the bank) but quite another to be unaware of how much debt you’ve accumulated and how you are coping with it.

Checking your credit report is a good way to check on commitments. This is your personal credit history and lists borrowing, from credit cards and loans to your mortgage  along with your repayment record. Lenders will probably view it when you apply to them, so it needs to be up-to-date and accurate.

See your Experian credit report for free with a 30-day trial of CreditExpert, the UK’s leading online credit monitoring and identity protection service.

5. Burying your head in the sand

It might work for ostriches but it rarely works for humans!

Thinking your money troubles will sort themselves out is a classic sign of denial (which is not the river in Egypt!) and doesn’t work.

If you’re having trouble making repayments on a loan, credit card or mortgage, talk to your lender as soon as possible.  You may be able to arrange a payment holiday or another way to lower your monthly payments.

There are also many sources of free, independent advice, such as Citizens Advice at www.citizensadvice.org.uk, the Consumer Credit Counselling Service at www.cccs.co.uk and National Debtline at www.nationaldebtline.co.uk.

6. Missing payments

It’s easy to forget a monthly repayment, especially if you have unexpected bills to pay.

Unfortunately, you will not only be wasting your hard-earned cash on late payment fees but you could also jeopardise your credit history.

Lenders are less likely to offer you the best deals if your payment record is patchy. You may also experience an immediate and painful hike in your interest rate if a payment is more than 30 days late.

7. Failing to plan for retirement

It may not seem a priority now but retirement will come sooner or later and you need to prepare.

The earlier you start a pension, the better; and you will have longer to build your fund. Talk to an independent financial advisor about the best options and don’t forget to review your plan regularly.

8. Not being credit card savvy

You may think you’re being clever by using low or 0% balance transfer rates but you’ll only come out on top if you pay off your balance before the introductory deal expires.

Look for extra income to clear your debt, find ways to cut back on your spending or think about using a low-interest loan to reduce the burden of repayments.

9. Putting your identity at risk

Every time you throw a bank or card statement in the bin or give personal details to cold callers, you are laying yourself open to identity fraud; and criminals using your data to borrow money and run up bills in your name.

Always destroy documents showing your personal details before throwing them away, especially if they include financial information (you can get really cheap paper shredders these days!)

Another precaution is to check your credit report regularly for suspicious entries; it’s so effective that it’s recommended by the Home Office.

10. Forgetting to reward yourself for good behaviour

Cutting out all of life’s little pleasures will almost certainly lead to failure when it comes to beating your bad habits, so don’t be too hard on yourself and make sure you have a treat now and then.

That way, you’re less likely to go on a financial binge!

See your free Experian credit report and start putting your financial bad habits behind you. 

© Experian 2008