DEBT AND THE IMPORTANCE OF MINDSET, #4

Previously, on this blog …

I had an American colleague who, every year, had major fights with his boss to negotiate more realistic (i.e. lower) sales targets. “I decided,” said Carl, “that I’d rather have a fight once a year at target-setting time, than have a fight every month-end.” In other words he managed his boss’s expectations downwards. That is fine for creating and managing the expectations of your boss or, dare I say it, your clients. But in managing your own expectations – and those of others with whom you interact while you are dealing with your debts – I hope you’ll agree with me that positive expectations are the way to go.

 

NOW READ ON …

Creating your own space

The celebrated and late-lamented Spanish golfer Seve Ballesteros told a wonderful story about how he developed a technique to protect himself from the negative thoughts of others, a technique that you might find useful in this as in other challenges in your life. “I realised that when I played an important match, all the other golfers, all their back-up teams and families all wanted me to play badly. I became so aware of these negative thoughts that it began to affect my game.”

What did Seve do? Simple; he decided to carry a bubble around with him. “Every time I stepped up to hit a shot, I imagined that I was stepping into a large bubble. Once inside, I was protected against the negative wishes of others”.

Could you borrow something from Seve’s idea? At certain points in your debt-management process, you will almost certainly be bombarded with payment reminders, final demands and the full panoply of the financial services industry’s “collection services”. You may even receive these communications as frequently as the offers of new credit cards and increased credit limits that you used to receive in the past – until the credit crunch and until the lenders realised that you had finally made the decision “enough is enough” and had decided to reduce your debts rather than routinely “revolving” them. By the way, did you know that the card company might have actually called you just that? Someone who only pays the minimum amount each month is called a “revolver”. If that’s what you did, you were exactly the client group they targeted. But that was then. You know better now.

The bell-jar

Maybe Seve’s bubble idea doesn’t work for you, so here’s a modification. Jack Black, the wise and witty Scottish author and trainer, has upgraded Seve’s bubble and he carries around an imaginary bell-jar. Any potentially stressful situation and he says to himself, “Bell-jar …ON!!” and then the slings and arrows of outrageous fortune cannot harm him.

If, on the other hand, you are the kind of logical, “left-brain” kind of person who would find the idea of personal bubbles or bell-jars – virtual or not – too off-the wall, here’s a practical strategy that can achieve the same results.

Negotiate in writing, not by telephone

In order to create space between you and your creditors, I recommend that you conduct your negotiations in writing only. There are all kinds of benefits here:

  • You have time to think before responding.
  • It will look professional; if you are not good at composing letters, there are some examples in the “resources” section of my book (see below for link), which you can adapt to fit your situation; or you can get an adviser to help.
  • You have a record of everything that has been said by both parties.
  • … and most importantly, it is less stressful.

“Let the answering machine take the strain”.

Follow this strategy, summon up your reserves of patience and persistence, and the huge benefit is that you avoid verbal discussions. They are just too stressful right now and, thanks to that wonderful invention the telephone answering machine, you need never speak to a creditor in person.

***

To be continued …

The above is an extract from Chapter 2 (“Mind Over Matter”) of “Back to the Black: how to become debt-free and stay that way”. [LINK]

DEBT AND THE IMPORTANCE OF MINDSET, #3

“Previously, on this blog …”

Why not decide what you want and act as if it were already a reality? Then three things could happen. One, you attract people who can help, as said above. Two, you get where you want, faster. Three, and most importantly, you preserve your health and sanity.

NOW READ ON …

Stress

How can we use our knowledge of how the mind works in order to help us in those first difficult days, when we have started to realise the situation in its entirety: when we have moved on from being in denial about our debt problem but we don’t yet have a plan?

Or, to misquote Kipling: “If you can keep your head when all around you are losing theirs… you don’t understand the situation.” Seriously though, this is a time when a little knowledge of your own thought processes can alleviate the worst effects of stress … and stress is a natural consequence of being seriously in debt.

We all experience stress at various times and a certain amount of it is positive; without it we wouldn’t get out of bed most days. What I’m talking about here is called in the jargon “distress” and it’s the right word.

It is sometimes said that the conscious mind can only hold one thought at a time. Buried in our subconscious mind, however, are millions of pieces of data. Some people liken the subconscious mind to the processor of a PC, and the conscious mind to the monitor or screen. Others prefer the analogy of an iceberg: what percentage is below the surface? Some of that data will be facts, some of it impressions or feelings, such as how you felt when you saw that final demand notice on your doormat.

Sadly, it is hard or impossible to control the way thoughts pop up from the subconscious mind on to the monitor of your conscious mind. If those thoughts are predominantly negative, then you will be stressed all the time. But, remember, the conscious mind can only hold one thought at a time. That thought might switch frequently if you have a butterfly mind, but you can help it along. How? By choosing to populate your conscious mind with a clear mental picture of what you want to happen, not what you fear.

On the other hand, you may have heard it said that “managing expectations” means creating low expectations in others, which can easily be exceeded. For example, many theme parks have signs telling you how long you’ll have to wait in line from a specific point. It’s well known that Disney states these times in a pessimistic way, so that the visitors will feel pleased that they got to the front of the line faster than they had expected.

The same is true in managing expectations in one’s boss. Years ago, when I worked in the chemical industry, I had an American colleague who had an annual fight with his boss in order to negotiate more realistic (i.e. lower) sales targets. “I decided,” said Carl, “that I’d rather have a fight once a year at target-setting time, than have a fight every month-end.” In other words he managed his boss’s expectations downwards.

That is fine for creating and managing the expectations of your boss or, dare I say it, your clients, if you have any. But in managing your own expectations – and those of others with whom you interact while you are dealing with your debts – I hope you’ll agree with me that positive expectations are the way to go.

***

To be continued …

The above is an extract from Chapter 2 (“Mind Over Matter”) of “Back to the Black: how to become debt-free and stay that way”. [LINK]

DEBT AND THE IMPORTANCE OF MINDSET, # 2

Previously, on this blog …

My daughters used to laugh about the fact that I always seemed to find a parking space, because I always believed I would (nowadays I don’t run a car, so I don’t need a parking space). My explanation was that because I believed I’d find one, I was relaxed about it, thus when a space became free I’d see it quickly. It’s said that if you are stressed (even about something relatively trivial, such as a parking space) part of your brain shuts down; it’s part of the so-called “fight or flight” reflex.

CONTINUED …

There is a more scientific demonstration of the power of positive expectations, which is sometimes called “The Harvard Experiment” because, although it was carried out in California, it was devised by a Harvard academic, Robert Rosenthal.

The power of positive expectations

The Harvard Experiment demonstrates the value of positive expectations; of ourselves and of others.

This is because our interactions with others reflect our beliefs about ourselves; other people, if they are perceptive, pick up quickly what we think of ourselves and what we expect to happen. Surprising as it seemed when I first heard this theory, they will often try to behave consistently with what they perceive our expectations of them to be.

There is other evidence of this so-called “expectations theory” in the psychology literature: the serious as well as the more popular versions. In case that kind of stuff is not your favourite bedtime reading, this summary of the Harvard Experiment is practical proof: something which sets an example that should be (but is not) followed in every school in the world.

Dr Rosenthal conducted the experiment in 1968, in a school in the San Francisco Bay area. His theory was that children could become brighter when expected to by their teachers and he conducted a study to test the theory. All of the children in the study were administered a nonverbal test of intelligence, disguised as a test that would predict intellectual “blooming.”

There were 18 classrooms in the school, three at each of the six grade levels. Within each grade level, the three classrooms were composed of children with above-average ability, average ability, and below-average ability, respectively.

 Within each of the 18 classrooms, approximately 20% of the children were chosen at random to form the experimental group. The teachers of these children were told that their pupils’ scores on the “Test of Inflected Acquisition” indicated they would show surprising gains in intellectual competence during the next eight months of school. The only difference between the experimental groups and the remainder was in the minds of the teachers.

At the end of the school year all the children were retested with the same test of intelligence. Overall, the children from whom the teachers had been led to expect greater intellectual gain showed a significantly greater gain than did the children in the control group. (if you want more info, you can do a search under Rosenthal & Jacobson, 1968).

Rosenthal’s work showed that having high expectations of others can influence their performance in a positive way and to a significant degree.

However there is one further point worthy of repetition. The only difference between the experimental group and the remainder was in the minds of the teachers. That “experimental group” of students, as Rosenthal calls them, was chosen at random. When this fact was revealed to the teachers at the end of the experiment, they were amazed because not only were the measurable results better, but they also reported other benefits, e.g. “behaviour was better; no disciplinary problems; it was a pleasure to teach!” The teachers then assumed that the remarkable results were because of their previously-known teaching performance. “No doubt,” said the principal, “but you were chosen at random too.”

Have the important role models in your life had high expectations of you? I hope they have. I was lucky to have three very positive role models in my younger life; my father Patrick MacMahon, my headmaster Fr Peter Murtough and one of my first bosses, Peter Mossop. All three had high implicit and explicit expectations of me, so I am sure that my behaviour reflected that (well, sometimes, anyway). All are now, sadly, dead. But whenever I am faced with a tricky situation I can ask myself: “what would PM have advised?”

Muhammad Ali and the power of positive expectations

The corollary of this is that I believe that the things that happen in my life are very much influenced by what I expect to happen. Muhammad Ali was famous for saying, “I am the greatest”, but he used to say it even before he was the Olympic champion, before he turned professional and became world champion. We in theUK are more reticent about proclaiming our talents, our strengths, our virtues, but there is a lesson to be learned from Ali.

The moral is this: I believe that if you expect something good to happen, it is more likely to happen, especially if that outcome depends to any significant extent on your interaction with others… as most outcomes do.

A traveller arrived at the gates of a city in the 14th century.

Before entering, he asked the gatekeeper: “What are the people like here?”

The gatekeeper replied: “What were they like where you came from?”

“They were wonderful people: they were friendly and generous and would share their last crust of bread with you”, said the traveller.

“You will find them the same here.”

A second traveller arrived and asked the gatekeeper the same question.

“What were they like where you came from?” said the gatekeeper.

“They were terrible people: they would steal from you at the slightest chance.”

“I am afraid you will find them the same here” replied the wise gatekeeper.

“Act as if …”

 An extension of this story is that while you are negotiating with your creditors, if you show that you expect to be debt-free in a given time, and that you’ll do whatever it takes to get there, and if you are persistent in acting that way, eventually you’ll find people who will help you. They may be employees or managers in the very companies to whom you owe money; they are just people doing a job, after all.

Why not decide what you want and act as if it were already a reality? Then three things could happen. One, you attract people who can help, as said above. Two, you get where you want, faster. Three, and most importantly, you preserve your health and sanity.

***

To be continued …

The above is an extract from “Back to the Black: how to become debt-free and stay that way”. [LINK]

 

DEBT AND THE IMPORTANCE OF MINDSET

In my last Personal Finance post (LINK), I mentioned the stressful effects of being in debt. I included contact details for several organisations that can help if the pressure of your debt problems becomes too much to handle.

A positive mindset, on the other hand, can reduce stress; it means looking for solutions rather than thinking only about the problem ( … and the conscious mind can hold only one thought at a time, or so I have been told). I cover this in Chapter 2 of “Back to the Black”, along these lines:

***

Debt and stress

Being in debt increases stress: you probably know that, if you have ever been in that situation. How we react to that stress greatly influences our success or otherwise in getting out of debt. Sometimes we seek external aids: we might drink more than we usually do, as I did. If we are smokers then we might smoke more, or if we are ex-smokers we might start again, as I did. Increased drug use of all kinds is often caused by debt.

However, the stress relief we might get from these is only temporary. Also it costs money, which is not what we want. There is a better and more long-lasting way to manage stress, which is to use our knowledge of how our minds and brains work.

Napoleon Hill, an early writer on the habits and characteristics of successful people, wrote, “In my youth, when I worked as a bank clerk, (this was back in the early 20th century, when credit was hard to come by) I could tell, before a man was 10 feet inside the bank door, whether he expected to get his cheque cashed.”

Confidence is key

What he didn’t say was that less-confident customers probably had their accounts scrutinised more closely before being given any cash. Thus being confident, or at least appearing to be confident, might have helped some of his customers to get cash or, in effect, to get credit despite their accounts not being “in the black”.

“That’s all very well,” I hear you say; “getting credit has not been my problem. That’s been easy; now I need to get out of the hole that easy credit got me into.” My contention, however, is that exactly the same principle applies here. On my wall is a slogan: “Act as if …” and it has served me well over the years whenever I was in a difficult situation. It’s a very adaptable, multipurpose slogan, meaning that if you act as if things are going well, or are about to go well, then you increase the chances that they will. It’s sometimes called the power of positive expectations.

You might well say that confidence, or maybe over-confidence, or excessively positive expectations, led you to the debt problem you have now. That may or may not be true but your prospects of getting out of this situation are greatly increased if you can manage to remain positive.

My daughters used to laugh about the fact that I always seemed to find a parking space, because I always believed I would (nowadays I don’t run a car, so I don’t need a parking space). My explanation was that because I believed I’d find one, I was relaxed about it, thus when a space became free I’d see it quickly. It’s said that if you are stressed (even about something relatively trivial, such as a parking space) part of your brain shuts down; it’s part of the so-called “fight or flight” reflex.

***

To be continued …

The above is an extract from “Back to the Black: how to become debt-free and stay that way”. [LINK]

 

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:

*****

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.

*****

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.

*****

 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/

***

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

***

 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

***

For the “Independent” article in full: LINK

***

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

 

REPAIR YOUR CREDIT RATING

Most financial experts say that it’s important to maintain a good credit rating, even if you are not planning to increase your borrowings in the near future. At some point in the future you may well want to do so; at that point, if your credit rating is poor, or simply inaccurate or out-of-date, it could cause you problems. At the very least it could cause you delays.

As I have mentioned before, I subscribe to “Moneywise” magazine and I find it a useful resource. It’s also a quick read, which is very important to many people. I wish I had known about it back in the late ‘90s when I faced my own debt problems. Being in debt is stressful and that’s why very often advice needs to be clear and succinct.

This month’s issue of the magazine contains a helpful article on the very question of boosting your credit rating. The article is not available yet on the Moneywise website, so you’ll have to buy the magazine to read the full piece. (March 2012, page 44; good value, I’d say, at £3.95)

To summarise:

  1. Get hold of your credit report from one of the three main credit reporting agencies in the UK: Experian, Call Credit and Equifax. They are required by law to provide a basic one for £2.
  2. Look for mistakes; lenders often misreport and still show debts as being unsatisfied, even though they have been paid in full.
  3. Check for old addresses: are your old addresses in there? Are they spelled correctly? You need evidence of your past payment performance.
  4. Check for hidden debts: balances that had built up of which you were unaware. (e.g. forgotten direct debits on unused accounts)
  5. Show your stability. Long relationship with one bank? Landline phone? On electoral roll?
  6. Cancel unused credit cards, debts, accounts. (I myself need to look at this; I have several cards I never use)
  7. Get a credit card, if you haven’t got one. This seems illogical but it’s a good strategy. Manage it sensibly; that provides evidence of your “probity”.
  8. Be careful who you link your finances to. Applying for joint credit will link your credit reports, of course.
  9. Don’t make lots of applications for credit at the same time.
  10. The Golden Rule: don’t miss payments. If you can’t avoid missing one, contact the lender / credit card company in advance; don’t just default.

 

CREDIT SCORING ADVICE FROM A CREDIT RATING AGENCY

Way back in 2004 I found a great online resource on this subject from Equifax. That’s really “from the horse’s mouth”, because they are one of the three UK companies mentioned above, who do the credit reporting. The information is still valid and it’s still on Equifax’s website.

The title was “Rebuilding Damaged Credit”. Some of the advice overlaps with that of “Moneywise”, some not.  Here’s a summary of it:

Open new accounts … and pay them off

Being able to repay a variety of new accounts helps rebuild your credit. Opening and paying off as many different kinds of accounts as you can is better than adding more debt to an existing credit card.

 Start small

Rebuilding your credit can be similar to starting over from scratch; starting small may be the easiest option. Credit cards from department stores can be useful. (Warning: if you don’t pay the full balance every month, their interest rates tend to be among the highest)

 Consider asking for help

If you can’t qualify on your own, ask a friend or family member to co-sign for a small loan or credit card.

 Consider a secured credit card

They are guaranteed by a deposit that you make with the credit grantor; they offer the purchasing power of a major credit card. Make sure the grantor reports payment histories to a credit reference agency, so you’re building your positive payment history.

 Use new accounts in moderation

And make payments that are more than the minimum.

 Keep balances low

Avoid carrying a balance that is more than 30% of your credit limit, because creditors may view that as excessive debt.

 The bottom line

 It’ll take time for your new credit history to gain momentum, so be patient. You’re demonstrating your financial reliability; that’s why opening and paying down accounts may make it a little easier to get more credit in the future if you need it.

 

WANT TO KNOW MORE?

For the resources mentioned above:

For the Equifax resource in full: http://www.equifax.co.uk/Products/learning-centre/rebuilding_damaged_credit.html

For a short “Moneywise” video on improving credit rating: http://www.moneywise.co.uk/cards-loans/credit-cards/how-to-improve-your-credit-record-tv

For the article: “Ten ways to boost your credit rating”. Available in “Moneywise”, March 2012, page 46.

 

For info and links re my e-book “Back to the Black: how to become debt-free and stay that way”, click HERE.

It’ll also be available in paperback from Amazon in a couple of weeks; I have the proof copy in my hand right now.

 

 

 

 

 

 

BAILIFFS: LAW CHANGES PROPOSED

According to the BBC news this morning, the UK’s Justice Minister Jonathan Djanogly says clarity is needed about what bailiffs are legally allowed to do.

New proposals are in the pipeline, including a ban on the use of force. There’ll be detail on what items bailiffs cannot take from homes.

This is welcome news. However, as I say in my book “Back to the Black”, there is already a code of conduct about debt collection; a code that is often broken by debt collecting companies. Let’s hope that the new code of conduct for bailiffs will be better observed, or this will be a waste of time and money.

Here’s what I say in my book about the existing code:

Harassment

It is illegal for creditors to harass debtors. The following definitions of harassment are taken from the website of the UK’s Office of Fair Trading (OFT). Sadly, I know from experience that many of these practices are used by many creditors.

 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: OFT website, “Debt collection guidance: final guidance on unfair business practices.”

 

WANT TO KNOW MORE? 

For the BBC News item on the proposed law changes: click here

For a link to my book “Back to the Black,” containing details of the existing UK code of practice governing debt collection: click here

 

 

 

 

 

 

 

 

 

NATIONAL DEBT HITS A TRILLION: PERSONAL DEBT 50% HIGHER

I’ve just heard on the BBC news that the National Debt (that’s the UK, by the way) has hit £1 trillion. That’s news; that’s big news; doubtless our chief Prophet of Doom, Robert Peston, is getting ready to intone his ponderous views on its significance.

However, personal debt in the UK exceeded £1 trillion long, long ago. When my book “Back to the Back” was published in 2010, UK consumer debt (i.e. mortgages, credit card debt, loans, etc, etc) was almost £1.5 trillion and was slightly more than GDP, the usual measure of national output.

As British National Treasure Michael Caine famously said: “Not a lot of people know that.”

 

WANT TO KNOW MORE?

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

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:

 

 

 

 

PAYDAY LOANS AND THE DEBT SPIRAL

“It’s not just the weak that can end up in a debt spiral”, wrote Simon Read of The Independent (London) a couple of weeks ago. I was reassured to read that, because I had ended up in that very spiral in the late 90s and I didn’t want to think that I had been weak. Oh no, not me.

The article was topical. Payday loans had hit the headlines again when R3, the professional association that represents insolvency practitioners, warned that up to 3.5 million people in Britain are expected to take out a short-term loan to tide them over in the coming six months.

First, the good news …

Simon Read says of the loans: “if you need emergency cash and know you can pay it back within a few days, then paying £20-£30 for the privilege doesn’t seem too bad, especially bearing in mind how much the charges and interest can add up to if you go into the red at a bank.”

Then the bad news …

But as Read says, and I have written in these pages before, the obvious problem is that if you don’t repay the loan quickly then it mounts up: it spirals, in fact. What’s more, you could end up paying bank charges and interest anyway, as well as the interest to the loan company.

Wonga boss explains

The most interesting part of the piece was this. Because of the negative publicity, Wonga’s boss Errol Damelin got in touch with the Indy to offer a defence of his business methods. He said: “If things go wrong we charge a one-off default fee of £20 and then stop any further interest at a maximum of 60 days.”

That sounds fair and it’s the kind of responsible business practice that Simon Read, and in fact all of us, would like to see, though I’d like to know how Wonga defines “when things go wrong”, i.e. when does this kind of “interest cap” kick in?

The Independent would like to hear from anyone who’s had experiences (good or bad, I trust) with Wonga or other payday lenders who claim to operate fairly.

Author’s payday loan spiral

The article concluded by recommending a book by Steve Perry, entitled When Payday Loans Go Wrong. It describes the author’s “descent into debt hell”, which started innocently enough with a £250 loan for a weekend away but ended 18 months later with 64 loans from 12 different companies totalling £15,000.

My own debt experience was not caused by payday loans … but the result was similar. My business started to go wrong, so I started funding it with personal credit cards. I ended up owing a total of £65,000 to 23 separate  creditors and narrowly avoided bankruptcy. Different cause but the same spiral, which I described in my book “Back to the Black.”

WANT TO KNOW MORE?

For the full Simon Read article click here: http://www.independent.co.uk/money/spend-save/simon-read-its-not-just-the-weak-that-can-end-up-in-a-debt-spiral-6275149.html

For information about Steve Perry’s book “When Payday Loans Go Wrong”, click here: www.saynotopaydayloans.co.uk

For information about my book “Back to the Black”, click here: http://michaelmacmahon.com/books/back-to-the-black-how-to-become-debt-free-and-stay-that-way/