As we see yet another trimming of US interest rates many people are starting to ask whether this is the correct course of action to try and re-inflate the money markets around the world. While central banks around the world have either reduced rates, or are pondering imminent reductions, the credit crunch crisis is getting worse. In the UK we have seen the likes of Egg recall up to 160,000 of their credit cards to reduce the chances of default and we are seeing thousands of US citizens at serious risk of losing their homes. Is the interest rate option really the only one open?

The main benefit of falling interest rates is to reduce the cost of debt and try to bail out the business sector, which is after all the heart beat of any economy. Historically, interest rate changes take anything up to a year to have the desired effect but it is really the first stage in a long term recovery process. In the short term the more prominent affect of falling interest rates is usually an increase or stabilisation of the level of confidence in the economy. However, the credit crunch is something that very few people have experienced and is a real one-off situation. We have been through vaguely similar situations but on a much lighter scale, and ones which have been rectified with a few calming words from the worlds central banks and interest rate reductions.

In order for the world wide economy to pick up we need to see confidence returning to both the credit market and worldwide business arena. The stock markets around the world are crying out for good news but of late it has all been doom and gloom. Exactly when confidence in the worldwide economy will pick up is anyone’s guess, but while interest rates are part of the solution, the days of simply indicating a change in interest rate policy to “fix” the economy have gone.

Confidence is the name of the game and until we see signs that the worldwide economy has “bottomed out”, we may well be in for a whole lot more bad news before is gets better.

As the oil prices continues to hover around all time high levels we are starting to see genuine concern that the Bank of England may not be able to force through major reductions in interest rates, as many had expected. But how can inflation affect the direction of interest rates?

Historically the weapon of interest rates has been used to either increase economic activity, by reducing rates and making debt cheaper, or increasing rates and making debt more expensive. The cheaper it is to borrow money the more chance of the consumer being in a position to finance their debts and have more money in their pockets, as well as offering more access to funds for businesses looking to invest into their operations.

At this stage of the economic cycle we are seeing consumer demand come under pressure due to the ongoing economic conditions, but we are also seeing businesses increase the price of goods and services directly linked to the price of oil. The increased cost of transporting goods needs to be passed onto the customer at some stage, whether partially or fully, and this is what we are starting to see now. However, there is concern that should interest rates fall to far and the price of oil stays around current levels, we will actually see businesses increase their prices yet further – due in the main to the consumers access to cheaper debt and resulting growth in demand for services / products.

As we see inflation move towards the upper band of the UK government’s target, with many suggesting that it will break through the upper limit very soon, there is potential for a further substantial rise in the rate of inflation as interest continue to move lower. The Bank of England have a very difficult balancing act to figure out, on one hand they need to make cheaper funding accessible to business and the consumer to promote demand, but they also need to ensure that price inflation does not get out of control.

A very very difficult situation to handle!

While news that UK base rates have been reduced by 0.25% has been greeted with relief in many areas of business, there are real fears that it is too little too late. In a week which saw the owners of the Egg credit card operation threaten to close down over 100,000 accounts, we are seeing yet further signs that the economy is set for a very tough 12 months to say the least. So what is actually happening?

The impact of the interest rate cut was reduced somewhat by the very fact that everyone in the financial markets knew that this was going to happen, on the back of recent US rate cuts. However, the concerns generated by the move by Egg have further highlighted the real problems underneath the surface, and the concerns that business growth will be severely dented in the short term by the economy and the lack of affordable finance. The Egg situation has been summarised as “house keeping”, but this is from a company who have been on of the leaders in the UK, a company who need to make the business pay and a company who appear to be genuinely concerned about the possible cases of default.

There will come a point whereby the continuous fall in interest rates will kick start the economy, although many believe that this is still some way off. What the markets really need at this moment in time is confidence in the British Government and the Bank of England. Many government figures are brushing off the Northern Rock situation as something unconnected, but the genuine lack of confidence in the skills of the government to handle this difficult financial situation is very much in the foreground.

Time will tell exactly how this current situation pans out, but the lack of confidence more than anything is causing as much trouble as “high” interest rates.

As news that Egg have contacted up to 160,000 of their customers with threats to cease their credit lines unless they settle at least some of their debts, many credit card holders are running scared and wondering why egg have taken this action. Can they do it? Is it right?

Unfortunately for many Egg credit card holders, and other Egg financial customers, the company are well within their rights to carry out the recent threat of action. They had been in contact with the regulatory authorities prior to their recent communications and were informed that they were well within their rights to do this. The action itself has prompted an array of responses from the financial and consumer markets with many applauding the action, but some suggesting that they are stripping out “higher risk” customers at a time when they will have trouble refinancing their arrangements.

While Egg was taken over last year, their new owners seem to have taken some time to come to grips with the UK credit card market which is among the more competitive in the world. As and when these 160,000 “problem” accounts are sorted out there will no doubt be an immediate increase in the credit rating for the Egg operations. This will lead to better lending terms for the company and immediately impact upon their bottom line profitability – leaving many customers to fend for themselves.

There are some concerns that because one of the larger credit card companies has broken rank there is a distinct chance that others will follow, knowing that much of the flack has already been targeted at Egg. It has to be said that on one hand the company should be applauded, but on the other the decision to take such action seems to have been taken rather quickly with very little thought for their customer base.

While the overall UK property market is holding up remarkably well in what are difficult market conditions, there is a good chance that we may see a substantial fall in both demand and prices at some stage. Even though interest rates are on the way down, leading (eventually) to lower mortgage payments, the forecast slowdown in the economy will put pressure on the employment market.

There are signs that some home owners are already starting to feel the pinch as the cost of living continues to move higher, but the double whammy of a slowing economy could suddenly see the number of mortgage player in trouble shoot up. So what can you do?

Rather than wait for potential problems to unfold you should always keep your mortgage provider in the loop with regards to your situation and how you see it possibly progressing. If you are able to keep you mortgage provider onside there is every chance that they will help you when it is required, and they may actually be able to pass on advice which could avoid any future problems. The worst thing which you can do if you sense trouble around the corner is to sit back and let it happen, or bury your head in the sand.

By showing your mortgage provider that you are being proactive rather than reactive this gives the impression that you actually want to help yourself, and avoid any major problems. This is exactly the kind of attitude which many financial companies are looking for, and any concerns that your comments will be used against you in any way are unfounded. Life can be tough with a large mortgage hanging over your head, but there are people out there to help you, there are many who have been through similar markets.

Don’t ever think that it is just happening to you because over the next 12 months it will be those who do not help themselves who will have most to lose!

There has been much mention of supermarket loyalty points on the TV and in the press but do you actually know what it’s all about? Do you know the possible savings?

While the normal store credit cards will charge you very high rates of interest, many people are now looking at loyalty schemes administered by the major supermarket and retail outlets of the UK. The likes of Tesco, Boots and ASDA to name but a few. So what have they got to offer and what can you actually save from them?

If we look at possibly the most lucrative of the schemes out there, Tesco, you will find that traditionally you will receive 4 loyalty points for every pound which you spend. While this may not sound like an awful lot, there are ways to boost this even further. Some interesting facts to consider :-

• If you spend your loyalty points on a loyalty scheme offer, you will normally be able to double your money – ie. Each loyalty card point will suddenly turn into 2 points.
• If you actually join the Tesco regular loyalty scheme account, whereby you need to deposit a certain amount of money each month to spend, you will receive yet more bonus loyalty points.

Every few months Tesco have a habit of putting on some great points offers for their loyalty card members, allowing them to gain extra points for buying a certain product (which will change on a regular basis). Sometimes when you consider the advantage of using your “bonus” loyalty card points for exclusive loyalty card offers you can actually receive a massive up lift on your spending power.

When you consider that you probably spend a few hundred pounds a month on normal food shopping alone, the added bonus of loyalty card points can really add up if you spend wisely and pick up some of the offers where applicable. It is not rocket science, it is not hard, but it can be a lot more lucrative than you might think!

As we steer the good ship “UK Economy” through a bout out fiscal turbulence many experts are expecting to see a major increase in the number of people looking at bankruptcy as an option to escape their financial troubles. But is it really the answer or is there an alternative?

While IVA (individual voluntary arrangements) and Bankruptcy are never the easy choice there are times when it can be difficult to avoid them. Bankruptcy is the one which many people try their best to avoid, the one which still carries something of a stigma. But is it really as bad as they say? Does it impact upon your credit rating forever?

The bankruptcy laws have changed over the last decade and the major problems with bankruptcy many years ago have been reduced. It is not the end of your credit history, it is not the end of the road and it will not see you out on the road with nothing to show for yourself. While it depends how much money you actually owe and whether you can ever see yourself being able to pay it back, a ball part figure from which bankruptcy could be considered would depend on your situation. It could be as little as a few hundred pounds or it could be something well into the thousands of pounds.

Upon taking the bankruptcy route you will be assessed by a Trustee who will be in charge of your case. They will review you situation, what your debts are, lifestyle costs, how much you could afford to pay (if any) and the size of your debt. If you are not in a position to pay they will not push you for payment, although if you have ready assets they have the option of selling some of them off to raise cash. However, there are allowances which will ensure that they will not consider items under a predetermined cut off point. It is not in their best interest to hold you back for years to come – they would much rather draw a line under what you can afford to pay back and advise the courts of this.

Your creditors will be contacted and asked to comment on your case and whether they have any concerns with you pursuing bankruptcy. Unless it was something special they would be highly unlikely to block the bankruptcy hearing if the trustees believed this was the best way forward.

The average bankrupt will be discharged in under 5 years, and while there will still be restrictions to what finance and bank accounts you can open even after you are discharged, these will slowly disappear so long as you get your finances back in order. Bankruptcy is not the easy option, but for more and more people in this day and age it can be the only real option.