Credit crunch 'will be with us a long time'

14/04/2009

Consumers must take their debt problems in hand now - rather than waiting for the end of the credit crunch.

New analysis from financial website The Motley Fool, released today, suggested that many debtors were not taking the severity of the crisis seriously enough.

The site's head of personal finances added that many believed that "things will be better tomorrow" - despite most economic indicators predicting recovery from the current recession at the end of the year at the earliest.

Respected forecasts from groups including the International Monetary Fund show that the economy will shrink rapidly in 2009, before growing very sluggishly in 2010.

Moreover, unemployment rates commonly lag behind economic recoveries - meaning that the jobless total could rise until well into next year.

Recent figures from MoneyExpert.com have also shown that consumers are paying on average 1.1 per cent more in annual interest on their credit cards then they did two years ago.

This is despite the Bank of England base rate being at an all-time low of 0.5 per cent.

David Kuo, director at The Motley Fool, said: "This credit crunch is going to go on for a while, don't expect things to be better say in six or eight months['] time this is going to go on for a long time.

"What people need to do is take action now and try and reduce whatever debt they have and don't fall into the trap of believing things will be better tomorrow because I think things will be worse tomorrow."

Also commenting on the new analysis, Kevin Still, EuroDebt director, said: "Unless job loss is involved, where financial problems are more immediate, there is generally a meaningful time lag between media focus on an impending crisis and it hitting most people directly in the pocket. Bearing in mind that the 'Credit Crunch' became headline news from July 2007, many are now only feeling the cumulative effects of APRs rising on credit cards, energy bill increases and reduced income.

"This has been softened by interest rate reductions for homeowners with variable mortgage rates, but this may only be temporary. The IMF forecast suggests that we should be planning for the long-term and taking active measures to control expenditure and keep debts under control."

Tags; Debt Management and Banking, Young Family Finances, Credit Card Lifestyle, Recent Graduate Debt,

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