Life Insurance

AS the economy starts to slow and the price of oil rockets and household bills go through the roof, it looks almost certain that there may be trouble ahead.

The first thing to do is take a close look at your personal finances. Are you too highly-geared with too much debt on credit cards, personal loans and the mortgage? If so, you should consider paying off the short-term debt.

While getting a little thin on the ground, there are still zero per cent credit card bargains to be had, or find a card with a decent long-term low interest rate.

We have already got the message that personal debt standing at £1 trillion was getting out of control and spending habits in the high street have started to slow down.

While our reluctance to spend money is likely see retail staff laid off, high oil prices caused by low refinery capacity are certain to be more damaging - leading to inflation, loss of jobs and less money to spend.

Already growth of pay rates has started to slow and then there's the £10 billion hole in the public purse, which won't have been helped by the Government's climb-down over public sector pension reform, and increases the likelihood of higher taxes.

According to Egg, many of us don't even know how much we spend each month using our credit and debit cards. While many think they spend about £418 on cards every month, in actual fact on average it is £775 a month. The easy way to keep on track of your finances is to write everything down you spend and set yourself a budget.

If your short-term debts aren't going away in a hurry you could consider consolidating them into a personal loan. Northern Rock offers one of the cheapest rates of 5.6 per cent APR, Sainsbury's Bank 6.3 per cent and Cahoot 6.9 per cent. However, beware dedicated debt consolidation companies - they can be costly.

Halifax advises that ideally you should have three months' salary saved up for a rainy day. With inflation rising to 2.5 per cent in September, well above the Bank of England's target of two per cent, you must make sure you are getting the best interest rate available on your savings.

If you haven't got any savings and can't afford to save, consider taking out mortgage payment protection insurance, also known as accident, sickness and unemployment insurance.

The policy would pay out for a year should you be unable to pay your mortgage because of redundancy or illness. To make the most of your hard-earned cash, make sure your current account is paying you interest. If you are paid virtually nothing when in credit, think about switching to a bank or building society with a better interest rate. Should you be well endowed in the savings department, you might be better off taking out a combined bank and mortgage account, also known as an offset mortgage. This allows you to offset your savings against interest on the mortgage, meaning you are effectively paying less for your mortgage.

And on the subject of mortgages, remember you can save a fortune by switching to a better rate. Around 30 per cent of mortgage holders are on the standard variable rate of 5.68 per cent even though you can get fixed interest rates of more than a full percentage point lower.

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