30% debt disaster: some people don't want to be helped

Neil Faulkner
by Lovemoney Staff Neil Faulkner on 01 February 2013  |  Comments 7 comments

My friend is still paying an awful rate of interest on his debt, yet refuses to take the advice he's had. Why is he burying his head in the sand?

30% debt disaster: some people don't want to be helped

A year ago I wrote about how someone close to me had landed himself with debt that he was sturggling to pay off, at a rate of 30%. He has paid £190 a week for a decade on a £7,500 loan, yet his debt has only shrunk to £7,000. He would have paid £35,000 in interest and repaid for 19 years in total if he continued at that rate. See A 30% debt disaster for the full story.

The cause was repaying slowly on a terrible interest rate of 30%. That might not sound so bad compared to payday loans, but it's horrendous. I showed that it costs 50 times more in interest than a £7,500 personal loan charging 5% per year.

He needed to budget and he needed to contact professionals who could help.

A promising second act

It seemed promising after that. But there were setbacks.

Although he and his family made cuts to their spending, he later revealed (as I detailed in 30% debt interest rate: what happened next) he still hadn't put together a budget and he had more debts than he first admitted. A classic sign of a problem debtor is one who doesn't know – or can't admit – all the debts they have. His overdraft debt cost the equivalent of 40% interest.

Before following my suggestion to contact professionals, he did what the desperate usually do. He looked for consolidation loans and took “advice” from a company that wanted to sell him debt solutions. The first option is rarely sensible for someone struggling with debts and the latter is never a good idea.

After more encouragement, he finally contacted National Debtline. Not only did they make him realise he was nearly conned by the debt “advice” company, he felt a surge of relief at how professional the debtline advisor was and he was satisfied he was on the right track.

The burden is a lot to bear

But it's not easy to take tough advice. The problem, as you'll see when I tell you what happened next, is sticking with the discipline required and dealing with withdrawal.

Since contacting National Debtline and coming up with a plan, the man and his family have continued as before. They still don't budget. They don't keep spending diaries or write shopping lists. They don't control and check their spending. As a result, they have continued to miss debt payments that they shouldn't have done.

Thanks to this, his partner can't take a master's course this academic year. She was set to be accepted, but she needed loans that require credit checks. Although she had already been pre-approved, when they double-checked closer to the start date her credit record had worsened. She now hopes her credit history will improve enough to get the loans and take the course next year.

How did this happen?

Despite recognising that he had received fantastic advice from National Debtline, not much has changed. It never fails to surprise me – after many years of interviewing debtors and debt experts – the lengths that people will go to in order to avoid doing what will make them much happier in the long run, when it has a painful impact in the short run.

If you're spending hundreds a month on debt payments that you can barely afford, you usually have to make cutbacks and stick to them. That might not be your only debt solution, but it's likely to be part of it – and probably the worst part.

If you're not used to being financially organised, you have to learn how. Worse than that, you have to suddenly adjust to having far fewer and cheaper luxuries for the foreseeable future. It's an unpleasant situation.

Most people, once they become used to luxuries, start calling them essentials. Although billions of people in the world live well enough without foreign holidays, cable TV and smartphones, getting used to living without them takes time and is very painful. In addition, some people feel ashamed about it – as if good friends would criticise you for doing the right thing!

They start to look for ways out, like imagining they'll miraculously, suddenly earn enough money in the future to overcome their problems, even though those problems have grown faster than their incomes for many years.

In short, many people just don't think they can handle these changes, even if they know they're temporary. My friend and his family included, it seems.

What he could do next

But eventually he will be forced to handle it – either by his lenders or the courts. The longer he leaves it the worse it will get. In the meantime, the stress and anxiety of raising a family with unmanageable debts will prolong their misery and make them poorer for the rest of their lives – even after they have paid off their debts. Read How to spend less and have more.

The professional advice from National Debtline is fantastic, but what this family needs now is support and encouragement to see it through. Since he's comfortable with social media and online communication (he met his partner through World of Warcraft) I will be urging him and his family to try an online discussion board populated by debtors and debt experts, who will provide the emotional assistance and all the advice they need.

This will give them people to talk to who understand their situation when they're feeling at their lowest. They will receive lots of encouragement, including stories that show how others are dealing with, or who have already beaten, their debt. They'll read about the elation when it's over, and learn why it's worth it in the end, even though it means facing your problems sooner.

This support makes it much easier during the long journey to financial health, to the end of stress, and the road to security and happiness.

Read The top three ways to deal with debt for more guidance.

More on debt

A 30% debt disaster

30% debt interest rate: what happened next

The top three ways to deal with debt

How to spend less and have more

Where to get free debt advice

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Comments (7)

  • Overtone
    Love rating 38
    Overtone said

    I think that's a superb article. I hope it proves helpful to people in a similar situation. It must be very difficult to take the first step of acknowledging that you need to do something, but probably just as difficult to keep up with the long haul back to solvency, especially if lots of your friends are living the lifestyle which you borrowed money to pay for. I hope your friend is able to stick with it.

    Report on 01 February 2013  |  Love thisLove  0 loves
  • jonnie2thumbs
    Love rating 107
    jonnie2thumbs said

    I left the UK 11 years owing various banks and credit cards about £80k - I never regretted it for a minute

    Report on 01 February 2013  |  Love thisLove  0 loves
  • r
    Love rating 98
    r said

    I think that @Overtone has made a good point here. "especially if lots of your friends are living the lifestyle which you borrowed money to pay for.

    Why can't people live within their means? Peer pressure is an amazingly powerful influence so, should we be doing more to educate people about money-management? I think it is time for this to be a serious secondary school subject - it affects every part of one's adult life yet there is little if any training in schools about it.

    r.

    Report on 03 February 2013  |  Love thisLove  0 loves
  • CuNNaXXa
    Love rating 411
    CuNNaXXa said

    Advise given by friends, relatives and neighbours often gets discarded because of how close those people are to the individual.

    Take me, for example. I am a professional electrician who builds generators for a living. Will my neighbour take my help or advice? No. They'd rather spend hundreds of pounds on someone driving a sign written van.

    Why do people pay for something when they can get it for free, or a minimal amount? Is it because we have been conditioned to believe that we only get value if we spend more?

    Ironically, I am more qualified than the people my neighbour got out to do his little job, but he felt it would impose on my time, even though I didn't mind doing this small job, for nothing.

    We are encouraged to think that the more we pay, the better the quality of service we get. This is not true. How many people won't go to a charitable service because they think they HAVE to pay for advice, or how many people dismiss advice because it is sourced locally to them?

    Report on 03 February 2013  |  Love thisLove  0 loves
  • ajrr1
    Love rating 19
    ajrr1 said

    Re: jonnie2thumbs.

    Thanks for sharing. Good to put a "name" to one of the people other than the banks & govt who are driving up borrowing rates and driving down savings rates for the rest of us who actually pay what we owe.

    Good on you.

    Report on 04 February 2013  |  Love thisLove  0 loves
  • tuttogallo
    Love rating 99
    tuttogallo said

    CuNNaXXa

    What you describe is know as a Veblen good. See http://en.wikipedia.org/wiki/Veblen_good

    Report on 17 February 2013  |  Love thisLove  0 loves
  • centrum46
    Love rating 17
    centrum46 said

    Having previously been a debt adviser myself appointed by Bankruptcy Courts prior to my retirement, I can relate to the situation of someone who cannot admit that they have made sometimes massive financial mistakes which have put not only themselves, but also their families, at risk. The most effective remedy was normally to organise contact with recommended and genuine debt management companies (e.g.Payplan), using my legal status as an IFA, who will genuinely negotiate with the creditors on behalf of a client and agree an amount that is affordable but under certain caveats as required by the circumstances. Payments were made directly to the company who distributes the payments and who were legally required to report on progress every 6 months and I was required to report to the Court with regard to the creditors' assessment of the debtor and the ongoing position. This system seemed to work quite well for all concerned, as the costs were kept at manageable levels, provided that certain criteria was met by the debtor and that Court rules were obeyed. Such a system is still available in today's financial world, where many more people are susceptible than previously, and for much greater amounts than the £15k limit of a DRO or IVA.

    Report on 20 June 2013  |  Love thisLove  0 loves

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