|by Mr Credit Card|
This is an interview with Neil Robertson from www.debtadvice4free.com. Neil lives in the UK and he got himself into debt and is working his way out of it. I wanted to find out not just about his story, but also what alternatives folks in UK have with regards to things like credit counseling and filing for bankruptcy. Below is my interview with Neil
How did you get into the debt? What was the peak of your debt load three years ago?
Firstly let me thank you for the chance to air my view here. My slide into debt crisis was not a simple one, and was not the result of any single event. I think that I spent to compensate for feelings of low self-esteem for many years. This resulted in me building up and then carrying quite high credit balances (around £30,000) for a long time – (I hate to think of the amount of interest I paid). This money was spent on living the high life with my family, e.g. numerous foreign vacations, eating out etc. Although this was stupid it wasn’t actually dangerous whilst I was earning well – my earnings were nearly £100,000 pa from short-term IT contracts. As well as unsecured debt I also had a large mortgage and loans on 2 new cars. Again all of this I could easily afford on my generous income. Unfortunately that didn’t last! Working on short-term contracts you are always the first person to be let go when there isn’t so much work. I endured 6 months without a job and then had to take a permanent salary that was much lower than my previous income. My lifestyle and my income just didn’t fit anymore. Unfortunately rather than being sensible at this point I tried to keep the same lifestyle and borrowed to fund it. By the time I had been brought to my senses my total debts were something like £70,000.
What was the breakdown of your debt? (if you have not answered that already)
The breakdown of my debt was:
£35,000 on 3 credit cards
£25,000 on 3 loans over 5 years
£10,000 secured car loans
How has your progress been?
Well I’m pleased to report that I no longer have any significant levels of unsecured debt. I still have a fairly large mortgage, but in a way that’s good news because it means that I kept my home! This is because of the debt solution that I chose. I’m sure that some people will think that it is wrong, but I judged that it was the best solution for me and my family.
What steps did you take to tackle your debt? (budget, negotiations etc)
My first step was to contact reputable debt management organizations for help. They helped me through the process of making a proper budget and starting to negotiate with my creditors. I had never been in any sort of money problems before so found being contacted at home by debt collection agencies very stressful.
In the US, those with credit card debt can seek help from credit counselling firms (some are actually supported by credit card companies themselves) or get someone to negotiation a debt settlement deal. What options are available to folks in the UK?
In the UK there is a choice between charities (some funded by the credit industry) and profit-making debt management companies. The Consumer Credit Counseling Service (CCCS) and the Citizens Advice Bureau are two of the best known charities. These charities will typically help you with a Debt Management Plan (a plan to reduce/freeze interest and pay off all that you owe over time) or negotiate a debt settlement deal. Debt Management Companies generally specialize in Debt Management Plans or Individual Voluntary Arrangements (a form of bankrupty that is explained below).
Back to kind of the same question, in the US, you can file for a chapter 7 or 13 bankrutcy. Are similar options available in the UK?
In the UK (actually in England and Wales – there are slightly different rules for Scotland) an individual that files for bankruptcy in court is effectively filing for chapter 7, this is the only sort of bankruptcy there is. This almost always results in the bankrupt losing their home unless a friend or relative can them out. There are no exemptions for your main residence as I believe there are in some states in the US. If you share your home with a partner you do get 12 months from the date of your bankruptcy before the home has to sold.
The equivalent to chapter 13 bankruptcy is actually called an Individual Voluntary Arrangement. This is arranged by a debt management company and is overseen by the court, although it does not require the debtor to attend court. It involves agreeing to pay back a proportion of your debts either from monthly payments or from a lump some from re-mortgaging your home. This is the option that I chose.
What was the most difficult part of your journey to become debt free?
The most difficult part was admitting to my partner the mess that I was in. She didn’t deserve that and I will always feel ashamed of the stress and worry that I caused her.
What advice would you give my readers who are looking to be and stay debt free?
I’m sure that your readers are (on the whole) a lot more sensible than me so I wouldn’t want to patronize them. However I think the most important part of becoming/staying debt free is to have a proper budget and stick to it. This budget should allow for the creation of an emergency fund for use if your income is reduced. In fact a budget is central to your financial health whether you are in debt or not. If you are in serious debt then choose an advisor carefully. The quality of their advice will have a massive impact on whether you are successful in getting out of debt or not.
Look at my story as a warning. I nearly lost my home and my marriage because of my debt problems. I became so stressed that I developed medical problems (skin rashes, depression) and even considered suicide. Be wary of taking on any debt unless you absolutely need to. Every time you do you are damaging your future wealth and increasing the amount of money that you need each month.
Neil – thanks once again for your time and advice