Monday, December 29, 2008

In distress

I’ve received a lot of good feedback about this blog lately – more than is perhaps justified by the frequency of my posts to it! But it seems that some people are finding much-needed comfort and reassurance in the concept of living prudently, at this time of general financial troubles.

I can sympathise. I do know that quiet feeling of deep terror that wells in the pit of the stomach when opening bills you can’t pay, demands you can’t meet. I have been there. It’s horrible. But there is light at the end of the tunnel. In the hope that it's not too patronising, I’ll list a few things I’ve learned along the way that might help someone to find it. (Please note that the points below stem from my business and personal experiences of nearly 20 years ago, here in the UK. Some of the detailed advice and assumptions therein may no longer be correct, relevant, or applicable to your own situation, though I think the main principles are sound. But I think it’s always best to check out laws and systems for yourself before acting on someone else’s advice.)

  • The sooner you face up to the situation, the sooner you can find a happy solution to it. You can wake up and end the nightmare now, if you want to – you just need to clear a space on your table, in your mind, in your schedule, and lay everything out on the table. Absolutely everything. You can get a pen and paper and list it all: incomings and outgoings, debts and demands, so that they stop being looming, threatening shadows in your mind and start being just numbers on a balance sheet, because that’s all they really are.

  • You don’t have to be bullied into accepting anyone else’s schedule for repayment. The law demands that you act reasonably and fairly, and don’t give preference to any one creditor over another (except the tax man, who always gets paid first.) Just because someone is hassling you over the phone or by post, doesn’t mean you should pay them to keep them quiet. In fact, I wouldn’t ever speak to a creditor or their representative on the phone. (I changed my number.) Your most valuable asset is your peace of mind: it’s the only way you can sort things out properly, and those kinds of phone calls are deliberately engineered to destroy your peace of mind. Remember that if someone has lent you money, they knowingly took a risk on you in return for the interest they charged. This means they share some of the responsibility for your situation, so they can be made to wait a little while longer while you sort it all out properly.

  • I think it's wise to draw a line at some point: to vow to act reasonably and responsibly from now on, towards yourself, your family and your creditors. What’s done is done. You can’t turn the clock back, but you can make things right from now on. The right thing to do, in a situation of financial distress, is to work out what you absolutely need to live on and to share the rest out amongst your creditors proportionately. You can do this for yourself: you don’t need to use a debt advisor unless you absolutely can’t get your head around it. But it’s junior school arithmetic, so I think most people can. All of your creditors legally need to be kept in the picture, and if they receive a list of all your incomings, outgoings and total debts, showing proportional repayments then they can’t really argue with it. If they still try to take you to court, as long as your maths was right and you made the repayment then I think the court would probably back you up, because you had acted reasonably and fairly.

  • To work out proportional repayments, I would divide my total outstanding debt by 100, then divide each individual debt by that figure to assign it a percentage of the whole. Then I’d use my total spare money, after allowing for absolute necessities, to repay my debts according to the percentage of the whole amount each one represented. I’d send the letters out and then start making payments immediately, monthly, by Standing Order, to my creditors’ bank accounts. If they accept a payment, you can take this as their acceptance of your repayment proposal: I think a court of law would. It should if you’ve got your sums right, communicated properly and made the payments you promised, but I suppose you never can tell nowadays. There are, of course, organisations like National Debtline to help with this process, though there was none of that in my day! People were expected to work such things out for themselves, which was perhaps reasonable, it being only common sense.

  • I learned - the hard way - not to trust anyone else with my finances, especially husbands. This can be difficult though, because you might be jointly and severally liable for some debts if you’re married or even co-habiting, which is one reason why I prefer to stay single. Sorry, that’s not a lot of help if you happen to be married to someone who doesn’t want to face up to their financial situation. All I can suggest is that you insist they let you do it for them, then.

  • Your children don’t need to be attending private schools, do they? If you can’t bear for them to attend a local state school, you could consider home education. This might mean reducing your working hours, but if I was weighing up the value of my children’s education against a need to repay my debts more quickly, the education would win every time. And home education is far superior to even private school provision. I know: I’ve had children in both. And some state schools are better than some private schools, so there’s no need to be snobby about it. Actually, what children need more than anything else is parental time. The more of that you can give them, the better they’ll learn and progress. Redundancy is great news from that point of view.

  • On housing: it can be a millstone around your neck, if your house has become too expensive. Is it the best house for you anyway? It’s hard to sell houses in this day and age, but if you price it cheaply enough you might be able to downgrade to something you can better afford to live in. Do you even need to stay in your current location, or can you move north and live somewhere cheaper? Any old outstanding mortgage debt then just gets added to the list of debts outstanding, and repaid proportionately, unless you’re in a negative equity situation in which case I’d probably be looking at bankruptcy as the most viable option. Renting is ok, for a few years. I’d live in a caravan – in fact I’d squat, if needs be. You can make any environment nice enough for a home if you put some time and effort into it. It doesn’t take a lot of money.

  • Don’t take on any more debt! The credit crunch has come to tell us that we all have to live within our means now, though there never was any other sensible way to live. And, as Karl Denninger masterfully said the other day: “How much crap do you really need?” We're still living quite happily here with 1990s TVs and computer gear. 1980s in some cases! If it does the job, we don't care what it looks like.

  • To sum up: peace of mind is more valuable than social position. Who cares what friends and extended family think? Compared to the horrible feeling of being in financial distress, their opinion doesn’t matter. What matters is that you can sleep peacefully at night, and look your children in the face in the knowledge that you’ve arranged your financial affairs properly. It’s the best lesson to teach them, anyway. And competing with other people is futile, because it doesn’t matter how rich/ beautiful/ clever/ successful you seem to be you can’t win, because there’s always someone doing better than you. I think it’s better to ignore them, and just be ourselves.

6 Comments:

Anonymous Riaz said...

If you don't pay your bills on time then you can get blacklisted for credit. This is likely to make getting a credit card, proper bank account, mortgage, or even a job impossible in the future.

When I started a job in a non-financial related position I had to have a credit check done. This didn't just cover outstanding debts but also previous non-payment which turned up a few late payments for credit cards and mobile phone bills. I was offered the job but my employer knew about previous non-payment and questioned me about them.

December 29, 2008 at 4:52 PM  
Blogger Gill said...

True. If you want more credit, it's obviously best to keep up with scheduled repayments and yes I'd heard the same about credit checks and jobs.

When I wrote this post I had in my mind those people whose situations have gone beyond being able to make their scheduled payments, as is increasingly common now.

Credit history is wiped clean after a certain period of time though, isn't it?

December 29, 2008 at 5:00 PM  
Blogger these boots said...

To add to your point about considering home education, I think it's also worth mentioning that those families with two incomes, worried about cutting down to just one parent working, would be well advised to not just assume that they'd be worse off if only one parent was working. If everything is taken into account (cost of getting kids to school, getting to work, lunches at work, clothes for school and work, etc) including potential money saving from things like cooking with cheaper ingredients (which I could never manage while working), growing your own food, and stuff like that, then a family might not actually be that much worse off, financially. Certainly that's been the case with us.

December 29, 2008 at 5:12 PM  
Anonymous Riaz said...

I'm not sure about credit history being wiped after a certain period of time. One of my teachers was still blacklisted for credit in the early 1990s for bankruptcy in the 1960s. His credit history file still listed the amount he owed in pounds shillings and pence but he couldn't wipe it by paying the debt after previously declaring himself as bankrupt.

December 29, 2008 at 5:27 PM  
Blogger Gill said...

Wow, poor man! That's a long time :-(

I've heard that credit history is erased after something like 5 years(?) nowadays by Experian et al., but am not 100% sure. It wouldn't be too hard to find out, presumably.

December 29, 2008 at 5:50 PM  
Blogger Gill said...

Lucy, thanks for that. Home ed for the win! ;-)

December 29, 2008 at 5:51 PM  

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