Surviving the Credit Crunch…

Avoid stress during uncertain financial times with These simple tips

From: LaToya Irby,
Your Guide to Credit / Debt Management.

After the mortgage meltdown in mid-2007, lenders cracked down on home equity loans, causing consumers to turn credit cards as a lending source. Credit card debt and delinquencies rose. Credit card companies, feeling the brunt of delinquencies, began cracking down on credit, increasing interest rates and credit card fees and decreasing credit limits.

There are individuals and companies who invest in credit card debt. However, when delinquencies rise, the investment becomes unattractive, leading investors to pull their funding. As a result, credit card companies become stricter with credit card lending. Consumers, especially those with credit problems, find it harder to get credit during times of a credit crunch.

Ultimately, it's consumers who feel the sting of a credit crunch.

Keep paying your credit card bills on time
Credit card companies have to make money to stay in business. When investors start pulling funding, credit card companies find ways to get more money from cardholders. Increased late fees and interest rates are one way of doing this. Because of universal default, your interest rate on a particular credit card could increase even if you're late on another credit card's payment.

According to Smart Money, banks could start sending accounts to collections sooner, if credit card delinquencies rise at a swift rate.

Not only do timely payments save you money and keep you out of collections, it also keeps your credit score healthy. A good credit score indicates a trustworthy borrower - one that credit card companies aren't afraid to give credit to.

Have an emergency fund
An emergency fund keeps you from having to resort to credit during an emergency. During a credit crunch, if you need credit and don't have it, you might have a card time getting it. If you already have a reserve of cash, you won't have to resort to credit at all. Ideally, you'd have an emergency fund anyway - credit crunch or not.