What is a credit crunch and how do I face one?

The wikipedia says that a credit crunch is a sudden reduction in the general availability of loans (or credit), or a sudden increase in the cost of obtaining loans from banks. it goes on to say that A credit crunch is often caused by a sustained period of careless and inappropriate lending which results in losses for lending institutions and investors in debt when the loans turn sour and the full extent of bad debts becomes known. So let's take a look at how that effects us and what can we do about it.

The short story is that right now it's expensive to borrow money because it was too easy to borrow money before. As money is tight remortgaging is a good idea right now but you can't remortgage anymore because money is tight. Darn.

The slightly longer answer is that for most of us the best move is to reduce our overheads as far as possible and get rid of any excess liabilities (expensive credit card interest payments for example) with the money we free up cutting our costs down. That's what this site is all about and over the next few weeks we'll be hearing from a number of writers as they share ideas on how we can do just that.

The BBC point to similar happenings in 1980 and 1990 and says Those two recent recessions both saw big declines in manufacturing output - factory closures and sharp rises in unemployment among manual workers were noticeable features. so we might expect to see job losses for the next three years.

Please don't start screaming yet.

Nor staying up all night worrying if it comes to it. People are finding it hard to get to sleep for fear of what tomorrow may bring. Yes it is going to be tricky but we are going to get through it the way humans always do - together. We, the writers of Credit Crunchies, have started this blog because we would like to help.

Sadly there is little we can do to cause food prices to stop dancing about. However we can offer some tips. Using the advice that is being offered currently consider using the free money to by slightly bigger packets of dried staples - that is things that if stored in a jar last a long time. The extra tin of cheap pulses or soup each week and if a disaster strikes and there is no money for food - you have a little reserve put aside to cope.

The human body does the same thing. That's what fat is - a little extra put aside for a rainy day. Now too much fat is just as bad as too little so don't guy on a mad panic shop and buy nineteen tons of pasta. On the other hand do make sure that there is a little extra in the larder for a dodgy budget or reduced shopping funds. Sadly they are likely to happen.

Please do not scream yet.

Now would be a very good time to start thinking outside the box. Do you freecycle or use the dump? Do you even know what freecycle is?

Don't worry if you do not many people have never heard of freecycle. The idea is simple - instead of dumping that year old sofa at the tip because you are buying a new one in the boxing day sales why not offer it (for free) to someone else who might appreciate it?

How does this help you?

First it eliminates a big problem for someone else (without a sofa) but it also changes the way you think about "stuff" and this is a big deal. A large part of the current economy deals with stuff and the supply of stuff.

We are trained to buy, use, consume and chuck out. We all do it. All the time. In the USA only 1% of purchased items are in active use 6 months after they are purchased. The other 99% is in the dump.

This is simply not an efficient way to live.

If you could reduce your costs by putting the breaks on that 99% waste factor then you (or I, or anyone else) is going to be far better able to cope with a shortfall in income because our outgoings are reduced. But this is going to take time and a whole new way of looking at things. I'm ready are you?

(You may scream if you wish now).