While there are many enjoying good financial health due to the personal and business loans which they assume, there are many who are licking the wounds resulting from poor borrowing decisions or from their reduced ability to service their debts due to changed circumstances.
From the questions I receive from the readers of this column, the types of debt that seem to create problems most are credit card debt – by far – and money borrowed to purchase personal-use assets such as motor cars.
Sadly, most readers seem to realise that they have a problem only when it is very obvious that they have one – when the lender begins to apply pressure. On the other hand, some borrowers who realise they have a problem pretend it does not exist or that it will just go away.
It is important to recognise when a debt problem is emerging. Here are some of the signs:
– When you are using an increasing amount of your income to repay debt;
– When you are depending on overdraft facilities to pay recurring bills;
– When you are using cash advances on your credit card to pay other bills;
– When you tend to make only the minimum payments on your credit card;
– When you are borrowing to pay basic bills – utility bills, for example.
Other signs include when your cheques are returned by your bank for “insufficient funds” or “refer to drawer”, when your credit card declines because you have exceeded your limit, and when the collectors keep calling. The last is more than a sign; it is the real thing.
Not all debt situations are serious. Sometimes they are temporary due to loss of a job, sickness, or overspending that has not become chronic. These can be addressed with new employment, restoration of health, and an effective cash-management programme directed at reducing spending and or increasing income.
Some situations are more serious and require serious adjustment, and the process of restoring financial balance generally requires some lifestyle adjustments to make funds available to eliminate the debt.
Assuming a new debt at lower rates and with longer repayment terms can help, but this is often only a temporary fix. What is required is a permanent fix – not just breathing space.
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