Credit Crunch Help

The current Credit Crunch has resulted in a sudden reduction in the general availability of credit and loans from banks and other financial institutions. Additionally, when credit is available, the cost of borrowing it has also increased. Financial institutions may suddenly raise the cost of borrowing, or make it harder to borrow, for a number of reasons. It can be due to the anticipated reduction in the collateral available, increased borrowing risk perception, or lack of liquidity of the bank itself. Furthermore, as a number of banks have recently taken out government bonds, their lending practices have been restricted somewhat in order to protect the taxpayers’ investment.

Also, banks are currently reluctant to lend money to each other, both in the UK and globally. This has caused the global economy to stagnate, with the resulting downturn already having effects around the world. Stock markets have been particularly hard hit, with leading UK stock markets showing massive drops on the same period last year. As most are linked to stocks and shares, pension funds are directly affected by any such drop. Credit Crunch Help needs to be taken in order to restore the global economy back to a stable position. As banks and building societies struggle to borrow money themselves, they become ever more reluctant to loan out the reserves they hold, hurting the availability of credit cards, loans and mortgages. If there is no credit crunch help for the financial sector, our credit-reliant way of life will soon come to an end.

When it comes to personal finances, effective financial and debt management is essential in avoiding the problems caused by the credit crunch. One solution could be a debt management plan, allowing you to negotiate with your creditors to reduce the amount you have to repay. If your circumstances are dire and you are facing bankruptcy, it is worth looking into an IVA, or Individual Voluntary Arrangement. Briefly, an IVA is a legally binding arrangement between you and your creditors that allows you to repay a reduced sum over a fixed period. After this period, any remaining unsecured debt is written off.

One of the main causes of the current crisis in the financial sector is the collapse of the American sub-prime mortgage market. In the USA, a very high percentage of mortgages are classed as sub-prime, or high-risk. As the US economy slowed, the rate of defaults on these mortgages increased exponentially, resulting in the lenders losing money very quickly.

British banks had purchased a large number of these high-risk portfolios, thus exposing them to the collapse as well. Ultimately, this has led to a reluctance of banks to lend money to each other, reducing the amount of money available to be loaned to the public and thus leading to the credit crunch.