The First Timer's Guide to Surviving the Recession

30-Jun-2009

Recessions come and recessions eventually go but if you were born in the 1980s or 1990s, you may not know what to expect or how to cope during a period of financial uncertainty. This guide gives all you first-timers a few pointers to surviving until the next boom comes around.

Stick to the essentials

Decide what's essential and what's not. A recent survey for CreditExpert, the online credit monitoring and identity fraud protection service, found that half of us have given up thinking about a new car this year and 30 per cent of potential homeowners have decided not to buy a home. A quarter of 25 to 34 year olds have also put plans for a family on hold due to financial restraints and 12 per cent are delaying their wedding. So, if you don't really need a new car but do want to get married, set your priorities, and your budget accordingly.

Bye-bye bling

Bling and ostentatious displays of wealth are out, so you might want to ask your grandparents for tips on scrimping and saving. They've been through harder times than this and survived.

Be money wise

Get a handle on your money. Go through your bank and credit card statements and look back through your major bills. Identify where you can cut back, then set yourself a budget and stick to it. One way of making this easier is to set a budget for the week, take the cash out of your account to cover it and leave your card at home.  This way, you're physically handing over the money when you make a purchase, making you less tempted to overspend.

Know what you owe

It's easy to overlook a credit card, loan or store card account, so take a look at your credit report, which lists your credit accounts and repayment record. It gives you a snapshot of your current position and helps you to identify which accounts are costing you more, which can be closed and which you should aim to pay off.  You can see your Experian credit report with a 30-day free trial of CreditExpert*, with no obligation to continue as a member after this time.

Understand interest

Make sure you understand interest rates - and know the rates you're paying on your loans. Another CreditExpert survey shows that two-thirds of us don't know the interest rate on our credit cards and more than half of us have no idea what the APR (or annual percentage rate) is on our loans.

Without these facts, you can't decide if the loans you have are a good deal or whether you would be better off with a different source of finance.  Check your statement, or ring up your lender and ask them.  If in doubt, consult an independent financial adviser.  If you've got a variable rate mortgage and your payments have fallen, consider using any money you've saved to pay off higher interest debts first before paying off more of your home loan.

Polish up your credit status

If you need to borrow, it pays to take steps to improve your credit status. Start with your credit report. Lenders look at it when they decide whether to make you an offer and what interest to charge, so correct clerical errors, challenge misunderstandings, register to vote at your current address and ensure it's up to date and that it accurately reflects your situation. It won't be the same as the credit rating calculated by a lender because everyone uses a different formula but it will give you an indication of your eligibility for credit.

Don?t dig

If you do get into a financial hole, avoid borrowing to pay off existing debts. Instead, talk to your lenders to see if payments can be rescheduled and get free advice on how to manage - try Citizens Advice at www. adviceguide.org.uk, National Debtline at www.nationaldebtline.co.uk or the Consumer Credit Counselling Service at www.cccs.co.uk.  Remember, all the lenders want to see is that you are taking steps to resolve the situation.  In most cases they will be supportive if you ring them and explain.

Be benefits aware

You might be entitled to state benefits that you're not claiming. Go to www.entitledto.co.uk to see if you are missing out.

Useful utilities

Use price comparison sites like Lower My Bills to make sure you're getting the best deal on energy and telephones. If you?re not water metered, look at the pros and cons of installing one. Get into the habit of turning off lights, appliances and taps - it's good for the planet and your wallet.

Be swish

You may not be able to afford lots of new clothes but don't worry - swapping events, known among fashionistas as swishing parties, are a hot trend. Ask around and check the internet for swaps near you. You can also look in charity shops, which carry some great bargains in nearly-new designer wear. It?s also worth checking out online services such as www.uk.freecycle.org where people post unwanted items of all kinds, from plants to domestic appliances. You only pay to collect them.

Get fit for free

Travel is an expensive business, so walk or cycle to the shops or work if you can. You don't need a gym to take a run - go to the park instead, buy some weights and download a fitness programme from the Internet. As well as getting you fit, a regular jog is a great way to see more of your town - just be sure to keep safe if you need to jog at night by jogging in pairs or by carrying an alarm if you have to go alone.

Your reward

Surviving a recession means learning to swap the sugar rush you used to get from a spending spree for the lasting satisfaction of managing your resources effectively. You'll not only feel more confident that you'll get through the current economic turmoil but will also learn good habits that could help you to achieve your financial ambitions when the upswing comes. It will become second nature to keep a close eye on your budget, not to fritter your cash away and to check your credit report regularly, so you can afford the life you want without building up a mountain of debt.

* You can see your Experian credit report for free with a 30-day trial of CreditExpert. During your CreditExpert trial, you can also order your Experian Credit Score for just £5.95.