DEBT AND DEPRESSION

In my book “Back to the Black”, I talk about the psychological effects of being in debt. In fact Chapter 2 is entitled “Mind Over Matter.”

I was pleased to see that this important issue was covered in a recent article by Simon Read in “The Independent” (17 March 2012). I’ll take the liberty of paraphrasing:

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Being in debt is a depressing experience.

“A trouble shared is a trouble halved”; but the annual report of Consumer Credit Counselling Service (CCCS) shows 25% of those in debt don’t share their troubles with friends or family.

It’s understandable that people don’t want to discuss their debt problems. They’re embarrassed that they might be judged.

Admit the problem; don’t delay

However, admitting you’re in financial trouble is the first step towards solving the problem.

CCCS also revealed that 45 per cent of people delayed seeking advice for more than a year after they started to worry they had a debt problem. Many of them had probably carried the worry alone.

Suicides

Many tragic suicides are caused by the worry of debt (and for every suicide there are ten attempted suicides). If those people had been able to talk about their problems, who knows what kind of future they may have had?

Talk to someone

Don’t just worry about debt. Instead look for a way to deal with it. There are many people and organisations that can help.

Help is at hand

CCCS (and the other debt advice charities: see below) are on hand to help.

All of them can help those in debt find ways to put their finances back on track.

Friends and family

Just talking to friends and family could be a good first step on the way to coping with the deep anxiety that money worries cause.

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I had intended to add some thoughts of my own to this; but I think that the article says what needs to be said. I’ve just added information about organisations that can help; see below.

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 WANT TO KNOW MORE?

 ADVICE ORGANISATIONS: CONTACT DETAILS

1. NATIONAL DEBT ADVICE CHARITIES

 (THESE ALL OFFER CONFIDENTIAL AND FREE DEBT ADVICE, UK-WIDE)

Citizens Advice (“The CAB”)

 Free advice provider; registered charity. Funders include central and local government, charitable trusts, companies and individuals.

Face-to-face interviews and telephone advice available at local Citizens Advice Bureaux (CABs). Find your nearest bureau in the phone directory, or search at www.citizensadvice.org.uk

E-mail advice available at some CABs

Advice line: 0844 499 4718

Online help also available: www.adviceguide.org.uk

CCCS (Consumer Credit Counselling Service)

Free advice provider; registered charity. Supported almost entirely by the credit industry.

Telephone counselling 0800 138 1111

Online help www.cccs.co.uk

National Debtline

 Free advice provider; registered charity. Part of the Money Advice Trust, (see below) funded by a mix of private sector donations and Government grants.

Phone advice and free factsheet orders: 0808 808 4000

www.nationaldebtline.co.uk

Credit Action

Money education charity, in partnership with CCCS (see above). Free online advice provider, plus the Spendometer (see Chapter 8), Money Manuals and other resources: www.creditaction.org.uk.

Their “Money Advice Map” signposts to local debt advice centres: www.moneyadvicemap.com/

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 2. LOCAL INDEPENDENT DEBT ADVICE ORGANISATIONS ALSO EXIST IN MANY AREAS AND ARE TOO NUMEROUS TO LIST.

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 3. OTHER ORGANISATIONS WITH HELPLINES OR WEBSITES ON DEBT AND RELATED ISSUES

 

AdviceUK (to find a local money advice centre)

020 7407 4070

www.adviceuk.org.uk

 

Debtors Anonymous (worldwide community with telephone & online meetings)

www.debtorsanonymous.org/

… and to find contact details for local meetings inUK:

www.debtorsanonymous.org.uk/

 

Mind (charity & helpline that helps with mental health problems)

0845 7660 163

www.mind.org.uk

 

Samaritans (confidential emotional support)

0845 790 9090

www.samaritans.org

 

Saneline (support for mental illness)

0845 767 8000

www.sane.org.uk

 

Shelter (free housing advice helpline)

0808 800 4444

www.shelter.org.uk

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For the “Independent” article in full: LINK

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For info about my book “Back to the Black: how to become debt-free and stay that way” (paperback and eBook): LINK

 

PAYDAY LOANS IN THE NEWS AGAIN

I appear to be stalking Simon Read of The Independent. If so, that’s because payday loans are again in the news and this is a story and a cause he has taken up and because he writes well on the subject.

The latest twist in the story: research by Shelter (a UK housing charity) reveals around seven million people are turning to credit to try to keep a roof over their heads.

A million use payday loans to cover rent or mortgage

In the past year alone, almost one in seven of those – i.e. just under one million people – have resorted to payday (i.e. emergency) loans to cover rent or mortgage payments.

The Independent has warned that payday lenders are cashing in on the struggles of millions who are unable to borrow from mainstream lenders and those companies charge interest rates of up to 5,000 per cent.

The impressive Campbell Robb, CEO of Shelter, said that this “… shows the extent to which millions of households across the country are desperately struggling to keep their home.

“Turning to short-term payday loans to help pay for the cost of housing is totally unsustainable. It can quickly lead to debts snowballing out of control and to eviction or repossession and ultimately homelessness.”

 What’s the alternative?

I cannot disagree with anything that’s been said above. It’s a sad state of affairs and I’ve no doubt payday loan companies in general are cashing in on the misery, despite what was said by the boss of Wonga to Simon Read and which I reported in an earlier post. There have been calls for these firms to be outlawed. But for the people who feel they have no alternative, what will they do if that happens?

Anyone in debt crisis who consults an adviser at one of the debt charities – such Citizens Advice or National Debtline or CCCS, here in the UK – would probably be told to avoid payday loans. But I wonder how many of the million people mentioned in Shelter’s report have actually talked to such an adviser.

I know that these resources are stretched; and as the charities reply to some extent on grants from the public sector, they may well become even more stretched because of spending cutbacks.

Need for financial advice

I don’t know the full answer – and of course it’ll be different in every case – but wider access to free, impartial and high-quality financial advice must be part of it. What’s more, financial education has to have a higher priority than it does now.

WANT TO KNOW MORE?

For the Simon Read article (4 Jan) click here:

For information about my book “Back to the Black”, click here:

 

 

 

 

DEBTORS IN DANGER FROM DMP FIRMS, SAYS OFT

A BBC investigation has found that some debt management companies have been holding on to clients’ cash rather than paying it to creditors, The practice has left many debtors thousands of pounds worse off and facing financial ruin.

If a firm goes out of business and client funds have not been kept in a protected account, some or all of the money is likely to be lost and the debtor becomes liable for the shortfall.

The Office of Fair Trading (OFT) has condemned the practice as “totally unacceptable” and has promised a crackdown.

Repossession order

One couple mentioned in the report had to put their house on the market and could face repossession, after responding to a cold-call from a debt management company and taking out a Debt Management Plan or DMP.

That company, Global Debt Solutions, based in Bolton, offered to arrange a repayment plan for £40,000 of credit card debt and loans. However, after having made payments to Global Debt Solutions for several months, the couple found the money was not being handed over to creditors.

Those creditors have successfully taken the couple to court, so they now have County Court Judgements against them. They’ll also have to go to court on their mortgage, so their debt problems have got far worse instead of being solved. It could soon be at a point where they’ll lose their home.

A widespread practice?

Global Debt Solutions, later known as 3 Step Finance, has been shut down by the Insolvency Service, which found that it did not monitor payments properly.

However, it has emerged that other companies have adopted the same tactic of accepting money from people in debt and not passing it on to creditors.

OFT action

A debtor taking out a DMP with a company using this tactic runs a real risk that the company might fail while the funds are in its account.

David Fisher from the Office of Fair Trading is promising action. “We regard the practice as unacceptable,” he warns. “Where we have evidence we will remove a company’s consumer credit licence, which means it cannot operate.

“We will also next month (i.e. June 2011) be issuing stronger rules for the entire sector, which explain what we expect of them.”

That is welcome news but sadly it is already too late for those debtors who are already dealing, or will soon be dealing, with a repossession order for their home.

Conclusion: take impartial advice

I conclude by saying what I always say: before making any important financial decision – including taking out a Debt Management Plan with a commercial company – take advantage of the free and impartial debt advice which is available these days. I stress the word “impartial”, because some advice is advertised as free but is not impartial, i.e. the organisation has a commercial motive for advising a certain course of action.

The advice you’ll get from the three major national charities working in this field – Citizens Advice, National Debtline and Consumer Credit Counselling Services – is indeed both free and impartial.

There are also many similar (i.e. “not-for-profit”) organisations that operate at a local level but check out carefully that they indeed “not-for-profit” before taking their advice. You can also refer to the Resources section of my book “Back to the Black: how to become debt-free and stay that way”; there you’ll find contact details for about 50 advice organisations.

 

WANT TO KNOW MORE?

The full BBC story is at: http://www.bbc.co.uk/news/business-13568152#story_continues_2

My book “Back to the Black: how to become debt-free and stay that way”, is available on the following retail sites:

Kindle Store: http://www.amazon.com/dp/B004PLMAQM

Smashwords store for other e-formats, including .pdf: http://www.smashwords.com/books/view/22886

 

IS IT SAFE TO PAY YOUR RENT OR MORTGAGE WITH A CREDIT CARD?

 

A recent news item (Channel 4 News, I think) flagged up a potentially alarming problem that’s been caused by the recession. (Yes, that’ll be the recession that the experts say is now officially over. Try telling that to someone who has lost their job.)

 

What’s the problem? According to a report by the charity Shelter, there’s been a large increase – possibly 50% in a year – in the number of people using credit cards to pay their mortgage or rent.

 

Does this affect owner-occupiers? Or tenants? Or both?

 

According to the BBC website, the Council of Mortgage Lenders (CML) suggests that the problem has been sensationalised by the media. That may be true. It would not be the first time. I should point out the obvious, however: the CML’s concern is only for mortgages. What Shelter describes may well be more of a problem for tenants than for homeowners. Mortgage rates are exceptionally low at present, so it’s less likely that an owner-occupier will have difficulty meeting housing costs, other things being equal. Also mortgage payments are normally taken on a direct debit, the CML says.

 

The reduction in housing costs caused by low mortgage rates has not yet been mirrored in reduced rents (why not?? Logic tells me it should be). Therefore, other things again being equal (which they never are) a tenant is more likely to be tempted to solve a short-term cash-flow problem by paying the rent with a credit card.

 

Is the story true?

 

“In the current climate”, I would not be surprised if there has been an increase in the number using cards. But has the increase really been 50% in a year? That’s massive. What they say, if you read the various reports, is that it’s gone from 4% to 6% and that is indeed an increase of 50%.

 

Firstly, you’d have to ask how big was the sample; obviously they didn’t interview everyone in the country (well, they didn’t ask me, anyway). And secondly, here’s a bit of a giveaway. Last year’s survey calculated the number of households, rather than individuals, that fell into this category. However, “the figure for households has not been calculated this year”, according to the report. So are we comparing apples with oranges, to make a point?

 

So is it safe to pay with a credit card?

 

Back to the question at the top of this post; is it safe to use a credit card to pay your rent or (less likely) your mortgage? The answer is a cautious yes, but only under certain circumstances. Credit cards do not have the astronomically high interest rates of payday loans, but the principle is the same. IF there is no alternative, and IF you are 100% sure you can pay off the card in full before the interest kicks in (you have 4-6 weeks to do that) then fine. If not, then as I have said many times before … get help from one of the debt advice agencies (for example Citizens Advice, or Consumer Credit Counselling Services, or National Debtline) and put together a plan. If you don’t, you could find yourself on a slippery slope.

 

I’ll be following up this story. “Watch this space”, as the saying goes.

 

 

 

WANT TO KNOW MORE?

 

Here’s a piece on the website of Shelter, who produced the original report:

 

http://england.shelter.org.uk/news/january_2011/2m_pay_for_home_on_cards

 

And here’s an item about the story on the BBC website:

 

http://www.bbc.co.uk/news/business-12120937

 

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My book “Back to the Black: how to become debt-free and stay that way” is now available to sample or buy, as a multi-format e-book, at: http://www.smashwords.com/books/view/22886

 

OCCUPATIONAL PENSIONS IN BANKRUPTCY

In my book “Back to the Black: how to become debt-free and stay that way”, I tell the story of my own brush with bankruptcy in 1999. At that time, my then accountant recommended that I should file for voluntary bankruptcy.

Why I didn’t go bankrupt

In the event, I did not take the bankruptcy route, for a variety of reasons. One of those reasons was that I had some occupational pensions (of the “money purchase” type, not final salary) accumulated over the years. If I had become bankrupt those pensions might well have been vulnerable.

How the law has changed to the benefit of debtors

However, the law has changed: pensions are now to a great extent protected in a bankruptcy.

According to HM Government’s Insolvency Service, any private pension fund you have built up cannot generally be claimed as an “asset” if the bankruptcy petition was presented on or after 29 May 2000, as long as the scheme was approved by HM Revenue & Customs.

What to do

If you are considering bankruptcy, first read Chapters 8, 9 and 10 of my book, in order to review the pros and cons of the alternative routes “back to the black”. Chapter 9 deals with bankruptcy and IVAs (Individual Voluntary Arrangements) . Then, if you still plan to consider bankruptcy, take professional advice: either from one of the non-profit advice services (for example Citizens Advice, Consumer Credit Counselling Service or National Debtline) or from an insolvency practitioner. There is a checklist in Chapter 9 of my book about how to go about selecting the right insolvency practitioner for your particular situation.

Want to know more?

My book “Back to the Black: how to become debt-free and stay that way” is available on the Smashwords site. To sample (first 20% free) or to buy at only $3.99, go to http://www.smashwords.com/books/view/22886

HM Government’s Insolvency Service’s publications can be found at http://www.insolvency.gov.uk/guidanceleaflets/guides.htm

PAYDAY LOANS: FRIENDS IN NEED OR WOLVES IN SHEEP’S CLOTHING?

Earlier this year, during an interview on Heart FM, I was asked about payday loans: would I advise anyone who was especially cash-strapped (for example as a result of Christmas), to take out one of these loans? This is a tricky matter: anyone considering any such loan must have exhausted all other possibilities.

Payday loans, usually for sums up to £1,000 ($1,500), are known to carry very high interest rates. Those rates could be affordable if it’s the only game in town AND if the loan really is repaid quickly, i.e. on payday, but if it’s rolled over then the problem starts. However, they are marketed as being instantly available, which of course is very attractive when things are tight.

Advantages

So the attractions are:

• Instant availability, even if you have a poor credit record
• Lack of bureaucracy, with a simple application method
• The fact that it’s cash: a cheque is less useful if you have to pay it in to a bank account with a maxed-out overdraft, though of course cheque / cash converter shops have foreseen that problem.
• The fact that it’s local, with a collector who probably lives near you.

If there is no alternative, and if the sum borrowed is repaid at the next payday, then paying that interest (high rate but small sum) is better than having to default on the mortgage or a credit card bill.

Disadvantages

The problem arises, of course, if the sum isn’t paid quickly. Then, of course, it will become more and more difficult to repay, because of that very high interest rate. I could publish a table showing how the sum owing would build up at those very high interest rates: but that would be very depressing for you and for me.

Should you do it?

In the radio interview I said that if anyone was in a situation where they saw no alternative solution, then they should take the loan, provided they immediately got help from one of the debt advice charities, for example the CAB (Citizens Advice), or CCCS (Consumer Credit Counselling Services), or National Debtline, or one of the many local “not-for-profit” debt advisory services, and put together a plan. Step one of that plan must be to repay the payday loan as a first priority.

I still stand by that advice.

Those interest rates, by the way

In order to check my facts after that interview, I found a website that lists the top 5 payday loan providers (the “top 5” ranking is by “rough estimate of lender’s approval rates”). I found the APRs of these lenders varied from over 990% to over 2300%. Eye-watering stuff, if you can’t repay quickly.

For extra info see the MoneySavingExpert website, for example this post:
http://www.moneysavingexpert.com/news/loans/2010/01/loan-sharks-leaving-victims-in-debt-all-year . That article talked about interest rates (APR) “up to 1500%”. As you can see above, I found some rates to be even higher.

Credit Unions: an alternative

Credit unions are an alternative and much cheaper source of short-term finance that people in this situation could look at: an alternative, in fact, to high-street lenders as well as to payday loans.

The local one here in Bristol, for example, is at http://www.bristolcreditunion.org/; they offer loans from £100 to £7,500 ($150 to $11,250). Their website says: “By law credit unions cannot charge any more than 2% per month on the reducing balance of a loan. This represents a maximum interest rate of 26.8% APR (Annual Percentage Rate), and that is the most you will ever pay on your loan.”

Worth checking out? 26.8% sounds better than those payday loans.

Taking advice

If you are in debt, and whether or not you are considering a payday loan, I always bang on about the need to get help as soon as possible. That should preferably come from an independent, impartial (i.e. not-for-profit) advice service such as the local CAB (that’s the Citizens Advice Bureau, for the benefit of any readers of this blog who are not in the UK) or CCCS (Consumer Credit Counselling Service) or National Debtline. Then you need to formulate a plan with the help of that advice, and inform the creditors that is what you’re doing and ask them to freeze interest while that’s happening.

Many creditors will agree to that, but if you don’t ask you don’t get. Many debtors spend too long in denial and they don’t communicate with their creditors, which makes the situation worse. I know: I was one of those.

In fact my book’s subtitle could even be “Learn from my mistakes”.

Christmas is coming!

At the top of this post I mentioned Christmas. This is a good time to say that one way of avoiding payday loans is to cut down spending. Don’t cut down on the fun but do cut down on the presents!

As I say in my book: “Christmas is not an emergency.” (it comes every year)

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“Back to the Black: how to become debt-free and stay that way”, is now available as a multi-format eBook at Smashwords to sample (view or download the first 20% free) or to buy at only $3.99. Go to: http://www.smashwords.com/books/view/22886

Website: www.back-to-the-black.com

Blog: http://backtotheblackblog.wordpress.com

DEBT COLLECTION: OFFICIAL GUIDELINES IGNORED

An interesting article by Jenny Little (“Moneywise”, Nov 2010) reminds me of a problem that can cause great misery for personal debtors. The Office of Fair Trading (OFT) has a ruling that prohibits harassment of debtors. Moreover the OFT clarifies what constitutes harassment by publishing guidelines; however, many lenders ignore them.

According to the article, in some cases lenders have even claimed to be unaware of the guidelines, though it’s the OFT that issues those same lenders with their consumer credit licences.

To see the article, go to: http://www.moneywise.co.uk/cards-loans/credit-cards/article/2010/10/25/credit-card-demons-revealed

Little says that “growing numbers of people struggling with credit card payments complain of creditors bullying them with menacing letters, doorstep visits and threats of court action or repossession.

“In public, credit card and debt collection firms pay lip service to official guidelines protecting consumers, but staff are given financial incentives to recover debt, provoking the sort of harassment that makes millions of debtors’ lives a misery.”

Official guidelines

OFT guidelines require lenders to negotiate with third parties, e.g. debt management companies, and say that debt collectors must give advance notice of visits. Debtors can also request not to be contacted at work.

Debt collection firms pretending to be bailiffs, or falsely threatening criminal proceedings, also risk being fined or having their credit licence revoked.

The guidelines in full:

Physical/psychological harassment: putting pressure on debtors or third parties is considered to be oppressive. Examples of unfair practices are as follows:

• contacting debtors at unreasonable times and at unreasonable intervals
• pressurising debtors to sell property, to raise funds by further borrowing or to extend their borrowing
• using more than one debt collection business at the same time resulting in repetitive and/or frequent contact by different parties
• not ensuring that an adequate history of the debt is passed on as appropriate resulting in repetitive and/or frequent contact by different parties
• not informing the debtor when their case has been passed on to a different debt collector
• pressurising debtors to pay in full, in unreasonably large instalments, or to increase payments when they are unable to do so
• making threatening statements or gestures or taking actions which suggest harm to debtors
• ignoring and/or disregarding claims that debts have been settled or are disputed and continuing to make unjustified demands for payment
• disclosing or threatening to disclose debt details to third parties unless legally entitled to do so
• acting in a way likely to be publicly embarrassing to the debtor either deliberately or through lack of care, for example, by not putting correspondence in a sealed envelope and putting it through a letterbox, thereby running the risk that it could be read by third parties.

Source: Office of Fair Trading, “Debt collection guidance: final guidance on unfair business practices.”

Lenders ignoring guidelines

But it seems the guidelines carry little weight with the lenders, according to Little. Heather Keates, chief executive of Community Money Advice, says: “Card firms are jittery and increasing interest rates. Creditors now go in hard from the outset.”

Citizens Advice (CAB) gives the example of one client’s recent experience. A 42-year-old single mother, she was struggling to keep up with a £7,000 credit card debt on her £589 take-home pay. She made the minimum payments but, when she defaulted, her bank began to phone her up to six times a day, even at work.
When the CAB intervened, the bank’s representative claimed to know nothing of the OFT guidelines and blamed the repeated calls on an automated system.

Automated dialling systems

Little has found that the use of automated dialling systems is commonplace and can result in customers receiving multiple calls every day. Some people resort to buying an extra pay-as-you-go mobile just to avoid harassment.

Alex MacDermott of Citizens Advice said: “It’s always better to talk to the card provider; otherwise your number will stay in the automated dialler, which will keep ringing. But the tone of some calls can be very threatening.”

Mention of telephone harassment and automated dialling reminds me of my own experience when I was in debt. That’s why I say: “try to avoid talking to creditors by phone. Don’t ignore them; respond to the messages … but in writing. Let all your incoming calls go to voicemail, if you are single-minded enough to do so.”

While some providers employ in-house debt collection, others ‘sell on’ debt to a third party. The Consumer Credit Act requires that they first issue a default notice to customers who have skipped payments to inform them which company has taken on the debt but in my experience this rarely happens.

The OFT has criticised debt collection agencies for “making frequent phone calls, threatening court action and not describing the process correctly”, and has also concluded that many default charges are unlawful. It says that £12 is the maximum that anyone should be penalised for missing a payment.
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What to do

As I say again and again in my book: get help, especially if you are being harassed. Apart from the three major national debt advice charities Citizens Advice (CAB), Consumer Credit Counselling Service (CCCS) and National Debtline, there are also Community Money Advice and Debtors Anonymous, as well as Consumer Action Group, which is an online support network. All of these are easily located online. There are also local advice centres, too numerous to mention.

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“Back to the Black: how to become debt-free and stay that way” is now available to sample or buy, as a multi-format e-book, at: http://www.smashwords.com/books/view/22886

DEBT ADVICE BACKLOGS IN THE UK



When I was doing that second radio interview with Heart FM earlier this week, an instructive fact about the state of our economy cropped up.

I was talking to Heart’s Rob Mayor about the necessity for Brits with debt problems to get tailored and impartial advice, preferably from one of our excellent independent advice organisations within the charity / voluntary sector. The best-known examples at the national level are probably CAB (Citizens Advice), CCCS (Consumer Credit Counselling Service) and National Debtline. I also said that a face-to-face interview was better than a phone helpline, especially for anyone starting to get to grips with the problem for the first time.

However, just before we started to record the interview, I had a call from Citizens Advice in response to an earlier enquiry of mine. As Rob and I had just been talking about the recession, I asked my CAB contact what was their current waiting time for a face-to-face debt advice interview. The answer was 3 – 4 weeks; longer than usual and a sign that the effects of the recession will be with us for quite a while yet. Phone help is, of course, available a lot more quickly.

"BACK TO THE BLACK" UPDATE


Yesterday I was working with Jenny Layton, who’s giving me fantastic help with the text-editing of Edition 2 of “Back To The Black”, i.e. the complete content as an e-book. I am still hoping we’ll get the file uploaded by the end of February.

After that the next project will be a podcast and an audio version of the complete book.

This morning I did another interview with Heart FM, this time with Rob Mayor. This came about because Heart felt that the issue of “Payday Loans” needed exploring further. We talked about why people are tempted by such loans, the benefits on which they are sold, and the well-known disadvantages of the astronomical interest rates. Those rates could be affordable if it’s the only game in town AND if the loan really is repaid really quickly, i.e. on payday, but if it’s rolled over then the problem starts.

We talked about credit unions as an alternative to high-street lenders or to payday loans.

I also stressed the need to take advice, preferably from an independent, impartial (i.e. not-for-profit) advice service such as the local CAB (Citizens Advice Bureau, for the benefit of any readers of this blog who are not in the UK) or CCCS (Consumer Credit Counselling Service) or National Debtline. Then the need to formulate a plan with the aid of that advice, and to inform the creditors that is what you’re doing and ask them to freeze interest while that’s happening. If you don’t ask you don’t get, but many debtors spend too long in denial (and I was one) and don’t communicate, which makes the situation worse.

All this is the kind of advice that most people have read lots of times; however, my hope is that when the complete book is published, people will view the advice in a different light because of what I say about where I went wrong. In fact the book’s subtitle could even be “Learn from my mistakes”.