How do you escape a sinking ship? You push the boat out. That seems to be a fair summary of what is currently happening. Many see bad debt rising and trouble on the way. It does look like we’re in for some nasty weather. This forecast is based on the fact that personal borrowing was recorded at a staggering £2.4 billion in February this year. Many analysts are convinced that borrowers are anxious to get credit before the crunch really crunches.

The trend parallels a lending “bulge” in mid 2007 stateside. The phenomena has been said to betoken consumer panic and, like panic buying, it is a problem that, in part, feeds on itself. Personal loans have increased because homeowners have been less willing to raise money through remortgages in view of uncertainty over the direction of future property prices. So-called equity withdrawal slipped by a couple of billion pounds in the final quarter of 2007.

All this means that the topics debt and debt management are very much back on the agenda. Before considering whether further steps, such as debt consolidation loans, need to be considered the best idea for those worried about debt is to review their household budget.

This budget should summarise all monthly outgoings. For those bills that are paid quarterly the amounts should be divided appropriately. Once the monthly outgoings have been calculated, spending targets should be agreed for the non-fixed outgoings (i.e. food and leisure related expenditure). If these targets prove too tough it is better to adjust them than to abandon the idea altogether.

Other examples of good practice relate to cutting down on energy consumption within the home. Switching off lights is an obvious step in the right direction. Energy saving bulbs are readily available these days. They cost a little more but last forever and use up less power. Anyone who likes looking out of the window on a snowy day will have noticed that the snow seems to melt much more rapidly on the roofs than on the trees. This is because of all the heat rising up from the house: in effect this is wasted energy and loft insulation can have a stark effect on household bills.

23.4.2008