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.
[SPOTLIGHT]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.