Tag Archives: back to the black

CALL FOR MORE FINANCIAL ADVICE

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Today I read a great piece from Simon Read of the Independent, calling for the wider availability of financial advice. I posted a comment as follows:

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Great piece! More strength to your pen! I absolutely support your call for wider availability of quality financial advice; ten years ago I narrowly avoided personal bankruptcy and found a better solution with the help of two excellent advisers at the local CAB; but not everyone is as lucky and I know what the queues are like at the CAB in Bristol.

Have RTed your tweet.

I too quoted Mr Micawber in a book about my debt experiences (“Back to the Black: how to become debt-free and stay that way”). The version of Micawber I used was worded slightly differently from yours, in that mine was income / expenditure, ending: “Annual income twenty pounds, annual expenditure twenty pounds, ought and six, result misery.”

The debt-to-income comparison you mention is interesting. I found some alarming debt / income ratios in the Times a year or so back, which I interpreted in my book as follows:

As Credit Action’s website succinctly puts it: “Individuals owe more than what the whole country produces in a year.”

The trend of increasing personal indebtedness, a by-product of our consumer culture, certainly contributed to the financial crisis.

In early 2010, a typical UK household containing one wage-earner on average pay has, according to the Halifax (a division of the Bank of Scotland plc), outstanding mortgage debt that’s equivalent to 507% of income (i.e. of the ONS figure for average annual income). By way of comparison, the UK Government’s ratio of debt to income – a ratio that was widely castigated as unsustainable during the election campaign of spring 2010 – was “only” 170%. (“Worried about national debt? Mr & Mrs Average are in a far worse state”: Ian King, Deputy Business Editor, The Times, 19 Feb 2010) Go figure, as my American friends might say.

Most personal debt is of course, at least in the UK, secured mortgage debt: levels of home ownership have traditionally been higher here than in most other European countries. It has always been considered that mortgage debt is safe debt; that was true for as long as the housing market continued its customary rise but at times of recession in the housing market …. Etc, etc

One could also add the risk of rate increases leading to a rise in the numbers of mortgages in arrears, repossession or forbearance … a number that’s already high, as you mention.

 

WANT TO KNOW MORE?

To see Simon Read’s original piece (The Independent, 16 July 2011): http://www.independent.co.uk/money/spend-save/simon-read-rising-poverty-worries-means-advice-is-crucial-2314442.html

To sample or purchase (£0.70 / $0.99) my eBook on managing debt:

POPULAR NEW (ISH) LENDERS GAINING GROUND

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A while ago I blogged about the new(ish) peer-to-peer lending websites, such as Zopa, the largest in the UK. I also said I’d be looking into the matter further.

So I decided to read what the established financial journalists (the people who are paid for their expertise) are saying.

I’ve looked at a few of them, following the principle of Lobachesvky, who famously said: (according to the legendary Tom Lehrer): “To steal from one source; that’s plagiarism. To steal from many: that’s research.”

Firstly, I’ve learned that Zopa stands for the “Zone Of Possible Agreement” and its aim is to cut out the middleman by putting lenders and borrowers directly in touch. The site acts as a facilitator and makes sure debts are repaid.

“Personal finance just got a whole lot friendlier”

In an earlier post on this subject I mentioned Maryrose Fison’s article with the above title (January 2011) in the Independent. See below for a link, as it’s still on their website. Here’s my inexpert précis of what some other writers have said.

Rosie Murray-West, Daily Telegraph

She says that “(new-style) Peer-to-peer lending websites and old-style credit unions have been major beneficiaries of public anger against the banks, seeing a huge level of growth in 2010.

“ …Zopa … allows ordinary people with savings to lend them out at an average rate of 8pc and has now lent a total of £110m. Its rising popularity has led to four new peer-to-peer lenders being created in 2010, and the industry is now working on becoming properly regulated and establishing a code of conduct.”

Credit Unions

“Meanwhile credit unions, which are co-operative organisations offering affordable loans and accounts without bank charges, have also grown.

A spokesman for ABCUL, the credit union association, said the amount of savings in British credit unions had risen by 27% in the two years to March despite the fact that many British people were struggling to save in the current economic climate. The number of new members of credit unions rose by 18.4% in the same period.

“Mark Lyonette, ABCUL’s chief executive, said that Credit Unions continue to grow as more and more people seek a fair and affordable alternative to the high street banks. He added that if the Government made good on its interest in making credit unions accessible through the post office network, there was the potential for many more people to join them.”

Martin Lewis’s ‘Money-Saving Expert’ site; opinions on Zopa

The ‘MSE’ site was sceptical about Zopa at first. But now they are saying that under certain conditions, it makes sense. As of today, the site’s view is:

“… for those with a good credit score, there’s an alternative. Zopa is a unique internet marketplace which couples people who want to lend with those who want to borrow. On application it gives you a credit score, and if you get its top A*, A or B ranking, you can borrow.

Loan rates vary daily and are determined by the amount needed and length of borrowing. For A* or A grade credit scorers wanting cash over 36 or 60 months, it can beat some loan rates, particularly on smaller amounts; currently, 9.6% APR is available for loans of £4,000, for example.”

View of a Zopa customer

By way of a change from the financial journos, here’s a quote from an actual Zopa borrower. (5 July 2011)

“Just thought I would let you all see my finished kitchen :o) All tiled and just about back to normal now. Thank you all to those who have helped me pay for this, you have no idea how happy I am it’s finally been done! :0} xxxxxx”

Editor’s note (that’s me): there is a video on Zopa’s Facebook page too but I’m not able to reproduce that, because I haven’t done the training course to insert video.

For your guidance, their loans are apparently mostly for the purpose of home improvement (like the above), cars or debt consolidation.

Moneywise “Most Trusted” awards

… and finally, I must congratulate this peer-to-peer lender for having achieved an important award. According to Moneywise magazine, Zopa is the UK’s Most Trusted Personal Loans Provider 2011. This was for the second year running and was against a shortlist that also included First Direct, Nationwide, Tesco Bank, Sainsbury’s Bank and Natwest.

WANT TO KNOW MORE?

1. For Rosie Murray-West’s article from the Daily Telegraph: http://www.telegraph.co.uk/finance/personalfinance/savings/8214641/Savers-spurn-banks-for-Zopa-style-peer-to-peer-lenders.html

2. Peer-to-peer lending: how to choose the right site by Emma Simon. (also in the Telegraph)

3. For the article in The Independent by Maryrose Fison: http://www.independent.co.uk/money/spend-save/maryrose-fison-personal-finance-just-got-a-whole-lot-friendlier-2173935.html

4. For the Money Saving Expert site and newsletter signup: http://www.moneysavingexpert.com/

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For a free sample of my book, “Back to the Black: how to become debt-free and stay that way”:

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

Other e-formats, including .pdf: http://www.smashwords.com/books/view/22886

You can follow me on Twitter: @michaelmac43, on Facebook: Michael James MacMahon, or on Linked In.

 

DEBTORS IN DANGER FROM DMP FIRMS, SAYS OFT

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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

 

ACCOLADES FOR BUILDING SOCIETIES

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I’ve been following articles and blog posts by Jeff Prestridge; he’s personal finance editor of Financial Mail on Sunday, thus a pretty influential guy. And he’s said some very complimentary things lately about the building society sector, especially by contrast with major banks. If I were in charge of media relations at one of those banks, I’d have found it uncomfortable reading.

One of his articles was in “Moneywise” (May 2011); on the front cover, the piece was flagged up with the words “why selfish banks put themselves first” and my first reaction was that this was just another blast at the major banks; justified, maybe, but not news. Well, yes, but there was more: a good-news story about building societies.

Customer service excellence

Prestridge’s title praised the excellent customer service records of two particular building societies, especially by contrast with the majority of banks. They were Coventry Building Society, a mutually-owned bank, and Yorkshire Building Society, who are the country’s second-largest building society, with assets of £30 billion.  That’s small by comparison with the £1.9 trillion assets of RBS in 2008, making it then the world’s largest company (did you know that?), but large by most other measures.

(I knew RBS’s total assets were larger than the entire GDP of the UK, then £1.7 trillion, but largest company in the world? As John Lanchester says in his fascinating book (see below), that’s “freakishly large”. Yet we had to bail them out. That’s scary)

Both scored highly in several categories of Moneywise’s own Customer Service Survey Awards but they were nonetheless profitable organisations. The article’s title was “Banks that look after us look after themselves”, the point being that caring for the customer makes commercial sense.

Executive pay restraint

The article also compares top management pay packages. Ian Corning, CEO of Yorkshire BS, donated both his entire 2010 bonus and his annual increase to the Society’s charitable foundation. That compares very favourably with the well-known and astronomical levels of pay and bonuses at the top clearing banks. (at RBS, bonus of £4.5 million, apart from salary).

According to a Bank of England study by Andrew Haldane and quoted by Lanchester, the bank directors were paying themselves these monster bonuses simply as result of taking bigger punts; “there was no skill, efficiency, intelligence or judgment involved: just riskier bets”. And we all know who picked up the tab if the bets went wrong: the taxpayer.

Compared with this, the relative restraint at the building societies seems even more admirable.

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Because Moneywise is a monthly, Jeff Prestridge must have written that piece in April. Writing slightly later, i.e. for the Mail on Sunday’s 8 May edition, he says, talking pithily about the PPI scandal:

“Payment protection insurance has been a blot on the financial services landscape for far too long. It has angered those who bought it only to discover it wasn’t worth the paper its terms and conditions were written on.

It has nearly brought the Financial Ombudsman Service to its knees dealing with a deluge of complaints. And it has done untold damage to the already tarnished reputation of the banks that sold it by the shovelful.”

He then goes on, by contrast:

“BUILDING societies remain a key part of the financial landscape, providing consumers with a much-needed alternative to the banks, especially in the savings and stricken mortgage markets.

Although the credit crunch has not left the industry untouched, resulting in a bout of consolidation (that will continue for a while), there are signs that some bigger societies are emerging from the financial crisis stronger than ever.

Yorkshire and Coventry are leading the way. Both have managed to absorb smaller stressed societies into their fold over the past three years – Barnsley, Chelsea and probably Norwich & Peterborough by the end of the year in the case of Yorkshire, while Coventry has snapped up Stroud & Swindon.

Crucially, they have managed to do this without compromising either customer service or the competitiveness of their products.

The strength of these two organisations is such that both have declared an interest in acquiring Northern Rock – complete with 75 branches – from the taxpayer.

Given that the building society industry has survived the crunch with its reputation intact and without falling back on taxpayers for support (the demise of Dunfermline was its only blemish), it would be a great fillip for the sector and great news for consumers if Northern Rock (once a building society) were to be remutualised.

As David Webster, outgoing chairman of the Building Societies Association, said last week at its conference in Birmingham, building societies are primarily customer-focused businesses – which sets them apart from most banks (Metro excepted).”

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At the end of his “Moneywise” article, Prestridge concluded: “Given a choice between Yorkshire, Coventry and any of the big banks, I know where my money would go any day. To the Coventry and the Yorkshire. They care about you – rather than themselves.”

 

I think he makes the point very well that this is enlightened self-interest; by caring for the customer they help themselves build a more sustainable business. What a pity not all businesses view the world in those terms.

WANT TO KNOW MORE?

Jeff Prestridge’s 8 May article in the Mail on Sunday: http://www.fmwf.com/media-type/ask-an-expert/2011/05/jeff-prestridge-banks-must-end-the-ppi-debacle-to-win-our-trust/

John Lanchester’s book “Whoops: why everyone owes everyone and no one can pay”: http://www.amazon.co.uk/Whoops-Why-everyone-owes-one/dp/1846142857/ref=sr_1_2?ie=UTF8&qid=1305882016&sr=1-2

“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

“BACK TO THE BLACK” AT #29 IN KINDLE STORE

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A week ago I announced the Kindle launch of my book “Back to the Black: how to become debt-free and stay that way”, at a promotional price of £0.70 including VAT.

 

(That promo price, by the way, is also being applied to the other e-formats already available in the Smashwords Store.)

 

Today, I was pleased to see that, within the “Personal Finance” category of the Kindle Store, my book is now ranked at #29 out of 3,902 titles. The ranking is “sorted by best-selling”, according to Amazon.

 

Many thanks, therefore, to those of you who have bought a copy and helped put it at #29!

 

 

WANT TO KNOW MORE?

“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

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You can follow me on Twitter: @michaelmac43, or Facebook: Michael James MacMahon.

INTRODUCTORY OFFER FOR KINDLE VERSION OF “BACK TO THE BLACK”

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As I write, the experts are dissecting on TV the impact of the Budget just unveiled by UK Chancellor George Osborne. I don’t claim sufficient expertise to add to the acres of coverage it will already be getting. What I do know, though, is that the uncertainties in the economy have already led more and more people into debt.

As I have just uploaded my dealing-with-debt book to the kindle store, and as I feel sure that thousands of people could benefit from it, I want to ensure it gets into the hands of as many of them as possible. I don’t want the price of the book to be a barrier.

For an introductory period, therefore, the kindle version of “Back to the Black: how to become debt-free and stay that way” is available at a launch price of £0.70 (or $0.99 plus VAT). Go to http://www.amazon.com/dp/B004PLMAQM

For the sake of consistency, this promotional price also applies with immediate effect to the multi-format versions, including .pdf, that were already available in the Smashwords store (http://www.smashwords.com/books/view/22886). The price adjustments in both stores are already active.

WANT TO KNOW MORE?

Reading eBooks on other devices

You don’t need a kindle to read kindle-format books! If that doesn’t make sense, what I mean is that if you read eBooks but don’t have a kindle, there is a neat piece of (free!) software called “kindle for PC”, enabling one to benefit from the improved readability of the kindle technology (and it really is) when reading on a PC or any other device. There is also a Mac version.

For a download link, just type “kindle reading apps” into Google.

Book links

To sample or purchase “Back to the Black: how to become debt-free and stay that way”, go to on of the following retail sites:

kindle: http://www.amazon.com/dp/B004PLMAQM

Other e-formats, including .pdf: http://www.smashwords.com/books/view/22886

Note: unlike physical books, eBooks carry VAT (I don’t understand the reason for the difference). The price in dollars is thus $1.14 to include VAT, i.e. British sales tax, even if the book is bought via www.amazon.com . In sterling the £0.70 price includes VAT.

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You can follow me on Twitter: @michaelmac43, or Facebook: Michael James MacMahon.

CAN YOU BORROW MONEY THROUGH FACEBOOK?

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I recently attended an excellent conference in London, on Facebook marketing. Somebody, I can’t remember who, made the claim that “Facebook will at some point become the world’s biggest bank”. I didn’t know whether to believe that. However, I did hear many presentations at that event from entrepreneurs apparently earning serious money through Facebook and other online resources.

What I didn’t hear that day, but I know now, was that hundreds of individuals now lend money to each other through Facebook. “Cutting out the middleman”, we used to say; and Facebook is facilitating it. I came across this interesting fact while trawling through my “newspaper cuttings awaiting reading” pile and found an article by Maryrose Fison in The Independent. It was a couple of months ago but no matter.

Debt rescheduling / consolidation / relocation?

People who are concerned about their debts often ask advisers if they should look for ways to move the debt elsewhere, for example through a debt consolidation loan. The pros and cons of that route have been discussed many times so I won’t go into it here, except to say that the general advice is always to avoid this kind of loan if it has to be secured against your home.

A zero percent balance transfer is another way of getting “free” credit. Even allowing for the fact that there’s always a fee of around 3%, it’s cheap money, provided your credit record is clean enough to get it.

Borrowing money from individuals, however, is something that was new to me; except, of course, for friends and family, who are often a source of funds from which debtors make offers to their creditors for “full and final settlement”. However, this new trend is borrowing from individuals who are total strangers.

Here’s an extract from what Ms Fison said:

“As hundreds of thousands of Britons struggle to get a foot on the property ladder, with banks continuing to crack down on new lending, social networking applications have become a lifeline. Who would willingly choose to pay through the roof for an unattractive loan package when there are millions of social network users gagging to lend you their money for less?

“The average rate of interest on a loan at the Lending Club over the past 36 months has been 9.22 per cent. On Zopa, the typical APR on a loan of £5,000 over three years is 8.3 per cent, and on Funding Circle a £15,000, three-year loan has an APR of 9 per cent -well below the 12 per cent a typical bank would charge.”

That sounds attractive, although there are lending offers on the market nearer 9% than 12%; some of them were listed on the same page of the paper under “best buys”. The issue, again, would be whether one’s credit record would be good enough to qualify. A private lender would also need reassurance but might be more flexible than a bank, as they are getting a relatively high return (much better than the high street, anyway) on their money.

Facebook apps

You’ll note that Ms Fison (excuse my formal mode of address: I’m old-fashioned and I’ve never spoken to her, though I shall be following her on Twitter from now on) mentioned The Lending Club; she says it was one of the first applications to be added to Facebook in 2007. She also mentions Zopa:

“UK-based social lending service Zopa is another provider, and the number of communal lending and borrowing sites with applications on social networks is growing at a staggering rate.”

Ms Fison concludes:

“Social networking applications may still be in their infancy, but given the popularity of personal finance and online peer lending, their influence on our day-to-day activities looks set to take off this year.”

Well, there is nothing to be lost and lots to be gained by investigating this further. I’ll certainly be doing some research into peer lending sites: watch this space!

WANT TO KNOW MORE?

For a copy of the full article in The Independent by Maryrose Fison: http://www.independent.co.uk/money/spend-save/maryrose-fison-personal-finance-just-got-a-whole-lot-friendlier-2173935.html

For a free sample of my book, “Back to the Black: how to become debt-free and stay that way”, go to:

kindle: http://www.amazon.com/dp/B004PLMAQM

Other e-formats, including .pdf: http://www.smashwords.com/books/view/22886

You can follow me on Twitter: @michaelmac43, or Facebook: Michael James MacMahon.

ANALYSING YOUR FINANCIAL SITUATION

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A few years ago, when severely in debt, I avoided opening letters from banks and credit card companies. So I couldn’t begin the process of getting out of debt, because I didn’t have a clear picture of my situation.

However, I found that when I bit the bullet and analysed my situation in detail, I felt better! Knowing the facts, no matter how bad, is better than living with a “sword of Damocles” hanging overhead.

If you too have been ignoring those letters, please start opening them now.

Sorting that paperwork

1.       Bank statements. Overdraft? How much?

2.       Credit card / store card statements

3.       Invoices from other creditors

4.       Tax correspondence (if self-employed)

5.       “Informal” liabilities, e.g. loans from friends / family

When you’ve totalled the debts in categories 1-5, now list the positive side of your “personal balance sheet”, i.e.

6.       Estimates of the value of your assets: property; car; cash at bank (if your account’s in the black); shares; insurance policies; money owed to you, including refunds; occupational pension funds [if you’re old enough to consider cashing them in]; anything that could be turned into cash if necessary.

Now prioritise your debts, as follows:

  • Priority: “roof-over-your-head” and essential utilities, for example:
    • mortgage or rent arrears (you could lose your home)
    • other debts secured on your home (same result)
    • Council Tax (they can send in the bailiffs)
    • gas & electricity (they can cut you off)
    • water (though they cannot).
  • Non-priority: all other services you need, e.g. car loan; home or mobile phone; credit cards; all other creditors.

Income and expenditure

Now you’ve assessed your liabilities and your assets, you need to evaluate your income and expenditure. It’s a “profit and loss statement” for your life, based on your current spending pattern. Then do another, based on your “survival budget”.

You’ll need a table or spreadsheet: money advisers at your local CAB (Citizens Advice) can provide a form.

Putting it in perspective: “key ratios”

Now analyse your total debt relative to your income; also to your assets. What multiple of your net monthly income is your total debt? What percentage of your net worth? These are what I call your personal “key ratios”.

Now you are in a better position to develop your options and choose the solution that works for you.

Discretionary income

A final question: what’s your discretionary income? What’s left after tax and essential expenditure? (Not after your usual expenditure: the answer to that question might be zero, as it was for me)

Whether you think you can repay debts in full or make a partial offer, you’ll need to maximise this “discretionary income”. That’ll involve tough decisions about “needs versus wants”: between what’s essential to your life and what you see as essential to your lifestyle.

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The above is an extract from Chapter 5 of my book “Back to the Black: how to become debt-free and stay that way”

Want to know more?

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

It is also in the Kindle store but only the first 10% is free (sorry: Amazon’s rules, not mine). http://www.amazon.com/dp/B004PLMAQM

NEGOTIATING CREDIT DEBTS

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NEGOTIATING CREDIT DEBTS

In my book “Back to the Black”, I highlight the need to classify your debts in two main groups. Priority debts have to be paid first, of course, because non-payment could cause you to lose your home, or essential services, or even your liberty. I specify which debts come into this category.

The rest are non-priority debts. In my experience, most of these are negotiable if you cannot find a way to pay them in full.

Here’s an extract from Chapter 10 of the book.

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Classifying debts

While you were doing your “reality check” you will, I hope, have classified your debts into priority and non-priority. Priority debts will mostly, if not totally, consist of any arrears you may have built up in the essential areas of keeping a roof over your head (mortgage or rent), the associated taxes (Council Tax in Great Britain or domestic rates in Northern Ireland) and essential utilities, i.e. gas, electricity and water. (Phone rental has often been classed as a utility but it doesn’t qualify as a priority debt for this purpose, whether it is landline or mobile or broadband). There are also some other categories of arrears that could in the worst case land you in prison for non-payment, so we class them as priority debts too; they include court fines and child maintenance.

Negotiating non-priority debts

On non-priority debts – and most credit debts come into this category – one option is what I call Plan C, i.e. “Negotiate a Deal”.

Plan C involves negotiating not only for time while you put the deal together, but also for a discounted settlement on the non-priority debts. Your creditors, however, may be prepared to freeze further interest payments and late-payment charges, while you are putting your plan together and also while you are in the process of paying off any deal that might be agreed.

It may be that you have some funds available and could make an offer for “full and final settlement”. The word “full” in this context means that the debt is acknowledged by the creditor as being “paid in full” or “satisfied in full”; you are paying a lump sum, though you are paying less than the full amount. The funds you have available might come from friends and family, or maybe from the lump-sum element of cashing in an occupational pension, depending on your age (I was lucky enough – and old enough – to be able to do the latter). More usually, though, you’ll make an offer for payment in instalments.

Co-ordinating the responses

However, if you do decide to go for “full and final settlement,” then bear in mind that you will be negotiating on several fronts and not everyone will agree at the same time; a tricky situation. What you want to avoid at all costs is to have agreed with some creditors, paid them the lump sums agreed, and then to be forced into bankruptcy anyway if other substantial creditors would not agree to a negotiated settlement. That’s why you’ll find that one of my standard letters in “Resources” caters for the situation where you have agreed a deal with one or more creditors but need to delay payment of the sum agreed pending agreement from other creditors. For this particular strategy, therefore – i.e. Plan C offering lump-sum for full and final settlement – my usual warning is louder than ever: take advice.

Some creditors will be reasonable and flexible but others will be intransigent and will play hardball. However, once you have decided that you are going to take action about your debt situation, you should inform your creditors of your situation and ask them for a moratorium on interest and charges.

[the book contains a template for a standard letter to handle this and many other situations.]

Avoid the phone

At the risk of yet more repetition, this is where I say again, “don’t negotiate on the phone; do it in writing.” It is simply not necessary to pick up the phone whenever creditors phone with demands and threats; that is a stress you can do without. In Chapter 2 (“Mind over matter”) I discussed the extra stress of dealing with phone demands; even if you might say that you can handle the stress, there is another very practical reason for doing it this way. If you negotiate on the phone, and if at a later date you find that the creditor’s recall of that conversation is not the same as yours (surprise, surprise), you will have no record of what was said or what was agreed. So let those calls go through to voicemail, but then respond promptly in writing to any messages left. Do it all in writing; it’s more work, of course, but the outcomes – not only for your debt management plan but also for your state of mind – will be better.

Keep copies

Needless to say, keep copies of everything. The fact that you are able to refer to the content and the dates of all previous correspondence is worth its weight in gold. Get that lever-arch file; if you have many creditors you’ll soon fill it. Of course you will have kept copies of your outgoing letters on your computer, but when you go for meetings with your adviser it will be very helpful for that adviser to be able to scan a paper record of all the correspondence, both incoming and outgoing.

“The left hand doesn’t know what the right is doing”

Something I learned is that, while you are negotiating with a creditor, they might simultaneously instruct intermediaries to collect on their behalf. This might be policy, it might not, so be aware of the fact that the left hand might not know what the right is doing within the creditor company. If this happens, simply refer them back to previous correspondence (even sending copies of it) in a polite way. This way you retain, if not the moral high ground, at least the efficient high ground. Don’t assume everyone is super-efficient. Poor communication within a creditor company and between them and their intermediaries can work in your favour, if you are patient.

***

Talking of left and right hands … and nothing to do with debt: I can’t help repeating what was once said about the jazz pianist Erroll Garner, who at times played right on the centre of the beat with his left hand, while playing way behind the beat with his right hand:

“His left hand knew what his right was doing but it didn’t care.”

Want to know more?

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

… and is now also on the Kindle catalogue. (search under the title or under “MacMahon”; sample first 10% free)

“BACK TO THE BLACK” NOW ON KINDLE

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The Kindle version of my book “Back to the Black: how to become debt-free and stay that way” is now available.

If you have one of these wonderful machines, you can find it of course by searching under the book’s title or under “macmahon”.

Alternatively you can find the Kindle version via the Amazon website at:

http://www.amazon.co.uk/Back-Black-debt-free-Telling-Experience/dp/B004PLMAQM/ref=sr_1_86?s=books&ie=UTF8&qid=1298807870&sr=1-86

Reading e-books on other devices

If you read e-books on other devices and don’t have a Kindle, you might be interested to know that you can benefit from the improved readability that the Kindle technology delivers. Before I bought my Kindle, I downloaded the free “Kindle for PC” software and found it useful, because e-books on my PC became just a little bit clearer to read.

In fact Kindle now has a whole family of apps to allow you to read e-books on PCs, Macs, iPhones, iPads, Androids, etc:  And they’re all free! (So I don’t get any commission for bigging it up)

You can find these apps at:

http://www.amazon.co.uk/gp/feature.html/ref=amb_link_157484067_3?ie=UTF8&docId=1000425503&pf_rd_m=A3P5ROKL5A1OLE&pf_rd_s=center-9&pf_rd_r=01BXV8R939MKN7R8Z3SJ&pf_rd_t=1401&pf_rd_p=225433407&pf_rd_i=1000423913