The credit crunch is biting its way into our daily lives more than we think, Northern Rock and Bear Sterns are perhaps the most noticeable causalities but are there any more?

The credit crunch, in a nutshell, is a result of sub-prime mortgages being sold in the US to people who could not afford to buy a house. After being conned into thinking that they could afford a mortgage, the financial institutions had a problem on their hands, how to spread the risk of these mortgages defaulting. The mortgages were bundled up with other less risky mortgages and then sold on to hedge funds and similar institutions. These bundled packages - collateralised debt obligations, (CDO's) were then given a risk rating of AAA, making them one of the safest forms of investing. However, everyone ignored the fact that the people at the bottom of this investment house of cards, the mortgage holders, were struggling to pay their mortgages. When they started to defaulting the CDO house of cards started to fall. The hedge funds started thinking that the AAA rating on their investments was not as safe as they thought it would be so they started to panic and remove their investments. Everyone in the financial banking sector stopped lending money to one another because they were all unsure about each others exposure to CDO's.

This Mexican Stand-off means an end to cheap loans and mortgages. Banks are now very careful about who they lend money to. This can be evidenced in my recent article, "Death of the 100% mortgages" where I highlighted that mortgage companies were tightening up their lending criteria which has seen the likes of the 125% mortgages being removed as they are now considered to be too risky. The consequence of this means that the first-times buyers will have to save up for the deposits and perhaps reappraise what is important in their life, a roof or goods.

Mortgages are not the only area where the banks are tightening up; - personal loans and credit cards lending criteria are also changing. The impact on this will be quite severe for those who have lived off cheap loans for the past 5 years or so. For many people their form of debt management was to consolidate their debts into one cheap loan and carry on spending. They did not worry about how they were going to pay it back, as they could afford the monthly repayments. Unfortunately pay day is on the horizon for the banks and they will want their money back fast.

Banks are desperate for liquidity, money, and therefore, my prediction for the next year or so is that we will see an unprecedented number of house repossessions. We will also see more attractive rates for savers, something we have not seen in a long time. In summary, if you have a lot of debt you should worry and if you have a lot of spare cash you should be happy.

Worrying about your debt does not help -action is what is required! Debt Watchdog will help you develop a debt management strategy which will address your debt problems. Call us today on 0800 970 2698 and stop worrying about your debt.