Can you afford it?

Slipping back into bad habits, Britons borrowed 62p for every £1 they saved in the last quarter of 2009, compared to the first quarter of 2009 when they borrowed 13p per £1.

Overall savings levels are also falling each year: £71.6 billion in 2009 compared to £113.4 billion in 2008.

Karen Barrett, chief executive of, is concerned the initial good intentions to save more and borrow less have already been binned.

"While we may be officially out of recession, these latest figures highlight that consumers are back behaving as they did before the onset of the credit crunch, even though the economy is still not back to full strength.

"The credit crunch appeared to have a dramatic 'shock' effect on the public, who were jolted into paying off their debts, but it appears this has failed to effect long-term borrowing and savings habits. There is no indication that we will see an improvement of financial behaviour in 2010."

For many of us, in order to cope with day to day expenses, borrowing remains a fact of life but before turning to credit it's essential to understand what you're getting into.

A credit agreement, such as a credit card, overdraft, personal loan or mortgage, is a financial arrangement that allows you to borrow money on the understanding that you will pay this back at a later date.

You can request a statement at any time to show how much you owe, although card providers should send you regular statements in any case.

If you fall behind with payments or have broken the terms of the agreement then the provider must send you either a default or arrears notice, which includes an Office of Fair Trading information sheet.

However, if you feel the provider hasn't sent you full or correct information, the credit agreement cannot be enforced. in these scenarios contact Consumer Direct for more help.

It's possible to end a credit agreement early, provided that you can pay back what you owe. The lender should be able to provide you at any time with a settlement statement that shows how much you'd have to pay back. However, you might be hit with an early redemption charge.

Hire purchase agreements differ slightly. To pay these off early you would need to contact the lender to work out how much you owe.

And at whatever time you cancel the hire purchase you will have to bring your payments up to half of the total of the initial agreement and pay back any insurance costs. If you've already paid over half and want to cancel, you won't get the difference back.

Ask yourself the following questions when considering credit:

* Have you shopped around and compared the cost of credit from other providers?

From, to and Moneywise's own compare tools, there are a host of comparison websites allowing consumers to find the best deal that suits them best.

* Is the credit agreement secured?

When a loan is secured it means the risk of lending is secured against something, often your house. The advantage of this is that you can borrow more but is this worth it if you stand to lose your home?

Unsecured loans don't tend to lend as much but at least your most valuable assets are protected.

* Can you afford the monthly repayments even if the base rate goes up?

At the moment the base rate is a lowly 0.5%. There are no signs that it will imminently go up, although experts expect it to increase by the end of the year. So rates may be low now but what happens if an extra 1% is added on to your monthly repayments?

* What are the charges if you miss or are late with a monthly repayment?

Don't be swayed by headline rates alone, read the small print to see what charges or penalties you could face.

* Do you understand the costs involved with terminating the agreement early, and are there any penalties?

Exit fees are there to deter borrowers from jumping ship. Check these before choosing a credit agreement to make sure you can pay them in the given circumstances.

* Can you afford the deposit?

Hire purchase agreements usually require a deposit of 10–20% straight off, can you pay this?

* What are the effects on my credit rating?

Each time you make an application for credit, it leaves a footprint on your credit rating, which will ultimately make it harder to borrow if you've made multiple applications.

* Does it make financial sense in the long run?

You may have no other option but if you're loan payback period is stretched over a considerable number of years, calculate how much more you'll end up paying once interest is added to the final total.*