IS IT POSSIBLE TO AVOID YET ANOTHER CREDIT CRUNCH?

INTRODUCTION

A credit crunch (also known as credit squeeze or credit crisis) is a reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rate. In such situations, the relationship between credit availability and interest rates has implicitly changed, such that either credit becomes less available at any given official interest rate, or there ceases to be a clear relationship between interest rates and credit availability (i.e. credit rationing occurs). Many times, a credit crunch is accompanied by a flight to quality by lenders and investors, as they seek less risky investments (often at the expense of small to medium size enterprises). During a credit crunch, consumers may find it increasingly difficult to get any kind of loan, and they may also find that their debt becomes increasingly more expensive and hard to manage. The credit crunch affects consumers and financial services businesses, making mortgage lending less profitable and harder to access.

Problems of credit crunch

1. Shortage of consumer loans

2. Tighter credit standards

3. Mortage arrears forecast to rise

A credit crunch is usually very bad for businesses, particularly those with high levels of exposed risk to bad debts. Low consumer confidence and lower availability of capital can damage business in almost all sectors.
When a credit crunch becomes serious, credit becomes extremely strained. The companies or institutions that caused the credit crunch in the first place may find it very difficult to survive in this kind of economic climate. When a credit crunch endures for some time, cheap and easy borrowing becomes a thing of the past.

How does it occur?

A credit crunch occurs when there is a lack of funds available in the credit market, making it difficult for borrowers to obtain financing. This happens when lenders have limited funds available to lend (or are unwilling to lend additional funds), or have increased the cost of borrowing to a rate that is unaffordable to most borrow.

How to solve it?

The credit crunch is going to be hard for many people. Along with increasing prices there is also the possibility of losing your job and not being able to pay utility bills or a mortgage. These are very serious aspects to the credit crunch and hopefully I will help you see some light at the end of the tunnel.

In these times of financial hardship and general monetary belt tightening, many people look around to find sources of extra income. Reduce your costs and raise your income - this is the simple sounding answer to the credit crunch problem.

Thrash the Credit Crunch..

The world keeps on finding effective ways to overcome the present economic turmoil. The global financial situation will persist as long as investors refuse to put up the dough. The credit crisis has already come a long way and millions of people have experienced its annihilating financial effects. To beat the credit crunch, people should stay optimistic that they will be able to win the bout against financial instability.
There are a lot of simple methods you can use to conquer your present financial situation. You can start by avoiding debt pile up. Credit cards are the main reason for accumulating debts since most cardholders can go way out of their spending limits. Therefore to prevent this paying in cash would be a wiser option. The use of cash or ATM is highly recommended so you don’t have to worry about paying your monthly credit dues which of course has additional interest. Ceasing the use of credit cards can save you on paying high interest rates which are usually charged by creditors.

7 tips for surviving the credit crunch

1. Verify the status quo

2. Avoid 'atypical' activity

3. Keep up the good payment history

4. Don’t neglect other bills

5. Check your credit reports

6. Plan ahead if missing a payment

7. Read 'junk mail' from your issuer

CONCLUSION:

So it is possible to avoid the credit crunch
Most people at sometimes during their lifetime will face a credit crunch, unless they are wealthy.
Some circumstances beyond our control can make it impossible to meet our credit obligations.
Thousands of people have lost jobs in the past year and slipped deeper and deeper into debt.
To prevent a credit crisis of your own, start pinching pennies now for a rainy day.
We all tend to believe our pay checks will continue until retirement, but unforeseen circumstances can occur, and when they do, we join the ranks of others and can't meet our credit obligations.
Keep in mind, mortgage payments, car notes and utility bills roll in monthly, and funds are needed to pay for our basic needs.
Saving each pay period will build a nest egg to fall back on in case of emergency.
Consider ways to pinch pennies to avoid a credit crunch.
Buy only needed items

REFERENCES:

www.wikipedia.com
www.mirror.co
www.mortgages.co.uk

By-
Aditi Ahuja

MBA 1 B