Consolidate Your Debt to Beat Price Increases and the Credit Crunch

The US and the UK is now facing the collapse of the wave of credit it has been riding for years. Banks, credit card companies and short sighted lenders have all played a role in creating the conditions for this crisis to occur. The pace of lending has been unsustainable and we are now paying the price.

This nation's consumers have been taking advantage of the readily available credit offered to them from all parties and spent far beyond their means as a result.

As competition increased in the mortgage and home loan sectors, lenders responded by simply relaxing their criteria for eligibility on the part of borrowers. This has led to an overextension by lending institutions.

The average consumer in the UK is now, quite literally paying the price for this irrational exuberance.

Look at the picture here - a slump in the housing market accompanied by an increase in the prices of food and fuel and things look grim indeed. Things will get worse before they get better; that makes this a good time to consolidate your debt.

Why Have Fuel Prices Increased So Much?

The increase in the price of fuel has been nothing short of shocking. The price per barrel or crude oil has increased more than tenfold in the last decade.

Naturally, oil prices are the main factor behind the increase in fuel prices. Any shortage in supply means a corresponding rise in price; eventually, prices may decline slightly as they reach a point at which the market will simply not bear the cost anymore.

Even with the price increases for fuel, demand worldwide continues to keep growing. Oil consumption may be down in Europe, but in India and China, oil consumption is dramatically higher as these countries develop economically.

Some countries, Indonesia and India among them, subsidize the cost of fuel to consumers and soften the blow of increases. BP says that this is beginning to change; but to those of us in the UK, it is unlikely prices will go down any time in the near future, if in fact they ever decline.

Why Are Food Prices Going Up?

The developing world is again behind the increase in food prices in the west. As these nations become wealthier, the populaces of these countries are eating higher quantities and better quality food.

However, we can't blame all of these increases in our own cost of living on developing nations. Another big factor in these rising costs is the conversion of agricultural lands to the production of biofuels. This is especially true in the United States, with biofuel production leading to a significant decline in the amount of food crops produced.

Of course, more expensive fuel also means a higher cost is associated with transporting foods from producer to consumer, with this cost reflected I the retail prices of food items and other consumer goods. Plastic packaging, also made from oil is more expensive to produce and further increases food costs. Supermarkets are also finding it impossible to maintain the sometimes artificially low prices used to compete with each other and this is another factor in the rising cost of food.

Here are the increases in the price of some staple foods between March of 2007 and March 2008:
Corn + 31%
Rice + 74%
Soy + 87%
Wheat + 130%

The price of meat has increased to a much lesser degree, but are set to rise soon.

And as we are all too well aware, once prices go up, they rarely come back down again...

Why Is Your Home Dropping In Value?

It is projected that the average price of a home will drop by as much as 9% by the end of this year. This is even worse than prior predictions. Some homeowners are looking at the probability of having negative equity (that is, their homes will fall to a value less than that reflected by the mortgage they pay).

The drop in the price of homes is due to a few factors; consumers are less willing to spend. This is partly due to the other price increases we have discussed. The lending crisis is also to blame for this situation.

Lenders have begun battening down the hatches again and a lot of people are finding it much harder to secure a mortgage. Like any other goods or services, the laws of supply and demand apply here. As less buyers are on the market, prices have decreased accordingly.

Housing chains are also in trouble as some parties within are unable to secure funding.

The market is experiencing a slowdown overall as there are not sufficient stimulants to growth in the housing sector.

It's A Good Idea To Consolidate Your Debt Now

Economic conditions won't be looking up in the near future. The demand for food and fuel will only continue to grow and continued development in Asia, Africa and South America will fuel these increases worldwide.

The unsustainable economic conditions in the Western world have caught up with us at last, with artificially low food prices and out of control lending seemingly at an end.

If you act now and consolidate your debt, you will be in a better position to weather the coming economic storm. You will be able to increase your financial liquidity by consolidating your debt and freeing up assets.