Box your way out of trouble

IT'S like standing between two boxers and being CLOBBERED from both sides.

In the blue corner lurks that old bruiser Impending Recession -where people urgently need to pay off debt or cut its cost.

Over in the red corner stands the equally tough Credit Crunch, whose hefty uppercuts have knocked the price of borrowing into the stratosphere.

The pair of them have left people punch drunk, so no wonder my mailbag's been overflowing.

So here's a debt and credit card Q&A SPECIAL to see you through the tough rounds ahead.

Q I'M 25 with a bad credit rating. Although now I'm debt free and saving, how do I get back on track? INDERJEET SHINJI, email

A Congratulations! As we head for recession, saving's the best place to be. But bizarrely, the best way to rebuild your credit score, to help with future mortgage applications is . . . a credit card.

The aim's to build data showing you're a RESPONSIBLE borrower. Try Capital One, Vanquis or Barclaycard Initial that offer special "rate for risk" cards for those with poor credit histories, charging HORRIFIC rates of 27per cent to 60per cent.

Yet there's a 'but'-ONLY do this if you will set up a Direct Debit to repay in full EVERY month so you're never charged any interest: this is purely a TACTIC to create a decent credit 'behavioural profile'. Once that's done spend £50-£100 monthly.

Q I'M 30 with a steady job and am fed up relying on family for a credit card to buy internet goods.

MIKE ROWBOTTOM, email

A ASSUMING you're rejected for the high-interest rate card system above, and can't get a debit card either, your best bet is prepay cards, like Caxton FX and Fair FX. You load money on them BEFORE spending. Then you can use them on the net like any other plastic.

Plus there's one that lets you kill two birds with one stone. The prepay Cashplus Credit Builder costs £9.95 but if you opt to pay a £4.95 monthly fee for 12 months it's deliberately structured to count as a yearly LOAN.

This info is passed on to credit reference agency Experian, helping rebuild your score. At £60 a year though, it's a LAST resort.

Q WILL the 1.5 per cent base rate cut be passed to student loans? The current 4.8 per cent isn't much less than banks charge, which sounds unfair.

PAUL EDWARDS e-mail

A BASE interest rates have no impact on student loan rates-they are set each year at the rate of inflation.

Though you'll be happy to hear that, in September, rates slipped from 4.8 per cent to 3.8 per cent-which is cheaper than any current bank loan.

Q I OWE £6,500 on five cards and can only repay the minimums. Two are low-interest 'life of balance' cards and one is 0 per cent for nine months. The others have standard interest charges and the highest balances. I can throw £180 per month at all the debt so should go for a loan? GARY STRINGER, email

A MANY people feel they should jump for a loan yet the cheapest credit cards are MUCH cheaper than the cheapest loans."

Three of your cards are already cheap, so moving them onto a loan at higher interest rates would COST, not save, you money.

Try calling up your cheap cards and asking if you can shift over any debt from the expensive cards at the low rates. If it works this'll far undercut any loan on the market. But if you're still left with debts at high rates, try for a new balance transfer deal for the remainder, see www.moneysavingexpert.com/bts

Now use your £180 to pay the minimum on all cards and throw the remainder of your cash at the one with the highest interest rate.

Q I FOLLOWED your info about moving my credit card to a 0 per cent interest card. But I keep getting declined. I want to move £2,000.

ANGELA SMITH

A REJECTION, especially during the credit crunch, is tough to combat. First, stop applying for so many cards right now. Every application leaves a mark on your credit file, damaging your credit score.

Hold off for a few months to allow its impact to lessen. Then try your bank, if you haven't yet done so, it knows more about your credit history and this can help.

Otherwise, while I'm not normally a fan of credit comparison sites as they overlook cards and are simplistic, in this case, try moneysupermarket.com's 'low credit score' option which highlights some suitable cards to those with lower credit profiles.

Q SHOULD I keep my old unused credit cards or cancel them?

LAURA PIKES

A CANCELLING them means you have less available credit, which will boost your credit score. But it can be worth keeping some cards, like Barclaycard or MBNA, if you've other debts, as these often allow existing customers to transfer debts cheaply.

HAS Martin saved you money? Email notw@moneysavingexpert.com and let us know.

(Martin is the creator of the Consumer Revenge website MoneySavingExpert.com which is packed with information on how to get more money in your pocket.)