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The British economy faces a rocky future, the governor of the Bank of England has claimed.

Mervyn King made his comments to BBC Radio 5 Live’s Wake Up To Money programme, explaining that overseas instability combined with a tightening credit market was likely to impact upon levels of consumer spending.

"Recent economic news has been dominated by the continuing turmoil in global financial markets, which has led to a tightening of credit conditions, particularly for the most risky borrowers," he said.

Borrowing will be more expensive and less readily available, continued Mr King.

For some debtors, the effects of the credit crunch are already being felt as refinancing becomes more difficult.

One possible route out of problem debt is an individual voluntary arrangement (IVA), an option created by the government to provide an alternative to bankruptcy.

IVAs allow debtors to pay an affordable monthly sum which is divided among their creditors.

Any interest is frozen and after a certain period of time, the individual is considered debt-free, and remaining borrowing written off.

Borrowers coming off fixed-rate sub-prime mortgages face being unable to find a new deal for their homes, an expert has warned.

Julia Harris, analyst at financial comparison site Moneyfacts.co.uk, commented that in less than a year, the sub-prime market grew, expanded and "is now wilting fast".

She said sub-prime homeowners leaving their deals could be in difficulties "especially if their financial position has not improved sufficiently to allow them back into the prime market".

Earlier this month, Bob Sturges, of sub-prime lender Money Partners, told the Times those coming off their sub-prime fixed-rate deals face higher rates and if they cannot afford them, will have to sell their homes.

"This will affect tens of thousands, if not hundreds of thousands of people," he commented.

Many households will be looking to reorganise their finances in order to meet potentially higher mortgage costs and keep their homes.

There are a number of options open to those struggling to manage the cost of their borrowing, including individual voluntary arrangements and the services of a debt management company.

Managing money at Christmas can be extremely stressful and the festive season can cause "a huge amount" of debt, a new report has warned.

CiC, a provider of employee assistance programmes, told recruitment magazine onrec.com that many people felt under pressure to provide expensive toys for children or to overspend on a partner.

"In addition to the obvious cost of gifts, a great deal of money can be spent on food and drink as well as travel expenses," CiC continued.

Those who find themselves in debt as a result of Christmas spending should draw up a realistic repayment plan, it urged.

However, recent research by Cornhill Direct found that ten per cent of those who borrow to fund Christmas find they are still in debt the following December.

Simon Coughlin, spokesman for the insurer, said it is "extraordinary" that one day can have such a lasting effect on people’s finances.

Individual voluntary arrangements (IVAs), informal agreements and bankruptcy are all "valid solutions" to problem debt, an expert has commented.

James Falla, managing director of debt consultant Thomas Charles, said those in debt difficulties should be aware of all three possibilities.

"Each of those options are very valid solutions and will suit different people better depending on their circumstances," he commented.

Furthermore, Mr Falla urged debtors to be wary of organisations which push them towards one specific solution.

Bankruptcy, informal agreements and IVAs can be negotiated through debt management companies.

IVAs are a court-approved agreement whereby the debtor repays a fixed, affordable sum for a set period of time and at the end of that period, any remaining debt is written off.

According to financial advice charity Credit Action, at the end of September total personal debt in Britain stood at £1,380 billion, an increase of £120 billion over the previous 12 months.

During the second quarter of 2007, there were nearly 27,000 individual insolvencies across England and Wales, it reported.

Credit card providers are increasingly targeting consumers seeking to regain control of their personal debt, it has been claimed.

Research by price comparison website MoneyExpert.com shows 72.5 per cent of credit cards offer deals such as zero per cent charges on balance transfers for a set period of time.

Sean Gardner, chief executive of MoneyExpert.com, said: "Card firms are concentrating on the balance transfer market as a way of building new business with more generous offers for those who want to get their debts under control."

Research by the website recently found as many as 3.4 million people who owe money are "very concerned" about staying in control of their borrowing.

For those struggling with problem debt, one solution is an individual voluntary arrangement (IVA), which freezes the interest charged on the outstanding amount.

IVAs allow the debtor to repay an affordable monthly sum for a set period of time, after which any remaining debt is written off.

Consumer debt has grown rapidly since the year 2000, with the average Briton now owing £33,000, a new report has warned.

A study by accountancy firm PriceWaterhouseCoopers has claimed household finances are increasingly stretched.

It warned that many will soon come to the end of their two-year fixed-rate mortgages and face repayment increases of around £140 a month.

The company predicts a spike in insolvencies during 2008 as a result of consumer over-indebtedness.

Richard Thompson, a partner at the Big Four firm, said: "There are tough times ahead for both consumers and credit card companies".

He predicted consumers will find it hard to borrow in the run up to Christmas as lenders tighten their criteria.

Recent research by price comparison website moneysupermarket.com found more than five million Britons are resigned to a lifetime of debt and believe they will never manage to become entirely debt-free.

Tim Moss, spokesman for the website, said debt had become the "curse" of modern times.

Cash-strapped Britons could be forced into selling their homes as lenders become increasingly wary of sub-prime borrowers, an expert has warned.

Bob Sturges, spokesman for sub-prime lender Money Partners, told the Times many people coming to the end of their fixed-rate mortgage deals are going to be hit with higher rates and be unable to remortgage.

"If they can’t afford the higher rates, they face the prospect of selling up and joining the rental sector. This will affect tens of thousands, if not hundreds of thousands of people," he said.

His words could cause many debtors to re-examine their finances to ensure they can afford their lender’s standard variable rate once their fixed-rate deal finishes.

The government advises there are several ways to manage the cost of problem debt, including consolidation loans, informal arrangements with creditors and individual voluntary arrangements (IVAs).

An IVA allows the debtor to repay an affordable sum each month and guarantees they will be debt-free within a set period of time, usually five years. Unaffordable debt can be written off.

Relying on credit cards alone to fund Christmas spending is a "sure-fire way" for consumers to find themselves with unmanageable debt, an expert has claimed.

John Hall, chief executive of debt services firm Newtomorrow.com, has warned credit cards are often viewed as a short-term solution but they can affect people’s long-term financial wellbeing, the Scotsman reports.

"Credit cards seem like an easy way to spread the cost of Christmas and, used sensibly, they can be. But to rely on them as the sole means of buying gifts is a sure-fire way of getting into unmanageable debt," he warned.

Earlier this month, a survey by Lloyds TSB revealed that as a nation, Britain is likely to overspend by £4.7 billion this Christmas.

It found 59 per cent of people anticipate overspending by an average of £174 each, with many believing it will take them five weeks to get their finances settled following the festive season.

The study found one in six of those who overspent will sell some presents online and one in five will work overtime or take on another job.

An expert has expressed concern over methods used by lenders to collect money from debtors who cannot afford the repayments.

Judge Michael Tennant, president of the Association of District Judges, made his comments to BBC Radio 4’s Moneybox programme, saying debtors should not be "bullied" into agreeing to unrealistic repayments.

He urged people with problem debt not to take out further borrowing to pay off arrears, calling such a move "financial suicide".

"I see so many cases in which people come before the courts because they have obtained a loan to pay off arrears or carried out a remortgage without getting advice," commented the judge.

Borrowers who had been given advice could have found a better way to deal with their debt, he added.

Debt advisers can offer many solutions to people struggling with problem debt, including consolidation loans and individual voluntary arrangements (IVAs).

With an IVA, creditors are barred from approaching the debtor and must accept the court-approved monthly repayment amount.

More than six in ten Britons regularly run out of cash before their next pay packet reaches their account, a new study has shown.

Research by Abbey has found 64 per cent of people run out of money an average of five days before they are paid as a result of "bad budgeting".

When faced with a shortage of funds, 31 per cent use their overdraft, 25 per cent rely on a credit card, 25 per cent spend their savings and 11 per cent turn to their loved ones for help, the survey discovered.

Steve Shore, head of banking at Abbey, said the number of people who cannot budget effectively is "staggeringly high".

However, some debtors could be running out of money because the cost of repaying their debts each month has risen following a year of high interest rates.

The government reports there are several options available to those struggling to manage their debt effectively. It suggests debtors ensure they are receiving all the money they are entitled to and not paying too much in taxes.

Other options it lists include debt consolidation, debt management, informal agreements with creditors and independent voluntary arrangements – more commonly known as IVAs.

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